Money Management (June 2, 2011)

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Vol.25 No.20 | June 2, 2011 | $6.95 INC GST

The publication for the personal investment professional

www.moneymanagement.com.au

THE UNINTENDED CONSEQUENCES OF FOFA: Page 5 | LOOKING TO GLOBAL EQUITIES: Page 14

Lonsec research model to remain

By Mike Taylor THE front-running bidders to acquire Lonsec from Zurich are understood to have indicated they will not be moving to alter the dynamics of Lonsec’s research and ratings division.

Zurich was expected to announce this week the successful bidder for the Lonsec business, which is made up of its largely separate stockbroking and research divisions.

The companies regarded as the front-

runners to acquire the Lonsec business are focused on stock-broking, and it is understood they have indicated they would not be looking to alter the highly successful model developed by the research division.

By the end of last week, the companies regarded as front-running in the process were Bell Potter and the IOOF-owned Ord Minnett – neither of which has research capabilities comparable to those of Lonsec.

It is understood that Zurich’s desire to sell the Lonsec business as a complete

entity limited the amount of interest from competitor research and ratings houses.

Zurich has, throughout the process, consistently refused to confirm its intention to exit its investment in Lonsec, however the Swiss-based company is understood to have made its decision early this year based on a review of its activities in Australia.

The decision is also believed to be based on Zurich’s perception that the relative performance of the Lonsec business had made it look particularly attractive to

potential buyers.

The health of the research arm of the Lonsec business had been indicated by its performances in Money Management’s ‘Rate the Raters’ and ‘Top 100 Dealer Groups’ research.

Over the past three years, Lonsec had emerged as the best-regarded research house by both fund managers and financial planning dealer groups.

Money Management will publish the findings of its latest Rate the Raters survey in next week’s edition.

Instos could bypass FOFA Reforms could cause

By Milana Pokrajac

SMALLER platform providers claim large institutions that have financial products, administration services and distribution networks under one umbrella will find ways to pass money between those entities after the introduction of the proposed Future of Financial Advice (FOFA) reforms.

The FOFA reforms package proposes the ban of all conflicted remuneration methods for financial advisers including the banning of volume payments from fund managers and platforms down to dealer groups and advisers.

Managing director of netwealth Michael Heine said it was quite possible for institutions to manipulate those payments such that there is an “incentive that is legal, but still achieves the objective of encouraging the sale of a particular product”.

Furthermore, he said institutions would achieve exactly what the Treasury and FOFA were trying to avoid: product bias.

“They will be able to incentivise on a legal basis, but nonetheless that will result in product sale. They will structure it in such a way that it achieves the objective without breach-

ing the law,” Heine said.

“A bank that owns full components of the chain can pay its advisers a very handsome salary, for example, it doesn’t have to physically transfer it as a rebate,” he added.

However, the Financial Planning Association (FPA) believes product bias could be removed, with the introduction of a conflict management process in respect to platforms and the already proposed statutory fiduciary duty for advisers.

FPA chief Mark Rantall said fully discretional administrative platforms, regardless of their ownership, needed to have a different legal treatment to those platforms and products that are non discretional.

“Fully discretionary administration platforms that are owned by institutions are not necessarily a bad thing,” Rantall said. “You’ve got a large institution sitting behind those extensive administration services and IT systems and investing in them.”

The FPA had called for the Government to provide a clearer definition of discretionary platforms, with Rantall saying the association had already held talks with the Treasury.

Continued on page 3

structural shift in education

By Chris Kennedy THE current wave of regulatory reforms in financial services and focus on professionalism could lead to a structural shift in financial services education, with a focus on university qualification.

Financial Planning Association deputy chief Deen Sanders said the most likely near-term impact would result from CP 153 consultation, which had the potential to change the shape of the industry.

It could lead to a proliferation of exam-style preparation rather than competency-based skills assessment, and a higher demonstration of technical knowledge among new advisers, although there remained a question over what impact this could have on overall competency.

This was supported by financial services education provider Kaplan, which is currently developing new qualifications for advisers and planners in line with the new Financial Services

Deen Sanders Training Package, and moving into a supported online delivery model, according to vice president Marilyn Hill.

“CP153 has the potential to completely change the way Kaplan delivers its adviser training,” she said.

“We may find ourselves moving towards a training model that is more focused on preparing candidates for the regulator’s certification assessments and periodic reassessments.”

Feedback from clients also suggests that a fee-for-service environment is encouraging advisers in some financial planning firms to undertake extra qualifications in order to provide additional services to clients, such as full service selfmanaged superannuation fund advice and mortgage broking, she said.

Sanders also said reforms such as opt-in could lead to a shortterm dampening on supply of new advisers if licensees are cautious about recruitment strategies and the education levels of new entrants until it becomes clear what is required.

However if Future of Financial Advice (FOFA) reforms led to improved consumer confidence in financial advice, it would lead to a greater community requirement for advice, and in turn supply, he said.

Griffith University associate professor (finance), Dr Mark Continued on page 3

Editor

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Independents’ critical FOFA roles underscored

T

he Opposition spokesman on Financial Services, Senator Mathias Cormann, unquestionably hit a strong note with financial planners when he late last month told an Association of Financial Advisers (AFA) function that the Coalition would be blocking the Future of Financial Advice (FOFA) proposals in their current form.

But Cormann also sent the very clear message that, like the tenure of the Gillard Government, the future of the FOFA changes resides in the hands of the independent members of parliament sitting in the House of Representatives – particularly Rob Oakeshott, Tony Windsor and Bob Katter.

In referencing the pivotal role of the independents, Cormann was effectively urging financial planners to act as their own primary lobbyists and to take their concerns about the FOFA proposals to their local MPs. It is the same message which has been issued to planners by both the Financial Planning Association (FPA) and the AFA and it is one that they should heed.

Financial planners now need to accept that, notwithstanding some continuing discussions, the legislation the Government ultimately introduces to the Parliament will strongly reflect the FOFA

“

Australian financial planners have never been noted for manning the political barricades, but if they are genuinely concerned about the impact of the FOFA changes they will make their feelings known.

”

changes announced by the Assistant Treasurer and Minister for Financial Services, Bill Shorten.

It follows that for planners to achieve change they will need to do so via the Parliamentary processes of having amendments moved and accepted by a majority of parliamentarians sitting in the lower house.

The likelihood of achieving the necessary amendments in the Senate will be remote in circumstances where the balance of power will be held by the

Australian Greens, who have indicated support for much of the approach being pursued by Shorten.

By indicating the Federal Opposition will oppose the FOFA changes in their current form, Senator Cormann has made clear that the opposition will be moving appropriate amendments and will be seeking support for those amendments from the independents.

Importantly, for planners, the independents have already shown a willingness to both amend and block legislation where they have been convinced of the need to do so.

Where influencing the independents is concerned, financial planners based in and around Tamworth and Port Macquarie in NSW find themselves geographically close to Windsor and Oakeshott, while those in far north Queensland will have no trouble in recognising the attitude of Bob Katter.

Australian financial planners have never been noted for manning the political barricades, but if they are genuinely concerned about the impact of the FOFA changes they will make their feelings known, not only to the independents but all their local MPs. – Mike Taylor

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News

Groups lobby against contributions tinkering

By Caroline Munro MEANS testing for super members over 50 would be a failure on behalf of the Federal Government to address two of its three main policy objectives (lower revenue costs, simplicity and fairness), according to Macquarie Advisers Services technical manager and director of the Self-Managed Super Fund Professionals’ Association of Australia (SPAA), David Shirlow.

Superannuation experts continue to lobby the Federal Government to rethink its proposals to raise the concessional contribution caps (CCC) for those aged 50 and over who have superannuation account balances of $500,000 or less, and to enable those who exceed the CCC for the first time to have their excess contributions of up to $10,000 refunded and taxed at the marginal rate.

Shirlow said the means testing proposal was likely to incur extensive administrative

complexity and cost, and was possibly a failure of the fairness objective. He added that it failed to take into account individuals’ lifetime patterns as well as the tax treatment that has been applied to contributions previously made. The $500,000 threshold also sent out the wrong message that it was an appropriate amount to save, he said.

SPAA national technical director Peter Burgess said SPAA did not support means testing, asserting that the caps should be raised for everyone over 50. He added that over time the caps should be raised for everyone.

SMSF specialist at Heffron, Meg Heffron, said the proposal would either make the system too complicated, or would result in people rorting the system.

“If they stopped obsessing so much about people getting too much out of the system, and allowed that cap to apply to everyone over 50, life would be so much simpler,” she

David Shirlow said. “I wonder how much tax revenue is at stake to make it worthwhile putting in place such a complicated system. “ Shirlow believed the proposal also exac-

erbated the excess contributions tax issue, since added complexity would lead to more contributions mistakes being made.

However, he felt that the $10,000 gap proposal was a good measure because it solved the vast majority of contribution cap issues.

Burgess said this second proposal was a start but did not address the number exceeding their non-concessional contribution caps (NCC). He said there was no announcement in the Budget proposing that the Australian Tax Office be given more room to show discretion where genuine mistakes were made.

SMSF specialist at Cavendish Super, David Busoli, said the main problem with the NCC was the hefty tax penalties incurred and the lack of a refunding mechanism. Heffron felt that penalties were not the issue but rather the mechanics of how the concessional and non-concessional caps have been structured and how the three-year bring-forward rule can be triggered.

Instos could bypass FOFA Continued from page 1

But chief executive officer of OneVue Connie McKaege said large institutions in their current form and structure could not remove conflict because “they pay their distribution to put the money in their products”.

OneVue supports the FPA’s discussion with the Government, but said there needed to be a clearer definition of conflict, rather than platforms.

“If they get the definition of conflict right and what

constitutes a conflict, I think the same definition can apply to both [institutionally and non-institutionally owned platform providers],” McKaege said.

“If these changes are forced, it will be equal for the first time in a long time, because they actually have to adjust instead of us continuously having to adjust to their market dominance,” she added.

Colonial First State, Macquarie, BT Financial Group and AXA either declined to comment on the issue or were unavailable.

Reforms could cause structural shift in education Continued from page 1 Brimble, said the reforms would impact more on financial education institutions that focus on programs that just meet regulatory requirements rather than universities.

Soon more education will be required, leading people towards more comprehensive programs as the acceptable norm, he said.

Brimble anticipated the momentum towards higher education standards would drive greater participation in tertiary education as the primary pathway for new industry entrants.

In the past students had elected to leave financial planning pathways due to perceptions over a lack of ethics within the industry, but demand will increase as the legal positioning improves, he said.

There had been increasing interest from the industry in the university’s students, and the repositioning of educational pathways at the tertiary level had driven more interest in access to students or partnerships around study and training, he said.

The industry was also facing a shift to a national curriculum that would be broadly accepted as the key components of a financial planning program, and hopefully that would be done in consultation with the industry rather than being enforced by the regulators, he said. www.moneymanagement.com.au June 2, 2011 Money Management — 3

News

After profit forecast, Perpetual signals changes

By Mike Taylor PERPETUAL Limited has confirmed its profit forecast of around $72.8 million, at the same time as announcing a range of measures including what it headlined as a cost and efficiency drive resulting in the loss of 102 positions and a greater focus on product distribution.

In an announcement released

Chris Ryan

to the Australian Securities Exchange last week, Perpetual managing director Chris Ryan said the initiatives followed a portfolio review of Perpetual’s product lines, services and infrastructure to determine whether they were “best managed for growth, profit or exit”.

He said the decision process evolving out of that review had not yet been completed and the

company was likely to update the market when further decisions were made.

Looking at Perpetual’s various business units, Ryan said that in the Perpetual Investments business unit, both the Australian equities and income and multisector business would utilise their well recognised manufacturing strengths to develop new strategies and products.

He said demand and opportunities existed for Perpetual’s involvement in the international equities class.

Referring to Perpetual Private Wealth, he said clear client segmentation – supported by increased scale and capabilities – was helping the business ensure it met the true needs and growth potential of its target segment: high-net-worth individuals.

Bendigo Wealth set to expand

By Chris Kennedy

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BENDIGO Wealth is looking to add superannuation to its low-cost Trinity3 platform as well as launching an income fund and an index fund.

The superannuation product would be in line with new MySuper requirements, and the group was aiming to be able to distribute it directly to independent financial adviser market in the first quarter of the next financial year, according to Bendigo Wealth executive John Billington.

Billington said he would be looking to sign off on a new income fund to build the group’s funds capability that would be launched in the next month or two, and an index fund that would be available in the first quarter of the next calendar year.

Billington said he had been surprised by the level of interest shown in the unified Bendigo Wealth brand, which brought together the bank’s formerly disparate wealth management services, including Adelaide Bank, Leveraged Equities, Sandhurst Trustees and its low-cost investment platform Trinity3, with the site recording more than three times the average number of clickthroughs since it was launched early last month.

“We’ve had a great mix of existing Bendigo retail customers and new customers and also financial advisers wanting to know about the products and services we’re offering,” he said.

Explaining the decision to add superannuation to the Trinity3 platform, Billington said: “We have our own [separately managed account] with the Trinity3 product that is getting good traction with our own retail customers.”

News

FOFA reforms could have unintended consequences

By Mike Taylor

THE Government’s Future of F inancial Advice (FOFA) changes to volume rebates may risk creating further conflicts between product manufacturing and advice, according to a roundtable conducted

by Money Management last month.

