Print Post Approved PP255003/00299
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