Participants in the round-

table warned that the arrangements around volume rebates risked forcing medium-size dealer groups to simply change their business models and take on a manufacturing role.

This was something pointed to by the chief executive of Fidelity Investments, Gerard Doherty and the general manager of advice at Colonial First

State, Marianne Perkovic.

Doherty said he believed the Government should have either allowed rebates to go through to dealers or stop them completely.

“By leaving it to platforms, [the Government] might simply make people change their business model to try and get their remuneration back to where it might be – which may

be an unintended consequence – but I’d suggest that’s just going to layer up more costs,” he said.

Perkovic described the FOFA proposals on volume payments as still something of a grey area, and pointed to the fact that some smaller licensees were “coming out wanting to be product manufacturers because that’s the way they

can handle that margin”.

“And if I was the Government or the regulator you’d look back and wonder whether that was the actual intent,” she said.

“Are we tr ying to change people’s businesses and then move from their core competency, which is advice, to now becoming product manufacturers?” Perkovic asked.

UK award for AXA Framlington

By Milana Pokrajac AXA Framlington, an equity fund manager within AXA Investment Managers (AXA IM), has been named equity manager of the year at the 2011 United Kingdom Pensions Awards.

The company said approximately 83 per cent of the Framlington funds outperformed their peer groups during the period evaluated by the award. The manager has £17.7 billion or approximately AUD$27.1 billion in global equities under management.

The UK Pensions Awards evaluates investment managers across four broad categories of innovation, communication, performance and service standards.

The global head of AXA Framlington, Mark Beveridge, said during difficult times, the quality of a fund manager’s client service took on new importance.

The manager has a team of 54 investment professionals across different countries, with Beveridge noting its sector specialists were “instrumental in providing information to portfolio managers and developing unique research tools”.

Director of AXA IM in Australia, Craig Hurt, said following the sale of AXA Asia Pacific, AXA Framlington would be one of three investment platforms the company would bring to Australian investors. www.moneymanagement.com.au June 2, 2011 Money Management — 5

News

New self-managed super fund academy announced

By Milana Pokrajac

PRINCIPALS of the newly launched SMSF Academy have flagged plans to enter the RG146 space in the near future, depending on the changes flowing from the Stronger Super reforms package.

The new academy, which was officially launched last week by accountant Aaron Dunn and solic-

itor Ian Glenister, offers educational and training courses for both advisers and self-managed super fund (SMSF) trustees.

Dunn said with the minimum adviser competency levels to be increased and possible changes to be done to the RG146 framework, educators would need to move into specialised streams to deal with those changes.

“Depending on what flows out

of [Stronger Super], we will, in conjunction with that and us being a Self-Managed Super Fund Professionals’ Association of Australia (SPAA) accredited professional education provider, look to build a program that will allow people to meet those competency requirements,” he said.

He said the academy’s short to medium-term goal would be

to achieve the SMSF specialisation accreditation.

Dunn, who authors the SMSF blog The Dunn Thing, said with the sector rapidly growing and rules around the establishment and management of SMSFs changing, “it is vital trustees and those assisting them stay educated and informed”.

The academy has two types of programs for advisers and

trustees. Advisers are educated on all the intricacies surrounding the management of an SMSF, as well as training on how to provide strategic advice to their clients in this space, according to solicitor and principal, Ian Glenister.

Glenister also said trustees would receive information on establishing and managing an SMSF in a way of web-seminars which would be sent out monthly.

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Tyndall ready to go it alone

By Caroline Munro TYNDALL Investments has set up an enterprise risk, compliance and legal team following its acquisition by Nikko Asset Management.

The new team is part of Tyndall’s strategy to build on its business and administrative support capabilities, and an important step as it aimed to establish itself as an autonomous funds management business in Australia and New Zealand, stated Tyndall managing director Craig Hobart.

“The importance of risk, compliance and prudential management as a key differentiator in funds management is often underestimated, and recruiting executives who understand the regulatory, compliance and business framework we operate in was a strategic priority for us,” he said. “We expect to be announcing other senior appointments as we continue to build an independent business in Australasia.”

Craig Giffin has been appointed head of risk, compliance and legal, and he will cover Tyndall’s Australian and New Zealand operations.

Nathan Harris has been appointed risk and compliance manager for Australia.

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News

Little planner interest in reverse mortgages

By Caroline Munro

THE reverse mortgage market is returning to 2008 levels, although financial planners are missing in action, according to Senior Australians Equity Release Association of Lenders (SEQUAL) chief executive Kevin Conlon.

Research commissioned by SEQUAL and conducted by Deloitte revealed that as at December 31, 2010, the reverse mortgage market in Australia consisted of more than 41,000 reverse mortgage facilities with total outstanding funding of $3 billion (growth of 11 per cent over the 12 months from December 31, 2009). Deloitte Actuaries and Consultants partner James Hickey

said that settlements were at $320 million as at December 2010 (a 22 per cent increase from 2009) and more than 5,600 new borrowers accessed the equity in their homes in 2010. Hickey said the figures showed that the market was bucking the downward trend seen during the global financial crisis.

Conlon said it was a robust market considering that there were now fewer providers, and was pleased to note that people were only borrowing what they needed. However, he said SEQUAL believed that borrowers needed advice and yet financial planners seem to have dropped the ball when it came to reverse mortgages.

The research showed that more people

were accessing reverse mortgages directly (70 per cent) rather than going through a broker or financial planner (30 per cent).

“A lot of work needs to be done to ensure that consumers are getting the advice that they need to make informed decisions around equity release,” said Conlon. “The broker market did take up the slack there, but now really is the time for financial planners to engage with clients approaching retirement to understand that the bulk of their wealth is tied up in the family home and that equity release strategies are legitimate options to better fund their retirement.”

Hickey said financial planners could also use reverse mortgages to help their clients

Kevin Conlon preserve their super funds longer in a taxeffective haven.

Conlon said consumers needed equity release products and yet planners were showing very little response to that demand.

Comfortable retirement slipping away

By Ashleigh McIntyre

RETIREES looking to lead a comfortable lifestyle will now need to spend $53,879 a year, up 0.3 per cent over the December quarter, according to the Association of Superannuation Funds of Australia (ASFA).

The ASFA Retirement Standard also found that couples who want to lead just a modest retirement lifestyle will need to spend more,

rising $150 over the quarter to $30,708.

ASFA identified the rising costs to be those of food, alcohol, tobacco, transportation and domestic holidays.

In fact, between the September and December quarters last year, retirees had to face a 2.2 per cent increase in the cost of food, but fortunately price rises over the year were a more modest 2.5 per cent.

There was also a 0.2 per cent increase in transportation costs with a 2.1 per cent increase in petrol prices.

Meanwhile, the price of health services, clothing, home audio and visual, as well as computing equipment decreased over the quarter, which helped to even out the overall rising costs.

ASFA measures a comfortable retirement as enabling retirees to be involved in a broad range of

leisure activities and to be able to afford private health insurance, a reasonable car, good clothes and domestic and occasionally international holiday travel.

A modest retirement is measured as being better than the age pension but still only allowing retirees to afford fairly basic activities.

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News Charter adviser receives lifetime ban

By Chris Kennedy FORMERCharter Financial Planning adviser Robert Bean has been given a life ban by the Australian Securities and Investments Commission (ASIC) after being found to have defrauded more than $3 million from clients.

The offences took place between 30 June 2003 and 30 June 2010 when Bean, of St Peters in South Australia, was a securities representative and an authorised representative of Charter.

The ASIC investigation found Bean acted dishonestly and in breach of financial services laws in misappropriating more than $3.1 million from eight of his clients’ investment and superannuation accounts, the

regulator stated.

The majority of defrauded funds were paid to unrelated clients and other third parties, while some was also used for Bean’s personal benefit, ASIC stated.

Charter brought the conduct of Bean to ASIC’s attention and co-operated fully with the regulator throughout the process, and has also fully compensated all clients affected, ASIC stated.

ASIC said that it banned Bean in order to protect the public, deter similar conduct and maintain consumer confidence in the financial services sector.

Bean has the right to appeal to the Administrative Appeals Tribunal for a review of ASIC’s decision, ASIC stated.

Little improvement in mortgage fund sector THERE has been little improvement in the lagging mortgage fund sector, with redemption pressures, difficulty lending and sluggish inflows still causing problems, according to the Standard & Poor’s (S&P) mortgage fund sector review.

All funds continued to deliver monthly income distributions and capital stability but a lack of positive net fund flows as well as ongoing redemption pressures forced managers to balance the interests of investors who wanted to redeem with the interests of those who wished to remain invested, S&P stated.

There was no uniform approach or uniform timing to implementing permanent, more sustainable redemption structures among managers, which led to greater product differentiation and performance outcomes, S&P noted.

The performance among con-

Peter Ward ventional mortgage funds ranged between 3.1 per cent and 6.6 per cent for the year to 28 February 2011, reflecting significant differences within the peer group, the report found.

Ability of a fund to lend was also crucial to performance because if a fund cannot lend, its ability to re-price its portfolio is significantly restricted; the funds that were able to lend outper-

formed to a greater extent than those that could not, the report stated.

This review included six conventional mortgage fund products, two hybrid funds, and one high-yield mortgage fund, which was a smaller peer group compared with the 2009 group of 17 funds, largely due to a number of withdrawals.

Funds from La Trobe and Australian Unity both received upgrades, the La Trobe fund being the only product to receive four stars. Ratings on five funds were affirmed, and S&P was able to resolve the ‘on hold’ ratings on products from Challenger and OnePath after the managers to the fund redemption process.

Overall the status of the sector is only slightly more positive than that at the time of the last review, said S&P Fund Services analyst Peter Ward.

Increasing interest in emerging markets

By Caroline Munro MERCER’S Global Manager Search Trends 2011 has revealed a renewed interest in emerging markets and alternative assets, as institutional investors seek greater diversification in their portfolios.

The report revealed that globally manager search activity increased in 2010, with search activity in Australia almost doubling, from 120 in

2009 to 216 in 2010. The report noted that in Australia there was a sharp rise in assets placed, from US$7.7 billion to US$14.9 billion.

Manager search activity also revealed an increased interest in real estate, emerging market equities and niche areas, such as commodities.

Investors also sought diversification through international and domestic equity.

“We saw a lot of

manager movement in Australian equities last year and search activity focused on smaller fund asset managers with highly rated teams,” said Mercer head of manager research for Asia Pacific, Marianne Feeley. “Our clients have also been looking for small cap managers, as small cap outperformed large cap in 2010. Another possible driver behind the increase in Australian equity searches is the tendency

Marianne Feeley of some managers, particularly boutiques and small cap, to close to new investments.”

Two years for ex-KPMG man

By Ashleigh McIntyre A FORMER senior manager at accounting firm KPMG has been sentenced to two years imprisonment for insider trading while acting as a corporate adviser on a business proposal.

Andrew Dalzell of Randwick, New South Wales was found by the

Australian Securities and Investments Commission (ASIC) to have inside information on a proposal by printing company Promentum to acquire McMillan Group, which he acquired while working at KPMG. ASIC said Dalzell purchased 40,000 shares in Promentum in 2006, while KPMG was advising the company on

the proposed acquisition.

Dalzell pleaded guilty to one charge of insider trading, and will service his sentence in the community under an Intensive Correction Order.

ASIC said Intensive Correction Orders were introduced recently to replace periodic detention as a sentencing option.

FPA offers pro bono advice

By Milana Pokrajac MORE than 170 members of the Financial Planning Association (FPA) will be offering free online financial advice for the next six weeks in the hope of promoting the profession to potential clients, according to FPA chief Mark Rantall.

The ‘Ask an Expert’ service kicked off last week with the launch of the 11th annual Financial Planning Week, and will remain on the Good Advice website until 1 July, 2011.

Rantall said this service was a way for people “to put their toes in the water” of expert advice and to get a better idea of what a financial planner actually does.

“It’s designed to allow people to experience an advice relationship without actually having to go anywhere or do anything and to experience advice in a nonthreatening and zero-cost way,” Rantall said.

Last year, planners responded to 430 questions over a five-week period, with approximately 25 per cent of clients signing up for a more permanent relationship with an adviser.

Rantall said the advisers would be providing one-off advice, with further consultation on offer if the

Mark Rantall advice needed to be expanded.

“Whether it’s about their super, dealing with debt, investing in property or saving for the future, our experts can help out,” he said.

“It’s a great opportunity to demonstrate exactly what we do and how important financial advice is for everyone – not just those with dollars to spare.”

Consumers are instructed to click on the ‘Ask an Expert’ link on the Good Advice website and select a planner from the panel.

They would then email the question and the planner would reply directly.

The FPA noted that 43 per cent of last year’s users had changed their view of financial planning to a more positive outlook after accessing the service.

As part of the financial planning week, the FPA will also be organising financial literacy seminars as well as career expos around the country.

Independence of responsible entities questioned A CLEAR separation of the responsible entity (RE) from the fund manager and product promoter would increase investor protection significantly, according to Equity Trustees head of funds management and institutional sales Harvey Kalman.

Kalman’s business unit at Equity Trustees acts as an external RE for about 40 fund managers. He said the need for greater independence of REs was an issue missing from the current debate about investor compensation. There are strong arguments to strengthen the role and independence of REs, “yet this discussion is not taking place”, said Kalman.

“The recent settlement achieved by Fincorp investors proves the benefit of having an independent RE still standing after a collapse of a fund manager,” he said. “While [the Australian Securities and Investments Commission] called for feedback on ways to strengthen the financial resources of REs last year, I believe there are other areas that need examination.”

Kalman said that investors in collective investments, such as managed funds, should be able to rely on the role of the RE to protect their savings.

“But REs have been found wanting when fraud or inappropriate behaviour has occurred where managers used an in-house RE,” he said. “With few if any exceptions, the problems brought to light in the aftermath of the global financial crisis have been caused when the RE fund manager and promoter have been inextricably entwined.”

He added that the current structure for REs also reduced investors’ ability to seek recourse in the event of wrongdoing.

“In addition to compensation, and the associated costs and possible inadequacy of this, in the event of wrongdoing we need to ensure there is an RE with adequate financial resources still standing,” said Kalman, adding that this would increase the likelihood of investors recovering all or most of their original investment.

He asserted that while larger organisations may have the resources and structure to ensure the independence of an in-house RE, smaller entities should have an external RE. www.moneymanagement.com.au June 2, 2011 Money Management — 9

News

Fincorp action to go ahead

By Chris Kennedy A $29 million class action involving Sandhurst Trustees, the appointed trustees of failed investment company Fincorp Investments, will go ahead after being granted approval by the Federal Court of Australia last week.

The action will be negotiated by national law firm Slater & Gordon on behalf of 5,000 investors who lost money in the 2007 collapse.

Slater & Gordon litigation lawyer Odette McDonald said the money investors would receive under the settlement was in addition to funds already recovered by secured investors through the liquidation process and, for unsecured investors, represented the first time that they have recovered any money since the collapse of Fincorp.

It is significant that unsecured noteholders are included in the class action settlement, because they did not receive any funds from the liquidation of Fincorp, she said.

“Today’s result means that people who thought they had no chance of recovering any part of their investment, will receive a return of some of their lost capital,” she said.

Slater & Gordon stated it is pursuing compensation from Sandhurst Trustees, alleging Sandhurst breached its duties as trustee for investors under the Corporations Act. This would represent one of the first times these provisions of the legislation have been used to recover compensation from a trustee, the firm stated.

“These laws mean that when a company like Sandhurst acts as trustee for a company that raises money from the public, and when the fund-raising company involved folds, there might still be an avenue for justice for investors,” McDonald said.

According to Slater & Gordon the action covers investors who had purchased secured and/or unsecured notes issued by Fincorp on or after 7 December 2004 and held those notes as at 23 March 2007, or who purchased secured and/or unsecured notes prior to 7 December 2004 and rolled the investment over after that date.

Platypus still bullish on China and commodities GROWTH in China will keep commodity prices high for a few more years, even as much of the Australian equity market continues to battle in the new economic environment, according to Platypus Asset Management.

Aside from mining companies and major banks, the core industrial base of Australian companies has hardly grown since the global financial crisis, and the earnings outlook for most of the market over the next 12 months is flat at best, said Donald Williams, Platypus founder and chief investment officer.

Key factors in recent and ongoing market sluggishness include the Reserve Bank of Australia, which has hiked rates in order to blunt inflation with little regard for

Donald Williams the domestic economy; a strong Australian dollar, which has hurt exposed sectors

such as tourism or those that rely on exports; and Federal Government policy, Williams said.

Uncertainty over policy and new taxes in the pipeline had both caused concern for domestic and foreign investors, he said.

Williams said he was “sceptical of the China sceptics”, and added that policy errors seem to be less common in China, and he had confidence they could improve the wealth and income of the population without major disruptions or inflationary problems.

The economy could continue to go sideways for several more years but the commodity boom still has quite a way to run, he said.

Strong dollar hurting super THE median superannuation growth fund returned just 0.2 per cent in April, with further appreciation of the Australian dollar reducing the unhedged returns of international shares, according to Chant West.

It brought the cumulative return for the financial year to date to 10.2 per cent, meaning a likely second straight year of positive returns for fund members, said Chant West director, Warren Chant.

Returns would have been stronger if not for the inflated Australian dollar, which appreciated against all major currencies over the financial year to date, including a 30 per cent rise against the US dollar, he said.

“Unless you hedged against that currency movement, it took a big chunk out of the value of your overseas investment returns,” Chant said.

“We estimate that currency detracted about 3.5 per cent from the typical growth fund return over the financial year to date, with the better-performing funds being those that hedged more against the rising Australian dollar,” he said.

International shares returned 2.5 per cent in hedged terms in April but recorded a loss of 1.4 per cent in unhedged terms, and the Australian share market was down 0.3 per cent for the month. Australian and global real estate investment trusts grew by 0.3 per cent and 4.4 per cent respectively, Chant West stated.

Industry funds just edged out master trusts, returning 0.2 per cent against 0.1 per cent for the month, Chant West stated.

Global listed property to pay out New logo for AMP

By Caroline Munro

GLOBAL listed property strategies are likely to pay income distributions from 30 June, 2011; however, the risks of a fluctuating currency remain, according to Morningstar’s latest listed property funds sector review.

Morningstar noted that global real estate investment trusts (REITs) did not suffer as much as their domestic counterparts during the global financial crisis. Although their asset values were reduced, rent defaults escalated and dividends were cut, more recently capital raisings, reconstructed balance sheets, and improving fundamentals meant that constraints on payouts were unwinding, the sector report stated.

The report noted that volatility in the Australian dollar resulted in large losses on currency hedging in 2008, 2009, and 2010, which by law had to be carried forward.

“This is an ongoing issue which, given the continuing instability in the value of the Australian dollar, is likely to persist,” Morningstar stated.

While the resumption of income payments was a positive development for investors, Morningstar noted that hedging losses were likely and many commentators anticipated a fall in the dollar. This meant that future income distributions from global property funds would again be threatened.

The sector review also noted that there had been a convergence between different global property strategies’ market-cap and investment-style profiles since Morningstar’s last review, with the key differences being in geographical and regional allocations.

“A number of global property strategies have been increasing their investment in Australian real estate investment trusts, because of their cleaner balance sheets and attractive yields,” the report stated. “Ultimately, the case for inclusion of a global listed property strategy in a well-diversified investment portfolio remains sound.”

However, Morningstar noted that the extreme concentration of Australian REITS and their inability to achieve meaningful diversification were causes for concern.

“Although the global financial crisis demonstrated the potential limitations of the global property asset class as a source of income, there remains a strong case for going offshore for listed property exposure,” Morningstar stated. “We remain committed to the view that employment of a globally-integrated global property fund manager which has the capacity to invest in Australian REITs is still a compelling proposition.”

Of the global property managers, Morningstar has given ING Clarion a ‘highly recommended’ rating, while AMP Capital, Perennial, Vanguard, and Zurich/Cohen & Steers were rated ‘recommended’.

10 — Money Management June 2, 2011 www.moneymanagement.com.au

AMP has launched a new logo following its merger with AXA Asia Pacific’s Australian and New Zealand businesses.

“The new logo is a modern, highly differentiated identity for the new AMP, representing the promise, energy and dynamism of the merged company,” said AMP chief executive Craig Dunn.

He said research that sought the views of advisers, planners and employees revealed that there was a desire for a symbol of change to demonstrate commitment to building the new AMP. The last change to AMP’s logo was in 1988. AXA introduced its logo to Australia in the same year as part of AXA SA’s global brand, which replaced the National Mutual logo.

The roll-out of AMP’s new logo, named the AMP ‘spark’, would happen progressively from September, AMP stated.

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The value of good advice Amid the debate over the Future of Financial Advice, Mike Taylor writes that personal experience confirms that good financial planners don’t deserve to be lumped in with negative stereotypes.

A

mid all the discussion around the impact of the Future of Financial Advice (FOFA) changes on the Australian financial planning industry, some important research seems to have been overlooked – that a significant majority of the Australians who have used a financial planner would feel confident in doing so again.

What that research shows is that much of the bad publicity that has impacted the financial planning industry is not based on fact or personal experience but, rather, by negative perceptions and stereotypes driven by events such as the collapse of Storm Financial and Westpoint.

While accepting that financial planning, like any other sector or profession, contains its share of bad apples, recent experience suggests to me that, as a consumer rather than a journalist, good financial planners don’t deserve to be negatively stereotyped.

Why do I say this? Because I have spent the past nine years as enduring power of attorney (EPOA) for my mother who has been suffering from the progressive onset of Alzheimer’s disease and whose modest estate required some astute management to ensure that it met her needs.

This task would have proved much more difficult if it had not been for the services of a Certified Financial Planner who not only looked after my mother’s modest portfolio but provided assistance and advice to me, as EPOA. This unquestionably served to secure and enhance her overall position.

This happened in New Zealand, but I believe I could have expected just as much from a good Australian financial planner.

This is not to say that my mother’s overall experience with financial planners was without its problems. Indeed, when I assumed control of her finances I found her being advised by a

12 — Money Management June 2, 2011 www.moneymanagement.com.au

He is proof that the financial “planning industry contains many good and professional practitioners who do not deserve many of the negative characterisations that have motivated elements of the proposed Future of Financial Advice changes.

”

planner who had positioned her into a range of aggressive investment settings more appropriate to a person in their early 30s than a woman in her late 70s.

While, as a journalist working in the Australian financial services industry, I immediately recognised those settings were inappropriate, it is worth noting that my mother’s new financial planner also immediately recognised the problem and promptly recommended a range of changes, which we ultimately agreed and implemented.

As time went by, the planner provided solid, ongoing advice about particular opportunities with the result that we fine-tuned the settings, but always with the objective of knowing that, ultimately, my mother would be required to enter a care facility that would represent a heavy drain on her savings balance.

Eventually the day did come when my mother needed to be admitted to a nursing home and with that necessity came a requirement to sell her home.

Not only did the financial planner scope out the likely scenarios which would confront me as EPOA once my mother was admitted, he also

recognised that I was not resident in the city where my mother lived and therefore directed me towards reputable real estate agents capable of handling the sale of her property.

Ultimately, her home was sold for a more than reasonable price and we invested the proceeds consistent with the strategy we had agreed. The returns on the investment, taken together with income from a police pension and a superannuation-related annuity, were sufficient to meet nearly half the cost of her monthly nursing home fees.

When the global financial crisis (GFC) hit, the settings established by the planner served my mother’s estate well. While, like everyone else, she suffered some losses, they were not of a magnitude sufficient to cause concern about her overall wellbeing.

Across a range of investments, the only real concern was an ING fund which was frozen but from which, ultimately, investors were able to accept an offer to exit.

With the passing of the GFC, it proved possible to rebuild the value of the portfolio, albeit not quite to the levels which had existed prior to 2008.

The estate is now subject to probate but the point of this column is that a Certified Financial Planner, who I have chosen not to name, not only delivered good and reliable advice but, in my opinion, went above and beyond the call of duty to protect the best interests of his client and her EPOA. Would I recommend this adviser to other clients? Yes. He is proof that the financial planning industry contains many good and professional practitioners who do not deserve many of the negative characterisations that have motivated elements of the proposed Future of Financial Advice changes.

It does not matter how this particular adviser was remunerated. He gave us value for money.

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Global equities

Expanding your horizons Don’t let political instability, natural disasters and rising commodities deter you, writes Janine Mace – now is the time to invest in global equities.

DESPITE all the drama of natural disasters, political unrest and rising commodity prices, the global economy is recovering and global sharemarkets are the place to be. That’s the key message from investment experts and it is an important one, particularly in light of the recent underperformance of the Australian sharemarket.

According to the March Quarter 2011 Investment Manager Outlook survey undertaken by Russell Investments, sentiment towards growth assets hit a record in the survey with ‘unprecedented support’ for global sharemarkets.

“For the first time in two-and-a-half years international shares were more favoured than Australian shares, signalling increased confidence in US growth and stability in other developed markets,” the report notes.

According to Russell portfolio manager Scott Bennett, investment managers now favour global growth assets due to the stronger growth being experienced in the US and signs of a European recovery.

“The strong Aussie dollar is making offshore assets appear cheap at current valuations, and with all signs pointing to a recovery in developed international economies, managers are seeing increasing opportunities offshore,” he says.

It is a sentiment echoed by Credit Suisse Private Banking head of Australia research David McDonald.

“The outlook for the global economy is positive. We do not expect big growth numbers, but we are confident the recovery is on track – especially in the US. We are not

forecasting strong growth, but rather, solid numbers,” McDonald says.

Within the positive picture some markets are performing much better than others, making stock selection critical, according to Principal Global Investors (Australia) CEO Grant Forster.

“The picture is solid but not over-exciting.

We will still get volatility in equities, but we see a more benign story going forward,” Forster says.

Good cash flows, reasonable valuations

Although international equities are back in favour, it is far from ‘game on’ and a return to the booming pre-global financial crisis (GFC) years. Challenges remain, despite cash flows supporting markets and valuations being pretty reasonable, according to Threadneedle’s UK-based head of global equities, Jeremy Podger.

“We are in a more mature phase of the earnings cycle and are now moving into a ‘recovered’ phase for the global market,” Podger says.

“You have to look at where we have come from since 2007, which was the peak year and when markets started worrying about a possible downturn. In 2011 company earnings will exceed the level of 2007, but the market has not risen as much.

“Company balance sheets are stronger as they have been conserving cash, and this means equities are better value than in 2007,” Podger says.

Forster agrees companies are much better positioned than in the aftermath of the GFC. “Low inflation and interest rates in the US and

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

Europe are seeing companies reflate their balance sheets, and this is leading to profit growth and better performance,” he says.

“In the US, P/E [price to earnings] ratios are still looking very good and investors are now buying stocks for dividends as interest rates are so low.”

With investor concern slowly diminishing, bonds are losing favour.

“There has been a tremendous rally in fixed interest assets, but now bond yields are lower. Investors are looking for somewhere to put the money they had previously allocated to the bond market,” Podger explains.

Although emerging markets were the first to rally after the GFC, the move back into equities only started in earnest late last year.

“Even with emerging market inflows, we still didn’t get inflows into equities as combined outflows were about equal to the inflows,” Podger says.

“This pattern reversed sharply in the fourth quarter last year and early this year the US renewed its tax credits and made announcements about QE2 [the second round of quantitative easing] which led to greater optimism about the recovery of the US economy.

“In 2010 the view was the US was bumping along the bottom, but that view changed in the first quarter of 2011. This led to a reversal of the trends of the past few years,” Podger says.

Much of this shift has been obscured for Australian investors by the dramatic appreciation of the local currency.

“We have seen a steady grind higher by the market in general, but this has been

Key points • International equities are outperforming

Australian stocks as the global economy recovers from the financial crisis.

• Company valuations and price to earnings ratios are looking more reasonable.

• Government debt in the Eurozone has investors wary, as they watch growing government bond spreads in countries like Greece.

• Investors are also concerned about quantitative easing, which could lead to inflation and higher commodity prices. somewhat masked when you look at it in Australian dollar terms,” Podger notes.

McDonald agrees this is an issue. “Performance in the US and Europe has gone quite well so far this year, but the strength of the Australian dollar has made it not as good for Australian investors as for those in the local market.”

What’s ahead for markets?

When it comes to predicting the future for global equity markets, the key for most investors remains the US. Despite all the talk about economic influence shifting from the West to Asian markets, the performance of the US and developed economies remains critical to investment returns, given the composition of the key investment benchmarks. For example, the MSCI All Countries Index consists of 50-55 per cent US and Canada, 30 per cent Europe (including the UK) and 10 per cent Japan, with the rest of the world representing only 6 per cent.

Continued on page 16

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Global equities Continued from page 14 This makes the renewed strength of the US equity market (which is up 7 per cent year-to-date) the important story.

According to Fidelity Investment Management (Australia) investment commentator, Michael Collins, the US picture is good, with 68 per cent of companies exceeding earnings expectations in the recently completed reporting season.

“Their economy is growing and they have a very easy monetary

policy. The first four months of this year the market was up to a threeyear high,” Collins says.

“US corporate activity is occurring and this is leading to stock prices rising.”

Forster agrees the recovery in the US economy is flowing through to company results. “They are seeing higher profits, and fundamentals are good and going in the right direction,” he says.

“Over the next 12-18 months, the US would be our number one pick for a country, but we would have an

equal weighting in emerging markets.”

The big negatives for the US remain the end of the US Federal Reserve’s quantitative easing program and the government debt problem.

Bright spots and rising inflation

Things are also looking up in Europe, despite the continuing government debt issues.

“The European market is variable, but in general it is up and in US dollar terms Germany is up 16 per

cent this year,” Podger says.

Collins agrees there are good prospects for some European equity markets. “Underpinning Europe is that equities are cheaper than their long-term 12-month forward P/E average of 13.5. They are now down to around 11,” he says.

Some European economies are also benefiting from strong growth in Asia. “The German market is up 7 per cent year-to-date and it is performing well off the back of emerging market growth, which is seeing export-led growth and falling

unemployment,” Forster notes.

However, prospects for the indebted Eurozone countries such as Greece and Portugal are less positive.

“Europe has a two-speed economy. You can see it in bonds, with Greek 10-year bonds at 15 per cent and German 10-year bonds at 3 per cent,” Forster says.

“We expect debt restructuring in the peripheral countries and so we are limiting our exposure to European banks, but we have exposure to good German and French companies,” he says.

Collins believes Japanese equities are also attractively priced, with the expansionary policy of the Bank of Japan helping to support its equity market, despite the recent natural disaster.

Podger agrees, saying: “The Japanese earthquake was essentially a temporary setback, as domestic demand is holding up and supply chains are now recovering.”

The picture is also good for emerging markets, according to Collins.

“Emerging markets are growing well.”

Forster agrees, but believes growth prospects are slightly lower than previously. “Valuations in emerging markets got ahead of themselves in the past 12 months,” he says.

A significant drag on emerging market growth is mounting inflation. “Emerging markets now have inflation problems due to a number of factors such as rising commodity prices – both food and oil. Interest rates are also rising and there is the US Federal Reserve’s buying policy,” Collins says.

Austerity and easing

Despite the largely positive picture for global equities, clouds remain on the horizon, according to Podger. “There are a number of serious headwinds for the economy globally,” he says.

In Europe, he believes the mood for government austerity will influence equity markets. “It will not be boom time due to the reining back of government spending, which will dampen down growth prospects and this will lead to investor skittishness,” Podger says.

McDonald agrees problems remain. “In the shortterm there are issues around 16 — Money Management June 2, 2011 www.moneymanagement.com.au

Global equities situation and the main one is QE. The introduction of QE3 would be pretty disastrous as it would lead to rising commodity prices and inflation in the emerging markets. It would be the key risk if it were to go ahead, since this is what is keeping the US dollar very weak,” he says.

Leaving your money at home

David McDonald that can cause wobbles in the market – such as Greece. Uncertainty over this is continuing and it keeps reappearing in the headlines.

The same with China, where inflation is causing uncertainty.”

Although the ongoing problems with European debt in the peripheral countries such as Greece and Portugal are a concern, a break-up of the Eurozone seems very unlikely. “European authorities are absolutely determined to maintain the integrity of the Eurozone,” Podger says.

“However, we would be concerned if there was a dramatic restructuring of Greek debt as this would lead to problems, especially for German banks. If you include all the peripheral country debts, a number of the German banks would take a major hit to their capital,” he says Despite these concerns, the thing keeping investors awake at night is the end of the US’s QE2.

“The biggest concerns hanging over markets are the end of QE2 and the Eurozone fiscal deficit,” Podger says.

“The market is expecting the end of QE2 and bond yields have not gone up dramatically, so we are reasonably confident it will not have a great impact. We are not overly concerned, but we are vigilant on this issue.”

Forster agrees this is a big uncertainty for markets. “Policy risk could destabilise the

Given the positive outlook for international equities, the tendency of Australian investors to invest their money close to home does not look wise – particularly given the recent underperformance of the Australian market.

As Perpetual Investments head of investment markets research Matt Sherwood notes: “Although the Australian economy has outperformed all of its international advanced peers over the past 10 years, the Australian sharemarket has severely underperformed most international markets over the past 18 months.”

During this period the Korean market rose 34.3 per cent in local currency price terms, Germany was up 31.9 per cent, the US up 29.8 per cent, and the UK up 21.8 per cent – compared to the Australian sharemarket rise of 7.4 per cent.

This trend is unlikely to change any time soon, according to Sherwood. “The Australian sharemarket [has recorded] lower earnings per share growth in the past two years relative to the US and this trend is forecast to continue in two of the next three years.”

McDonald believes the underperformance of the Australian market makes the issue of home country bias an important issue, both for advisers and clients.

“For investors it is important to have diversification and think outside their local market. It is understandable for investors to invest in things they know and understand, but there are two sides to this and one is to get exposure to other economies and the world,” he says.

“The other is getting exposure to sectors you can’t get exposure to here, such as the IT sector – the Intels, Samsungs and Googles.

We miss out on them in Australia. Also the capital goods sectors in Europe and the US where they build things like trains and power plants for Asian growth markets.”

This highlights one of the key problems for Australian investors, which is the unusual composition of the local sharemarket compared to other markets. The index in Australia is heavily weighted towards financial and resource stocks.

“Investors often do not recognise the skew in the Australian index. For example, in the US the tech sector is 12 per cent-13 per cent of the S&P500, but in Australia it is close to zero. Most investors have not thought through the consequences of that index composition,” McDonald says.

“Another example is consumer discretionary exposure, which is poor for Australian investors. Local investors miss out on that and are not able to access the growth in those sectors.”

The composition of the local index also means investors who invest only in Australian stocks are missing out on the sectors predicted to outperform in the future

– IT and healthcare.

“IT is over 10 per cent of the MSCI Index, while healthcare represents 10 per cent. That is why to invest only in the Australian market is to be poorly diversified by stock, sector and country,” Collins argues.

“There are great opportunities and companies overseas that Australian investors are not benefiting from, as they are not getting access to the world leaders,” he says.

Forster agrees: “Most Australian investors are overweight Australian equities, but the top investment themes globally are healthcare and technology. So if you are long Australian equities, you are not getting exposure to those sectors.”

They also have highly concentrated portfolios. “In Australia the top 10 stocks combined represent nearly 50 per cent of the local index. The top 10 MSCI World stocks come to less than 10 per cent of the index,” Collins notes.

MM

To leave home or not?

AUSTRALIAN investors are often urged to diversify, but there are both benefits and drawbacks to heading offshore.

Pros: • Access to industries and sectors not represented in the Australian index; • Access to strong growth in offshore economies; • Spreads risk by company, sector and country.

Cons: • Currency volatility influences returns; • Investing in less familiar companies and markets where information flows may be reduced; • Access to global growth can be obtained through local companies with strong offshore businesses.

Table

IMF forecasts for global growth April 2011 2011

2012

World

4.4%

4.5%

Advanced economies

2.4%

2.6%

United States

2.8%

2.9%

Euro area

1.6%

1.8%

Japan

1.4%

2.1%

Other advanced economies

3.2%

3.3%

Emerging and developing economies

6.5%

6.5%

Source: IMF World Economic Outlook April

www.moneymanagement.com.au June 2, 2011 Money Management — 17

Global equities

Look before you leap Janine Mace outlines the key factors investors must take into consideration before jumping back on the global equities train.

WITH the prospects for global shares looking a lot rosier now the global economy is in recovery mode, there are several key questions for Australian investors keen to seize the opportunity.

Although investing in an international exchange traded fund (ETF) is becoming a popular approach, many international equities managers believe the post-global financial crisis (GFC) investment environment means a passive approach is not the right way to go.

In fact, current conditions make it a stockpicker’s paradise, according to Principal Global Investors (Australia) chief executive Grant Forster.

“The correlation is reducing between different markets and stocks, so there is a growing opportunity to differentiate between countries. In this environment, the fundamentals and stockpicking are increasingly important,” he says.

While international ETFs and other new investment products are a good way to

encourage Australian investors offshore, Forster believes financial advisers need to understand the best returns will not necessarily come from simply investing in an international index such as the MSCI World.

“There will be more opportunities to differentiate between markets and stocks going forward, making this more important than taking a passive approach,” he says.

The latest International Equities Sector Report published by Standard & Poor’s Fund Services reinforces this view, finding international equity managers managing less benchmark-constrained mandates “have been able to take advantage of opportunities around the globe and retract positions still exposed to the effects of the financial crisis. However, managers offering more benchmark-constrained international equity funds have not fared so well.”

Changing profit sources

The need to pick individual companies rather than simply investing in the index is

further emphasised by the changing nature of many international companies and their reduced reliance on their home market.

The performance of many multinationals is now more closely linked to global growth and picking the right companies will be even more important, according to UKbased head of global equities for Threadneedle, Jeremy Podger.

“From a company point of view, the international situation matters increasingly to profit. Companies are making so much more money overseas now. The global economy is growing four per cent per annum, so companies which are addressing global growth are having a good time of it,” he says.

Fidelity Investment Management (Australia) investment commentator, Michael Collins, agrees this is a key issue for Australian advisers and investors to consider.

“Financial planners need to realise for Europe and the US, big companies are not stuck in their home markets and they are also benefiting from the rise of Asian consumers.

A recent Citigroup study found 25 per cent of all sales by European companies are from emerging markets. This is why stock markets are capable of growing faster than the home economy,” he explains.

“Of the top 10 stocks in the MSCI World Index, Apple gets 49 per cent of its sales outside the Americas. Microsoft gets 52 per cent of sales outside the US, Nestlé gains 77 per cent outside Europe and even GE has 54 per cent of its sales ex the US.” This is a key message for local investors, according to Collins. “Investors need to pick the companies that give the best results.”

He cites Chinese consumers’ love affair with luxury brands like Louis Vuitton. “The returns that a company like that can achieve in the next 10-15 years are significant in rapidly growing Asian markets.”

Going hedged or unhedged?

Financial advisers also need to consider the strong appreciation of the Australian dollar when it comes to investing offshore.

Over the past 12 months, investment returns in Australian dollar terms have been reduced as the currency has moved upwards, according to Credit Suisse Private Banking head of Australia research, David McDonald.

“Offshore investment returns have not been as good, due to the Australian dollar appreciation,” he says.

Bloomberg data shows the Australian dollar was up 14 per cent in 2010 against the US dollar and in the first four months of 2011 it rose 7.2 per cent – the biggest appreciation among all the major Asian currencies.

Forster agrees currency movements are an important issue for planners to factor into clients’ investment plans. “Hedged and unhedged returns are very different at the moment. For the first time in many years it has paid to be in hedged international stocks,” he explains.

Over the five years to the end of April, international hedged funds have returned 1.7 per cent, while international unhedged funds have returned -1.5 per cent, accord18 — Money Management June 2, 2011 www.moneymanagement.com.au

ing to Forster. “So it has not been a good time to be unhedged if you are an Australian investor.”

Looking ahead, he believes advisers need to think through the likely scenarios. “Growth is not about to fall off a cliff, so the Australian dollar will not fall too much. However, planners could consider using a mix of unhedged and hedged funds.”

Although local investors may have been disappointed by the impact of the appreciating dollar on returns, market experts believe there are benefits from strong currency.

“People should see the high Australian dollar as an opportunity, as it means they are able to buy offshore companies cheaper and hedge their investments,” McDonald says.

Collins agrees a strong dollar has important benefits. “With a high Australian dollar you are getting more from your money, but too many investors focus on the reduced return.”

Local investors stay put

Despite the benefits from offshore investments, many local investors still appear unwilling to brave international markets.

“We have seen a lot of talk but not a lot of flows. The high rates for cash deposits in the Australian market make it hard, compared to the situation for US investors where they get almost nothing,” Forster explains.

He believes this will change as inflation creeps up in Australia and real returns decline. “The underperformance of term deposits compared to markets will be increasingly important in the years ahead.”

Podger is a little more upbeat. “People stuck with what they knew in the GFC, but now they are moving to go overseas again.”

Collins agrees: “We have seen a bit of an increase in interest in international equities. We have seen some interest in China and Asia, but Australian investors tend to still be interested in the last big thing, and that is Australia.”

However, McDonald believes the improved access to international markets through ETFs and specialist regional funds will help. “The availability of new global investment products helps a lot and ETFs make it easier for Australian investors to gain access. The publicity for them has helped too.”

Despite this, Podger feels the volatility of the local currency will keep many investors at home. “Australian investors are conditioned to expect an ever-strengthening Australian dollar and that makes home country bias more of an issue.”

MM

OpinionInsurance Steering away from the rocks Claims management fees can span an ocean of contentious, sometimes confusing issues.

In this first of a two-part article, Col Fullagar examines some common case scenarios and reveals how financial advisers have become valuable conduits for information.

T

he question of fees versus commission within the confines of financial advice is increasingly being debated. In regards to the provision of investment advice, fees appear a ‘done deal’; however, in the absence of anything approaching a workable fee-based model for risk insurance, many advisers involved – in full or in part – with the provision of risk insurance advice are holding out hope there will be no need to change.

While it is not the purpose of this article to debate the overall issue of risk insurance fees it is the purpose to look at one component of risk insurance advice and explore whether the charging of a fee not only benefits all parties – the adviser, the client and the insurer – but does so in a way that commission does not.

Traditionally when people speak about risk insurance advice, they are referring to the provision of initial advice, review of previous advice and administrative assistance along the way.

These are the services about which there is a general consensus that they are remunerated by commission.

The area that dispels consensus is the adviser’s active involvement in the claims management process. Is the provision of this service appropriately and equitably remunerated by the commission received?

The issue is a large one and this article will be published in two parts.

The first part will consider three questions.

Does adviser involvement in claims management have a material financial impact on the adviser’s business?

There is a popular perception that the financial impact of an adviser being involved in claims is linked to one or each of the following: • The insurance type; for example, Total Permanent Disablement (TPD) claims have a greater financial impact on an adviser’s business than term insurance claims; • The benefit amount; claims for larger benefit amounts have a greater financial impact than those for smaller amounts; and • The number of claims; claims for multiple benefits have a greater financial impact than those for a single benefit.

In fact, the direct driver of financial impact on an adviser’s business is none of the above.

It is simply the number of business hours spent managing the claims process, with business hours being the total of adviserand support-staff time.

To illustrate, if a large TPD claim required the same number of business hours to manage as a small-term insurance claim, the financial impact on the adviser’s business would be the same in each instance.

The popular perception that the business impact is caused by the type of claim, etc, is a result of the frequency of claim complica-

tions (ie, a large TPD claim is more likely to encounter time-consuming complications than would a small-term insurance claim).

To better understand the extent of time spent evaluating claims, it is necessary to divide the claims process into: • Initial assessments; and • Ongoing management.

Initial assessments only occur once but they occur for all policy types and ancillary benefits included under them. The initial assessment leads to a decision, ie, accept, deny, defer, etc.

Ongoing management does not occur for term, TPD and trauma insurance claims, nor does it generally occur for ancillary benefits.

It does, however, occur for total and partial disability claims under income protection and business expenses, if the initial assessment is acceptance.

of claim were inclined to view the claims management process as simply an extension of the services they believed they should provide to clients.

While the majority of claims fell into the above categories, there was also a significant number of ‘problem’ claims involving one or more of the following: • The client was a personal friend; • The client was crucial in a centre of influence, or influential in a specifically sensitive area (such as the media), or generally influential in the community; • The claim scenario was complex and emotive; • The claim requirements were numerous, onerous and were drip-fed over an extended period of time; • Communication from the insurer was considered insensitive and insurer errors

If a reasonable estimate can be made of the number of business hours expended in initial assessments and ongoing management, a business financial impact can be calculated.

Naturally, the amount of time spent managing claims will vary considerably, so averages must be used.

To obtain these averages advisers were asked, from their experience, the number of business hours they would spend assisting clients in the initial assessment and ongoing management process.

In the majority of cases the claims management process moved ahead in a relatively smooth fashion.

Initial assessments might be made on the basis of a claim form and a single batch of subsequent claim requirements, with payment following soon after. Alternatively, the claim denial was straightforward and was accepted by the client without dispute.

Similarly, ongoing management might require a small amount of adviser time each month to follow-up progress claim forms and occasionally to collect financial evidence.

The average number of hours was approximately: • Five hours for initial assessments; and • One hour per month for ongoing management.

Advisers who only experienced this type

were made; • The assessment of the claim took what appeared to be an inordinate period of time; and then either: • The claim was accepted and paid but the client was totally disillusioned by the process; or, alternatively: • The claim was denied and the reasons for denial were not made clear; • The client was unhappy with the decision and a dispute ensued; and • The adviser became embroiled in the dispute.

The average number of business hours required to assist with these claims was approximately: • Thirty-five hours for initial assessments; and • Ten hours per month for ongoing management.

Advisers involved in these types of claims were far less likely to feel that the assistance they provided formed part of the general administrative support for which they were remunerated by way of commission.

Next, it is necessary to convert business hours into financial impact. To do this, the number of business hours is simply multiplied by the business charge-out rate (ie, the average of adviser, plus support staff).

If the charge-out rate is $250 an hour, the

gross financial impact in the aforementioned ‘average’ situations would be: Initial assessments – between $1,250 (5 x $250) and $8,750 (35 x $250); Ongoing management – between $250 a month (1 x $250) and $2,500 a month (10 x $250).

Of course, the above figures are a single, per-claim appraisal. If an adviser has a large or mature portfolio it may well be that multiple claims are occurring concurrently.

Does adviser involvement in claims management have a material impact on the adviser’s business? The answer is ‘yes’ – and the impact could be considerable.

Is the financial impact on the adviser’s business appropriately remunerated by commission payments?

The driver of financial impact is the number of business hours expended which is not in any way related to the driver of commission, ie, the amount of premium. It could therefore be reasonably assumed that commission, at best, is a crude and inaccurate basis for remunerating adviser involvement in claims management.

The response from some is to quote “swings and roundabouts” (ie, if the commission from an adviser’s portfolio of clients is pooled, the financial impact can be compensated by drawing from the pool).

While this response may appear sound, the reality can be different: • An adviser who provides investment and risk insurance advice may have a relatively small risk insurance renewal income. A complicated claim could impact the business well in excess of what is proportionately appropriate; • An adviser who, for genuine business reasons took a low renewal commission option, may be involved in numerous claims that cannot be supported by the commission received. Judgemental arguments that a different commission type should have been taken may be ill-informed and do not alter the reality of the position; • An adviser who purchased a lowrenewal commission portfolio of business would have a similar issue.

• The average policy duration of approximately seven years is unlikely to be sufficient time to enable recovery of claims management costs in addition to new business and ongoing administration costs; and • The argument that renewal commission is designed, in part, to remunerate for claims management costs is somewhat thwarted in that most insurers, when they waive premiums, also waive commission.

When it comes to claims management, commission creates winners and losers rather than an equitable business outcome for all parties.

Continued on page 20

www.moneymanagement.com.au June 2, 2011 Money Management — 19

OpinionInsurance Continued from page 19 Is the impact on the adviser’s business appropriately remunerated by commission payments? The answer is, arguably, ‘no’.

Should advisers be involved in the claims management process?

If the financial impact is not appropriately remunerated by commission, should advisers, in fact, be involved in claims management?

From the adviser’s perspective, there are pros and cons, including: (i) Service compromised An adviser may find themselves drawn into various complex, protracted discussions and debates with clients, insurers, dispute resolution bodies and even lawyers. This may compromise their ability to assist other clients. (ii) Business compromised If time pressures continue or escalate as a result of multiple claims, business profitability may be impacted. This is bad enough if the adviser is a sole trader but it can become totally unacceptable if there are partner advisers or corporate owners who are also affected. (iii) Reactive assistance An adviser may take a pragmatic view,

helping the client complete and submit the claim form and then leave them to their own devices or provide subsequent assistance on a reactive basis only. This may, however, prove an unsatisfactory service model. (iv) Lack of remuneration model Some advisers may wish to charge a fee but remain unaware of a basis for this. Would they charge an hourly rate or a flat fee, and how would it be calculated? And what about clients who are unable to pay until the claim itself is paid, and what occurs if the claim is denied? (v) Reputation If something goes awry with the claims management process this could damage the adviser’s reputation and also lead to legal issues. (vi) Appropriate skills Some advisers may not feel sufficiently skilled and, fearing making a mistake, they distance themselves, preferring instead to allow the insurer to run things. They are often encouraged by the life office to “leave it to the experts”. (vii) Lack of training While considerable training is available for other components of the advice process there is little training currently in place for claims management.

(viii) Lack of client relationship Many advisers have strong long-term relationships with clients but this is not universally the case. If an adviser is not familiar with a client it is difficult and not without risk to become involved in a claim, particularly if the claim is in dispute.

The reasons against adviser involvement are not without merit; however, there are also compelling reasons for adviser involvement, including: (i) Moral obligation Many advisers feel morally obliged to provide claims assistance; to not provide this assistance feels wrong. Surely, this is why they have received renewal commission all these years. (ii) Service offering A claim is when the original recommendation comes to fruition and it is unthinkable that the adviser would walk away. Assistance at the time of a claim is a valuable component of the adviser’s service offering. (iii) Networking A claim is when the client and those associated with the client see the benefits of insurance. To not be involved would be to waste a networking opportunity or, alternatively, if the adviser did not assist the client this might have a negative networking impact.

(iv) Management of claim proceeds By being involved in the claims process, the adviser improves the chances they will also become involved in the subsequent investment of the claim proceeds. (v) Adviser value-add The adviser may believe they can make a valuable contribution to the claims process. (vi) Consistency of service There is currently little consistency in the claims management services provided in the market, with involvement being dictated by the individual adviser’s: • Attitude to involvement; • Personal expertise or business capacity; and • Client relationship (ie, is the adviser more likely to assist an ‘A’ client, rather than a ‘B’ or ‘C’ client).

The facts surrounding each particular claim are also material, ie, whether it is complicated or not.

This inconsistency cannot reflect well on the financial services industry and it makes client comparisons and informed choice more difficult.

If the position is not made clear, a client’s expectation is unlikely to be matched by the adviser’s reality. A more consistent approach would bring some contingent advantage.

The most compelling reasons for adviser involvement are, however, client-related.

ACI0004/GPS/MM/R/3

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 1.8% 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 31 August 2010. 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

20 — Money Management June 2, 2011 www.moneymanagement.com.au

These include: (i) Initial support Someone who has recently suffered a sickness or injury or the loss of a loved one may need – more than at any other time – professional, impartial and informed financial advice.

Is the situation one that is potentially covered by the insurances in place? Which policy benefits should be claimed under?

What payments might be forthcoming and what needs to be done in order to claim? If a claim cannot be made, why not?

The adviser will be better suited to assist and in so doing provide that which was the client’s original motivation for setting insurances in place – peace of mind. (ii) Interim advice of claim The adviser is also the ideal person to contact the insurer and provide interim advice of a claim. They will know the insurer and, most likely, who to contact.

Dealing with the adviser has advantages for the insurer as well. The adviser is unlikely to be personally involved and while representing the client, they can do so on an impartial basis.

Initial claim requirements can be assessed for “reasonableness” by the adviser. If the reason for a requirement is unclear, questions can be asked that either clarify the reason or identify the requirement as unnec-

essary. The adviser may be able to suggest alternative, more relevant requirements.

The adviser can explain the requirements to the client and assist with obtaining them. (iii) Point of contact The client may wish the adviser to be the ongoing point of contact with the insurer, in which case the adviser becomes a valuable conduit of communication. (iv) Calming influence A client may regard certain claim requirements as intrusive or unnecessary. The adviser can calm things with an appropriate explanation and, if necessary, go back to the insurer and explain the client’s concerns.

If delays occur the adviser can explore alternative ways forward with both the client and the insurer. (v) Client pre-conditioning The adviser can pre-warn the client about any likely claim problems. They may recommend the client includes additional information in order to minimise the chance of misunderstandings adversely affecting the assessment.

In this way problems can be avoided or issues can be discussed ahead of time, reducing the chances of an acrimonious dispute. (vi) Dispute resolution If the claim is unexpectedly denied, the

adviser can identify the reasons and then explain the position to the client.

The adviser may provide advice in regards to seeking a review of the decision.

If matters escalate, the adviser can inform the client of the various avenues of dispute resolution, including internal and external bodies, legal or even media.

The adviser can assist with the preparation of the client’s formal complaint.

If the client seeks a legal solution it may be necessary for the adviser to assist with the briefing of the client’s solicitor.

By staying involved the adviser is better positioned to represent their own position in the dispute. (vii) Claims reports The adviser may send periodic reports to the insurer, and may include: • Feedback from the client about how the claims management process is impacting them; • Progress the client feels they are making in getting back to full-time work; and • The client’s attitude to utilising rehabilitation services, either privately or through the insurer.

Regular feedback in this form would reduce the chance of complications arising and assist insurers to adjust their claims management processes, both for individual claimants and also generally for all claimants.

(viii) Claim’s costs The insurer’s infrastructure, systems and claims administration costs can constitute as much as 5 per cent to 10 per cent of the total premium. In addition, the cost of claim payments can be as high as 40 per cent to 60 per cent of the total premium.

Anything that reduces costs by improving workflow, communication and dispute resolution is good for all parties. Adviser involvement in the claims management process could financially benefit other clients.

Involvement in claims management has a potential material impact on an adviser’s business.

The impact does not appear to be appropriately remunerated by commission payments.

While there are compelling client-related reasons for the adviser to be involved in claims management, there are pros and cons when it comes to adviser-related reasons.

The final question, to be considered in the second part of this article, is therefore:

Is there an equitable, fee-based remuneration model that will negate any reasons against adviser involvement?

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

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 2, 2011 Money Management — 21

OpinionSuperannuation

Getting in early Super accounts for children carry the built-in asset of time as a valid long-term savings option; however, Sarina Raffo discovers establishing a fund for younger people is no minor consideration.

T

o kick-start a child’s financial future, superannuation may be an option worth considering.

While saving or gifting money for children via bank accounts and managed funds is common, the tax efficiency and compounding effect of superannuation can often be overlooked. The one thing children have on their side is time. Given the investment timeframe, money can be invested aggressively.

Firstly though, let’s look at some key facts about superannuation that are relevant to children.

Personal contributions

Almost anyone can contribute to super, including housewives, retirees, children, employed, self-employed and unemployed individuals.

A super fund can accept contributions for an individual under age 65 without restriction. However, the ability of children under age 18 to set up a s u p e r a c c o u n t m a y b e l i m i t e d by contractual capacity, unless there is an employment arrangement. Individuals under age 18 are generally unable to enter contracts, and consequently may not be bound by the terms of the fund’s trust deed. This is generally not an issue where the minor is a member of an employer plan, as the employee would have received the terms and conditions of the fund and would be deemed to have accepted them.

Many funds impose restrictions on

m i n o r s o p e n i n g s u p e ra n n u a t i o n accounts. These may be included in the fund’s trust deed or Product Disclosure Statement (PDS). This is primarily a business and/or a risk decision, rather than a legal restriction.

As superannuation is generally preserved until retirement from the workforce, it may be questionable advice to recommend that a minor invest in a financial product which they may be unable to access for up to 50 years!

Third party contributions

The previous special rules allowing a relative to contribute on behalf of a child have been replaced by the general principle that a fund may accept contributions made in respect of a member who is under age 65. These can include employer contributions and contributions by parents or grandparents, etc.

Howe v e r, c o n t r i b u t i o n s m a d e by anyone other than the child or their employer are taxed at 15 per cent upon entry to the fund. Additionally, contributions made on behalf of a child do not attract a tax deduction or tax offset for the contributor.

Contributions made on behalf of a child count towards the child’s contribution limits and not those of the contributor.

Grandparents on the age pension can make gifts of up to the lesser of either $10,000 a year or $30,000 over five years, without negatively impacting their entitlements.

22 — Money Management June 2, 2011 www.moneymanagement.com.au

Contributions made on behalf of a child count “towards the child’s contribution limits and not those of the contributor. ”

Super guarantee

The super guarantee (SG) applies to fulltime, part-time and casual employees.

An employer does not have a super guarantee obligation for an individual who is under age 18 and works less than 30 hours per week (even if they earn more than $450 in a month). However, an employer has a SG obligation for an individual who is age 18 or older and gets paid $450 or more in a month.

If an individual is paid under an award, it may be part of the award agreement that an employer must pay

SG, even if the individual earns less than $450 a month.

Co-contribution

To be eligible for the government cocontribution, an individual must be working (even part-time) and have at least 10 per cent of their assessable income (including reportable employer super contributions and reportable fringe benefits) from employment or running a business.

They must also be an employee for SG purposes. Those who earn less than

must be clearly involved in the business; that is, any employment arrangement must not be contrived.

Self-managed super funds

Minors (under age 18) are considered to be under a legal disability and cannot be a trustee of a self-managed super funds (SMSF). A super fund continues to satisfy the definition of an SMSF where a parent or guardian acts as trustee in place of a member of the fund who is under a legal disability because of age. However, this provision does not similarly provide that a parent o r g u a rd i a n c a n b e a d i re c t o r o r a corporate trustee of an SMSF in these c i rc u m s t a n c e s. Howe v e r, a m i n o r member’s legal personal representative (LPR) can be a director or a corporate trustee in place of the member.

If individuals under age 18 are to become members of an SMSF, the deed must specifically per mit this, and include guidelines on how the fund will be administered on their behalf until they reach age 18.

A particular attraction of an SMSF is the control the trustees have over it.

This can have benefits with regard to the treatment of superannuation on the death of a member. A binding death benefit nomination or a special superannuation testamentar y tr ust can deter mine how death benefits are distributed tax-effectively to beneficiaries, including children.

By having life insurance through an SMSF, the trustees have much more control over the transfer of assets to the individual’s family and the SMSF can carry on with the next generation.

simple, flexible means of providing a tax-effective income stream to children of minor age, in the event of the premat u re d e a t h o f a p a re n t . Pe n s i o n payments may be either tax-free or concessionally taxed at adult marginal t a x ra t e s ( i n c l u d i n g a t a x o f f s e t ) , depending on the age of the deceased parent. Access to the pension capital can be restricted up to age 25. At that point, the pension is paid as a tax-free lump sum. A child pension cannot be paid beyond the child’s 25th birthday (unless the child is disabled). Pension payments can be structured at a level to suit the child’s needs.

By ensuring a valid binding nomination is in place, a parent can have certainty that their child(ren) will receive a regular income stream following their death. As super does not form part of the estate, it is not distributed via the deceased’s will.

Insurance in super

Generally, there is no minimum age for term insurance within a super fund. For individual risk-only policies (inside and o u t s i d e s u p e r ) i t c o m e s d ow n t o contractual capacity, as an insurance policy is essentially a contract. Insurance can be taken out by individuals age 16 or over without the consent of a guardian and by individuals age 10 or

over with a guardian’s consent. In g e n e ra l , r i s k i n s u ra n c e i s m o re commonly offered to individuals age 18 and over.

Generally, the availability of total and permanent disability (TPD) insurance is limited to individuals who are working more than 10 hours per week (sometimes 20 hours) in an insurable occupation.

Additionally, it may be impractical from an underwriting perspective to offer disability insurance to individuals under age 18 without a work history. Income protection insurance is not generally available if an individual is working less than 20 hours per week.

Working teenagers with superannuation account balances need to be aware that premiums for insurance cover may be deducted from their account balance. In some cases, these individuals don’t need, or are unaware of, insurance cover resulting in their benefits being ‘needlessly’ eroded by premiums.

Conclusion

In some circumstances superannuation may be a valid savings option for children, depending on their needs and objectives. But it is also very important to be aware of the facts and pitfalls.

Sarina Raffo is a technical services consultant at Suncorp Life.

Estate planning

$ 4 5 0 p e r m o n t h o r a re p a r t - t i m e workers under age 18 are still considered to be employees for SG purposes, even though their employers do not have an SG obligation for them. In addition, they must submit a tax return and make a personal super contribution in the financial year. While there is no lower age limit for an individual to qualify for the co-contribution, as mentioned previously, super funds may place restrictions on the age at which children can become members.

Gifting money into a child’s super account doesn’t qualify the child for the co-contribution, as the contribution is classed as a third party contribution and not a personal super contribution.

Each State and Territory of Australia has various laws that impact on the employment of children. If an individual runs a business (via a trust, company, partnership or sole proprietorship) employees of the business may include the individual’s spouse or children. In these cases the child must satisfy the definition of employee and

Superannuation can offer tax-effective, flexible estate planning opportunities for the next generation.

Lump sum death benefits (including insurance proceeds) paid from a super fund to dependants, including a spouse and children who are minors, are taxfree. However, a non-dependant can be liable for tax up to 16.5 per cent on a normal death benefit and 31.5 per cent on a death benefit that includes insurance proceeds. Typically, tax will be payable when a lump sum death benefit is paid to an adult child who was not financially dependent on the deceased.

Where a superannuation lump sum death benefit will be paid to a nondependant child, a re-contribution strategy (withdrawals are made from super and re-contributed as an aftertax contribution) can be employed to reduce or eliminate the tax payable on death benefits.

The amount of a lump sum death benefit to a child (of any age) can be increased by a refund of any contributions tax paid by the deceased. The increased payment is generally known as an anti-detriment payment.

Superannuation death benefits can be paid as a lump sum or a pension, or a combination of the two, to certain children. A child pension can be a www.moneymanagement.com.au June 2, 2011 Money Management — 23

OpinionFixed Interest

Seeking stability

Relatively attractive performances throughout the global financial crisis have revived interest in bonds and other fixed income assets, writes Stephen Hart.

B

onds are mostly traded through fixed income brokers regulated

by Australian Securities and Investments Commission (ASIC) on an over-the-counter (OTC) basis.

However, there are also bonds that trade on the Australian Securities Exchange. In order to buy or sell unlisted bonds you will need to contact a fixed income broker, ideally one that specialises in fixed income. Depending on the bond and the number of buyers and sellers in the market at the time, the fixed income broker should be able to process your transaction promptly.

OTC means that bond trades do not take place on an exchange but are negotiated directly between buyers and sellers.

Evidence of ownership is by way of a register maintained by Austraclear (also known as Exigo), or by other registry providers.

However, Austraclear remains the sole Central Securities Depository of Debt Securities in Australia.

Retail investors are able to buy and sell government- and semi-government bonds as the issuers are exempt from the disclosure provisions of the 2001 Corporations Act. Because of the disclosure provisions of the Act, non-government bonds issued by banks and corporations are usually only issued to, and traded between, wholesale investors. The definition of wholesale investors includes individuals and entities that meet certain requirements under the Corporations Act.

Figure 1 Capital structure: bank

Lowest risk

Until recently, financial planners looking to add unlisted bank or unlisted corporate bond exposure to their clients’ portfolios were limited to bond funds unless their clients had $500,000 to invest in the purchase of a single bond parcel, due to the regulatory system. However, fixed income brokers who are licensed to provide custodial services are able to provide clients with direct investment in bonds, in parcels down to $50,000.

Getting access

The relatively attractive performance of bank and corporate bonds throughout the global financial crisis (GFC) has revived interest in bonds and other fixed income assets, as well as the topic of how to access bank and corporate bonds directly without using a managed fund. The minimum $500,000 parcel size referred to

above had placed direct ownership of bonds and the associated benefits to investors – including the absence of management fees, asset transparency and the ability to match future liabilities closely with coupon payments and maturity dates – out of the reach of most clients.

Parties lobbying ASIC to reduce the disclosure requirements for listed bonds (and thus the associated costs of issue) to make the listed bonds channel a more attractive option for issuers have enjoyed only a small measure of success, as the issue requirements, despite some relaxation last year, remain onerous.

This is an anomaly in risk-terms as the effect is to restrict access to clients looking to invest in specific banks and corporates at a low-risk level in the corporate structure. Clients looking to invest in these specific entities will often have little option but to invest in the higher risk equities, as Figure 1 demonstrating the capital structure of an Australian bank shows.

Where the bond sits in the capital structure will determine its risk and reward.

Term Deposits

Senior Debt Subordinated Debt

Hybrids

Application of losses

Priority of payment in liquidation

Figure 2 How the capital structure translates in the market

Equity

Highest risk Source: FIIG Securities Limited

24 — Money Management June 2, 2011 www.moneymanagement.com.au

Source: FIIG Securities Limited

One broker has moved to offer direct access to investment-grade bank and corporate bonds to clients in amounts from $50,000, along with custody facilities.

This is proving to be an attractive option for trustees of self-managed super funds, high-networth and non-high-net-worth investors. Investors not wishing to use managed funds as a means of gaining exposure to fixed income assets and being unable, for reasons of prudent diversification, to allocate $500,000 to any one specific investment, are keenly seeking to create their own direct bond portfolio.

Australian dollar bond parcels available in amounts of down to $50,000 include nominal and floating rate note issues by major Australian telecos, Australian major and regional banks, international banks, Australian and international insurance groups and several wellknown Australian and international industrial groups.

Non-government inflationlinked bonds are also available in parcels from around $40,000 investment value.

a substantial premium. Generally, OTC bonds trade at a lower premium but liquidity is strong, particularly for the highly rated issues. Listing is no guarantee of liquidity, as the vast bulk of transactions are made on an OTC basis.

Yield The bond market in Australia offers coupons in the range of 5.5 per cent (average) for government bonds through to more than 11 per cent for some unrated issues. Current returns from portfolios purchased in the secondary market using a mix of bonds from A-rated through to BBB-

rated will yield around 8.5 per cent. A portfolio limited to A-rated or above issues will yield closer to 7 per cent.

With the high level of predictability associated with bond coupons and repayment (noting that non-payment of either is a default event, unlike payment of a dividend or hybrid distribution which are determined by the issuer’s board) a bond portfolio is superior for asset and future liability matching.

than $39 billion of Australian dollar bonds were issued by Australian governments, banks and corporates. With the fourth-largest savings pool in the world it seems regrettable that the majority of Australians are not investing directly in these quality assets. The high level of predictability of bond cash flows coupled with the security highlighted by the capital structure above readily confirm that bonds should be present in all portfolios.

Conclusion

Stephen Hart is the head of planner services at FIIG Securities.

Between 1 January 2011 and 27 April 2011 more

At K2, our international funds are on top of the world.

Portfolio construction

A financial planner when constructing a fixed income portfolio will normally be driven by the following criteria.

Diversification Review of the capital structure diagram above confirms that bond investors are repaid before hybrid and equity investors and it follows that diversification in a bond portfolio is of less importance than diversification in an equity portfolio.

Figure 2 demonstrates the volatility of Commonwealth Bank shares, versus the Bank’s hybrid issue Perls III, versus the Bank’s subordinated debt from December 2007.

Nevertheless, unless the bond portfolio is made up entirely of government bonds, issuer – and particularly sector diversification – is always prudent.

Since

1 Year

2 Year

5 Year Inception

%

% p.a.

% p.a.

% p.a.

K2 Select International Absolute Return Fund

12.6%

19.1%

8.7%

13.0%

MSCI World Equities Index $AUD Outperformance after fees

1.3% 11.3%

5.8% 13.3%

-3.7% 12.4%

0.9% 12.1%

K2 Asian Absolute Return Fund

7.7%

17.6%

7.8%

12.6%

MSCI Asia Ex-Japan Index $AUD Outperformance after fees

3.7% 4.0%

12.9% 4.7%

2.9% 4.9%

5.3% 7.3%

*Net of all fees

KAM 30331

Liquidity Listed bonds offer access to retail investors and are generally well sought-after.

The AMP April 2019 and Tabcorp May 2014s trade at

Performance 30 April 2011

Growing trends such as China’s increasing hunger for luxury goods, the emergence of smart phone and mobile internet technology are resulting in strong performances by global equity funds. K2 has identified and tapped into these trends via stock selection and selective currency hedging.

Consider the outstanding results for our K2 Select International and K2 Asian Absolute Return Funds. We believe now is the time to take advantage of these opportunities.

For more information go to: www.k2am.com.au or telephone: 03 9691 6111

Past performance is not a reliable indicator of future performance. Fund returns are annualised compound rates, net of all fees, exclude individual taxes, assume dividends are reinvested, and consist of income and capital return. K2 Asset Management Ltd ABN 95 085 445 094 AFSL 244 393 (“K2”) is the issuer of the K2 Australian Absolute Return Fund ARSN 106 882 302, the K2 Asian Absolute Return Fund ARSN 106 882 384, and the K2 Select International Absolute Return Fund ARSN 112 222 465. K2 is not licensed to give financial product advice and recommends you read K2’s product disclosure statement (available from K2), and consider whether these products are appropriate for you, before deciding to acquire an interest in any K2 fund. K2 and its related parties do not guarantee the repayment of capital or the performance of any K2 fund. The K2 funds’ portfolios can diverge significantly from underlying market indices.

www.moneymanagement.com.au June 2, 2011 Money Management — 25

Fund Manager Financial services’ night of nights The financial services industry let its hair down on its gala night to recognise excellence in the sector. Over 340 guests attended the 24th Money Management/Lonsec Fund Manager of the Year Awards.

2

3

1 4 1. Lifetime Achievement Award winner Gwen Fletcher AM and Mike Taylor from Money Management.

2. Bob Holloway, Karen Chow, Mardi Hall, Kelly Wood, Chris Boyd, Simon Doyle, Jude Fernandez, Ray Mackin, Oliver Trusler and Lisa Hamilton from Schroders.

3. Craig Berger, Laura Bramwell, Adrian Stewart, Jessica Richards and Ali Tabbouche from Macquarie.

4. Andrew Smith from Perennial Investment Partners and Mike Taylor.

5. AMP Capital Investors managing director Stephen Dunne.

6. Jo Dean, Carly Westwood, Mark Penny, Melanie Evans, Vanessa Marando, Sascha Hunt, Jacqueline Leko, Jo Leon, Karlee Currall and Matthew Holland from BT. 7. Dean Groundwater from Premium China Funds Management, Voula Makris from CommInsure, Michelle Woodgate from Asgard, Lisa Ng from Zurich, and Nathan Kerr from TOWER Australia.

8. MC Peter Berner.

9. Rising Star: Alphinity’s Stephane Andre, Johan Carlberg, Andrew Martin and Bruce Smith.

10. Maria Martignoni, Lisa de Creuse, Michael Walsh, Brooke Logan, David Buckland, Christina Christopherson, James Hordern, Ouaffa Karim and Monica Hood from Hunter Hall.

11. Andrew Lill and Samantha Clarke from AMP Capital Investors; Adrian Stewart from Macquarie; and Sonia Ballie from AMP Capital Investors.

12. Rommel Hacopian, Vito D’Introno, Brendan O’Connor and Paul Rogan from Challenger.

26 — Money Management June 2, 2011 www.moneymanagement.com.au

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5

of the Year

7

9

11

8

10

12

www.moneymanagement.com.au June 2, 2011 Money Management — 27

Fund Manager

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15

18

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

of the Year

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24 13. Samantha Clarke, Simon Cary, Anna Schofield, Ben Harrop, Stephen Dunne, Anthony Brown, Sonia Baillie, Peter Smyth and Andrew Lill from AMP Capital Global Property.

14. Ross Youngman and Piers Watson from 5 Oceans Asset Management.

15. Jayson Forrest from Money Management and Julia Newbould from BT. 16. Young Achiever of the Year Tim Murphy from Morningstar and Mike Taylor.

17. Grant Kennaway from Lonsec.

18. Andrew Keay and Amanda Tibbett from Fidelity International.

19. The Money Management Team: Jimmy Gupta, Mike Taylor,Ash-

leigh McIntyre, Chris Kennedy,Angela Faherty, Caroline Munro, Suma Donnelly, Doug Roberts, Milana Pokrajac and Jayson Forrest.

20. Nick Ryder from NAB Private Wealth; Amy Johnston, Chris Driessen and Doug Pfafflin from Goldman Sachs.

21. David Quirk from LaSalle Investment Management; Brod MacPhail, Rowena Cole and Craig Mills from Equity Trustees.

22. Felicia Owers from Perennial Investment Partners and Kevin Pietersz from Fidelity International.

23. Theo Makris, Voula Makris and Tony Schiavello from CommInsure.

24. Daryl Wilson, Stuart Cartledge and Michael Blake from Cromwell Property Group.

www.moneymanagement.com.au June 2, 2011 Money Management — 29

Toolbox One strike and you’re out Graeme Colley explains the changes to the excess concessional caps contribution proposed in the recent Federal Budget.

T

he superannuation changes proposed in this year’s Federal Budget were a re-announcement of previous policy, the announcement of initiatives which are currently in the pipeline as well as some minor technical changes to the superannuation rules. Probably the most interesting of the proposals was the change to excess concessional contributions assessments.

The proposed change will assist, from 1 July 2011, those who have exceeded their concessional contributions cap by no more than $10,000 in a financial year.

However, it will only apply to the first year in which the excess occurs. Subsequent cap breaches of up to $10,000 and all breaches where the excess is greater than $10,000 will not be eligible for the concession. Therefore the proposed change merely serves as a warning to anyone who exceeds their concessional contribution cap not to repeat the occurrence in future; otherwise the penalty tax will be applied.

If a person exceeds their concessional contribution cap of no more than $10,000 the fund member can elect to have the excess paid to them. That amount will be included in assessable income of the individual and taxed at personal income tax rates. The Budget papers do not indicate the finer detail of how the proposal is to be administered by the superannuation fund or the Tax Office. One possibility is that the Tax Office could issue the assessment to the fund member and at that time he or she could pay the assessment in line with current arrangements, or elect to have the excess paid to them and taxed appropriately. Once the choice has been made the member could contact a fund for a refund and, in turn, the fund could let the ATO know that the refund had been made. The Budget papers indicate that the Government will consult with the superannuation industry on how to put this proposal in place.

Apart from the obvious, excess conces-

sional contributions can arise for a number of unexpected or unintended reasons. The obvious is that the person has intended to make a concessional contribution in excess of the relevant cap and pay tax at the penalty rate. Less obvious are those concessional contributions which have arisen from superannuation insurance premiums, the ATO’s small holdings account, personal deductible contributions and unexpected contributions made to superannuation for various reasons.

One situation where the excess concessional contribution arises is due to timing differences. This can occur where a person may have planned that the maximum concessional contribution be deducted from each pay on a regular basis. In a year where there is the expected number of pay periods there is generally no issue. However, in some years there can be timing differences between the standard calculation and the number of pay periods that arise. For example, if the person is paid fortnightly there are 26 pay periods in a normal year, but in some cases there can be 27 pay periods. This may lead to an inadvertent excess contribution.

On the face of it, anyone finding themselves in a position with an excess concessional contributions tax assessment really needs to consider one of two options. The first is whether they should exercise the option to have any excess refunded, or do nothing and pay the excess concessional contributions tax and have the excess counted against the non-concessional contributions cap. The role of a financial planner for the client should be to determine which strategy will provide the greatest benefit.

Let’s have a look at the potential impact of the announced proposal.

Case study one

Anne is 45 and the total of her Superannuation Guarantee (SG) and salary sacrifice

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Ranked No.1 by advisers for overall platform satisfaction.*

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contributions for the 2011-12 financial year is $24,500. Anne’s concessional contribution cap is $25,000.

Anne’s employer pays $1,000 for the annual premium on her life and total and permanent disability (TPD) insurance held within her superannuation fund. The $1,000 employer contribution is a concessional contribution. Anne has neglected to take the premium into account when deciding how much she would salary sacrifice to superannuation.

This means Anne’s total concessional contributions are $25,500, which exceed her concessional contributions cap of $25,000 by $500. As the excess contributions do not exceed $10,000 and it is her first breach after 1 July 2011, she is able to request the $500 excess contributions to be refunded to her and taxed at her marginal rate.

Anne’s case shows that it is essential to find out all concessional contributions that are made to the superannuation fund.

Case study two

Maria is aged 38 and has decided to salary sacrifice her concessional contribution of $25,000. She is currently paid monthly which will result in a pay reduction of $2,083 each month. During the year there are 13 pays, which means that in one particular year the total amount of concessional contributions is $27,079. In addition to the concessional contributions an amount of $800 has been paid from the ATO’s small holding account to her fund. Amounts paid from that account are concessional contributions.

Maria’s excess concessional contributions for the year are $2,879 (($27,079 + $800) $25,000). She has the option of paying excess concessional contributions tax on the whole amount or opting to receive the payment and pay tax at her marginal rate.

Case study three

Bob is 52 and intends to make the follow-

ing contributions: 2011-12 financial year • $50,000 concessional contributions • $150,000 non-concessional contributions 2012-13 financial year • $450,000 non-concessional contributions Inadvertently, Bob doesn’t factor in an additional SG payment of $1,000 from casual work he does in the 2011-12 financial year. This means his total concessional contributions are $51,000 for the 201112 year and the excess of $1,000 counts towards his non-concessional contributions cap.

As a result, his non-concessional contributions for the 2011-12 year are $151,000 and he has triggered the threeyear cap. The $450,000 non-concessional contribution is now subject to the threeyear cap. The total excess contributions tax is (31.5% x $1,000) + (46.5% x $151,000) = $70,530.

Under the proposed rules for excess concessional contributions, Bob would appear to have the option to have the $1,000 excess concessional contributions paid to him and taxed at his marginal rate.

Assuming his marginal tax rate is 46.5 per cent his tax bill would only be $465. Bob would therefore reduce his tax bill by $70,065 simply by taking the option of having the excess paid to him.

These three case studies indicate how the proposed rules could operate in a variety of situations. One thing they emphasise is that anyone with relatively small excess concessional contributions has a once-off opportunity to avoid the penalty tax. However, after that has been exhausted any future excesses will not be treated as lightly; rather they will be subject to the penalty tax which in some cases can be 93 per cent.

Graeme Colley is national technical manager, advice and distribution, at OnePath.

Find out how FirstWrap could give your business the winning edge with the key elements for success: efficiency, control, value for your clients, choice and flexibility. Contact your Business Development Manager, call 1300 769 619 or visit colonialfirststate.com.au/firstwrap

*Source: Wealth Insights 2011 Platform Service Level Report and survey of 867 aligned and non-aligned advisers, conducted Mar/Apr 2011. This is general information only. FirstWrap is operated by Avanteos Investments Limited ABN 20 096 259 979, AFSL 245531 (AIL). AIL is the Trustee of The Avanteos Superannuation Trust ABN 38 876 896 681. Colonial First State and AIL are owned ultimately by Commonwealth Bank of Australia ABN 48 123 123 124 through the Colonial First State group of companies. Commonwealth Bank of Australia and its subsidiaries do not guarantee performance or the repayment of capital of Colonial First State or AIL. CFS2027/MM 30 — Money Management June 2, 2011 www.moneymanagement.com.au

Appointments

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

Move of the week BT Financial Group has recruited its new head of retirement, with Rodney Greenhalgh taking up the role.

Greenhalgh will be responsible for driving the implementation and execution of the group’s retirement strategy. He will also lead the retirement team and report directly to David Lees, general manager super, investments and retirement.

The new head of retirement brings approximately 17 years of experience, most recently performing the role of general manager, product and marketing at Challenger. Greenhalgh was responsible for maintaining, developing and marketing Challenger’s annuity and managed fund products.

Prior to Challenger, Greenhalgh carried out a number of senior product development roles at MLC. His new role will commence 6 June, 2011.

AMP-owned dealer group Hillross Financial Services has boosted regionalised support for its network of advisers, appointing twelve new senior managers across the country.

One of the new roles had been filled by AXA’s former investment research manager, Hamish Trumbull, who was appointed business relationship manager in Queensland.

The new roles will be based in Melbourne, Perth, Brisbane and Sydney, with a larger team in Melbourne to support advisers in South Australia and Tasmania.

Victorian practices received a new head of financial planning, Monique Moore, who will also

support South Australia and Tasmania.

Moore moved from Suncorp, where she was general manager for Gold Coast since 2009.

Robin Memory and James Grant were recruited as business partnership managers for Victoria, South Australia and Tasmania, while Elwyn Moyser was appointed to the same position in Western Australia.

EQUITY Trustees has appointed John Terlikar to manage its EQT Mortgage Income Fund in the lead-up to the retirement of the incumbent, Joe Aszodi.

Terlikar has more than 32 years

of industry experience and comes to the role from the Over Fifty Group where he was head of reverse mortgages.

He has also held senior credit and mortgage positions at Perpetual Investments, AXA Funds Management and the Commonwealth Bank.

Terlikar has been appointed to work alongside long-serving portfolio manager Joe Aszodi as joint portfolio manager for the 12 months prior to Aszodi’s retirement.

RUSSELL Investments has taken on board Matt Wacher as regional director, indexes, Australia and New Zealand.

The company said the role was created due to client demand for tailored index solutions and that Wacher would be directly responsible for growing the regional business across the Russell Indexes product suite. This would include taking several new indexes to market over the next 12 months and working closely with clients to develop customised indexes.

Prior to joining Russell Investments, Wacher headed up institutional sales and product at CMC Markets, where he was directly involved in the launch of CMC’s Tokyo operations.

He has garnered more than 15

Opportunities PHONE ADVISERS Location: Sydney Company: Godfrey Group Description: An opportunity exists for capable and client-focused individuals to join a new team offering financial advice to existing customers.

The primary focus is the provision of excellent client service and phone-based advice, initially in the area of insurance.

To be considered for an interview, you will be RG146 compliant and have previous experience in the financial planning industry. Alternatively, you may have gained experience in adviser services and wish to progress your career in financial planning.

You will possess a thorough knowledge of appropriate advice processes and procedures, including SOA production. Ideally you will have a strong sales background and expertise in direct sales through phone-based teams.

Training will be provided in product knowledge and compliance.

For more information and to apply, phone Mary O’Neill on 02 8223 1314 or email mary@godfreygroup.com.au

FINANCIAL PLANNERS NSW Location: NSW Company: iPro Consulting Description: Due to substantial growth over the past 12 months, our client is looking for

years experience in the industry, working in Sydney, London and Tokyo.

DEALER group Infocus Money Management has recruited Lyn Dixon as the new head of professional standards and compliance, to support, supervise and train advisers in the field.

Lyn Dixon Dixon’s specific responsibilities will include developing and implementing a risk-based monitoring program for advisers, as well as training and counselling advisers to increase their understanding of compliance and professional standards.

She had joined Infocus from OnePath-owned Tandem Financial Advice network where she oversaw the implementation of the Financial Services Reform Act.

Dixon also worked at Commonwealth Financial Services and was winner of the Financial Planning Association Paraplanner of the Year Award in 2000 and 2001.

WEALTH manager JBWere has appointed Mark Joiner as its new chairman, after Michael Ullmer announced he was stepping down.

Joiner is current group chief financial officer and executive finance director at National Australia Bank (JBWere’s parent), and will step into his new role on 19 July, 2011.

Joiner is also a member of NAB’s board of directors, having also performed the role of group executive general manager development and new business.

He joined NAB in 2006, and had also worked at Citigroup’s global wealth management business as chief financial officer and head of strategy and mergers and acquisitions, based in New York.

JBWere chief executive officer and board member, Paul Heath, said the company was content with Joiner’s experience in the financial services industry.

Joiner will link with fellow board directors Patricia Cross, Paul Heath, Andrew Rothery and Steve Tucker, along with board advisers Terry Campbell and Stephen Fitzgerald.

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

experienced financial planners throughout the CBD and suburbs. We have an immediate need for one financial planner in Castle Hill, Gosford, Five Dock and Ryde, and a junior financial planner is sought for Revesby.

Two financial planners will be hired in Newcastle, St Leonards and Pymble (plus two junior planners).There is a need for an experienced paraplanner in the Sydney CBD, as well as for a servicing/associate adviser.

A minimum of DFP1-6 is required for each of the above roles. The potential to gain equity is also on offer.

We are also looking for experienced advisers who would like to establish their own practice with the backing of one of the world's largest names.

For a confidential discussion, please call Matt Grech on 0408 299 888.

BUSINESS DEVELOPMENT MANAGER – WRAP Location: Melbourne Company: Praemium Description: This is a newly created role focused on selling and promoting SMARTwrap to the adviser market.

An experienced wrap platform specialist is sought to drive sales and manage key relationships to expand the take-up of SMARTwrap.

The role will involve engagement with existing clients, working with advisers and dealer groups to encourage the inclusion of SMARTwrap on APLs and undertaking analysis to identify new market opportunities.

Some national travel and attendance at industry events to build awareness of SMARTwrap is required.

Sound financial services sales management experience, strong dealer group contacts and a good understanding of the wrap market and competing wrap features is essential, along with a pro-active and well organised approach.

Please email your application, including CV and cover letter to david@maerschel.com.au

RISK SPECIALIST Location: Wollongong, NSW Company: Wealthinsure Financial Services Centre Description: If you are a Financial Planner who specialises in risk, then Wealthinsure Financial Services Centre can offer you an opportunity in Wollongong where you will be rewarded for your contribution and results.

You will work in a dynamic small business environment backed by AMP Financial Planning.

Risk specialists will receive leads from the existing investment and mortgage client base and you will work alongside experienced professionals.

You will need a Diploma in Financial Services, a track record in risk planning, excellent

communication skills and a capable manner that inspires confidence.

Please contact Sean Butcher on 0418 243 159 or send an email to sean.butcher@ampfp.com.au

FINANCIAL PLANNER (19TH JUNE) Location: Sydney Company: Jonathan Wren Financial Recruitment Specialists Description: Our client is currently expanding and is seeking a financial planner to add to their wealth management and planning team.

This is a newly created position where you will lead a team to deliver a broad suite of financial insights in order to drive strategic decisions. Your focus will be on servicing, retaining and providing ongoing advice to internal clients, developing relationships with referral partners and prospecting new opportunities.

Your key responsibilities will include financial planning and structuring services and providing clients with individually tailored wealth management solutions.

If you possess solid financial planning experience, business insurance accreditation and have superior communication skills, then this is the role for you!

For a confidential discussion regarding this role, please contact Kathy Bass at Jonathan Wren on 02 8031 6224.

www.moneymanagement.com.au June 2, 2011 Money Management — 31

Outsider

“

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

An energetic logo OUTSIDER must confess to being a little concerned about the new logo launched by AMP following its successful merger with AXA Asia Pacific.

T h e re w a s s o m e t h i n g familiar about the logo and it was something extending beyond reminding him of h i s m a n y h a p py h o u r s sitting watching Mr Squiggle with young Master O on children’s television.

And then it dawned on O u t s i d e r. T h e n e w A M P s q u i g g l e, w h i l e u t i l i s i n g

different colours, seemed very much like the squiggle that adorns BP service stations and petrol tankers.

According to AMP chief executive Craig Dunn, the n e w l o g o i s t h e re s u l t o f s o m e s o u n d re s e a rc h conducted among advisers,

planners and employees who showed “a real desire for a symbol of change to demonstrate our commitment to building the new AMP”.

Outsider noted that Dunn also used the word ‘energy’ in his announcement, which may be of interest to any

ambulance-chasing lawyers looking for a gig.

However while Outsider is aware of instances where major global corporates have launched litigation against relative minnows, he is prepared to bet BP has better things to do than enter a courtroom to discuss the relative merits of squiggles.

T h o s e w i t h a m o re discerning eye than Outsider’s might argue that t h e B P s q u i g g l e i s re a l l y more akin to an opening flower.

Out of context

“Back when we first started, too long ago for me to disclose… well, 25 years ago.”

Financial Planning Association

(FPA) chief Mark Rantall hesitated to tell a room full of gen-Y journalists just how long he has been in the financial planning industry.

Measuring a man’s worth IF THE calendar has turned from May to June, then it is probably time for Outsider to begin the sixmonthly process of attempting to curb his rampant bonus-envy.

Yes, as the financial year comes to an end, Outsider not only tries to find every possible tax deduction, he also hardens himself against the conversations he will have with those working in the financial services industry who will be receiving bonuses measuring greater than this humble journo’s entire salary.

No matter how often Outsider tells himself that life as a humble scribbler has its own rewards, Mrs O reminds him of how many more pairs of shoes might be purchased if only he was working in financial services rather than writing about it.

However Outsider’s six-monthly melancholy has been somewhat

diluted by news from recruitment outfit Hudson suggesting that he is not alone.

The Hudson research says Australia’s economic recover y has brought mixed fortunes to professionals in the accounting and finance space, with wide disparities in salaries and contractual benefits.

“In the senior financial market, a large pool of talented candidates, mixed with a small demand in roles, is having an adverse effect on salaries,” it said.

“Employers are in a sweet spot, as they are able to pick and choose from the best available talent, without the need to offer the hefty salary increases that can be seen across other sectors.”

It is this sort of news that will help Outsider endure watching a cer tain BDM purchase his new Audi next month.

“Mr Deen ‘Briefly’ Sanders!”

After the FPA deputy chief Deen Sanders asked to ‘just briefly’ explain something, Rantall jumped in, saying whenever Sanders promises to be brief, he makes a lengthy speech.

“I wouldn’t mind a good feed more often.”

It seems like head of Advance Investment Solutions Patrick Farrell took a liking to media luncheons, which are usually hosted in some of the better places in town.

Unappreciated genius OUTSIDER has not been the recipient of any major awards or recognition of note, but he knows there is a perfectly valid explanation: his no-nonsense style of rolling up his sleeves and getting on with the job.

Surely, Outsider reasons, those flashy overachiever types you read about in the media spend too much time making a splash and not enough time doing some good old-fashioned hard work.

Despite a tendency not to change his mind in the face of – and often in spite of – evidence that is contrary to his solidly held

opinions, Outsider begrudgingly acknowledges that Institute of Public Accountants chief executive Andrew Conway is developing a rather impressive résumé.

Conway became the youngest ever CEO of an Australian public company when appointed to his current role in 2009 at the age of 28, and Outsider was recently informed that Conway has now been awarded the title of ‘Young Professional of the Year’ by Professions Australia.

The board seemed particularly impressed by Conway’s role in representing the accounting profes-

32 — Money Management June 2, 2011 www.moneymanagement.com.au

sion on Government initiatives, shaping corporate regulation, and his community involvement.

All worthy pursuits, Outsider will not deny, but it leaves him questioning whether what is

really required is for Professions Australia to look at introducing an award that recognises other important professionals.

Outsider likely won’t be qualifying for the ‘Young Professional

of the Year’ award any time soon, but perhaps a ‘Jaded Cynical Journalist of the Year’ award would help Outsider to break his rather long duck in the award-winning department.