Money Management (November 3, 2011

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Vol.25 No.42 | November 3, 2011 | $6.95 INC GST

The publication for the personal investment professional

www.moneymanagement.com.au

NAB AND AMP RESULTS: Page 4 | ASIAN EQUITIES: Page 14

Bushby calls for super transparency

By Mike Taylor THE Australian Prudential Regulation Authority’s (APRA’s) handling of superannuation funds needs to be just as transparent as its handling of the major banks, according to Tasmanian Liberal Senator David Bushby.

Amid concerns expressed in the financial planning industry about the manner in which industry superannuation funds have been allowed to operate, Bushby has also suggested APRA might need dedicated and specialist teams to handle superannuation supervision.

In a series of questions on notice directed to APRA, Bushby has specifically raised issues canvassed by some financial planners, including certain personalities holding multiple superannuation fund trustee directorships and how many enforcement actions it has undertaken related to flawed unit pricing and asset valuations.

Speaking to Money Management, Bushby said he believed APRA had done a

David Bushby reasonable job with respect to its regulation of financial services entities, but its handling of superannuation funds was proving harder to fathom.

“Their handling of superannuation funds may well be appropriate, but I believe we

need to learn more about what is happening,” he said.

Bushby said that in the wake of media reports on MTAA Super and the collapse of the Trio/Astarra funds, he had asked a large number of questions of APRA during Senate estimates hearings, and believed the issues warranted further discussion.

He said in recent years, both the banking sector and financial advice industry had been the subject of increased governance and conflicts of interest obligation, but no similar tightening had occurred with respect to superannuation funds.

“Despite the massive amount of money being managed on behalf of Australians, superannuation funds appear to have fallen between the cracks,” Bushby said.

Indicating the Federal Opposition might look to change the legislative arrangements around superannuation funds, the Tasmanian Senator said the Superannuation Industry (Supervision) Act had been in place since 1994, and had been subject to only modest change.

Executives on the move

By Tim Stewart IT has been a turbulent year in the financial planning industry, with a number of executives losing their positions as the consolidation in the market continues.

The biggest structural change to the industry in 2011 has been the merger of AMP and AXA Asia Pacific, which saw AXA chief executive Andrew Penn leave the company with a $17 million payout.

AMP chief executive Craig Dunn acknowledged in April that the merger would result in job losses where “duplication” existed, although he said the company would endeavour to limit any staff cuts to “natural attrition”.

Count Financial agreed to a takeover by the Commonwealth Bank on 29 August, in a deal worth $373 million. The acquisition represented the big banks' first foray into financial services since the consumer watchdog blocked NAB's $13.3 billion offer for AXA Asia-Pacific.

More recently, the takeover of DKN Financial Group

by IOOF Holdings Limited was made official in October. Five DKN board members resigned their positions as part of the agreement, and DKN chief executive Phil Butterworth left the merged entity on 21 October 2011.

Following an extraordinary general meeting last month, Matrix Financial Solutions shareholders voted to put 100 per cent of the company up for sale to an external investor. Matrix managing director Rick Di Cristoforo said the plan had “significant support” from both shareholders and advisers.

Snowball Group and Shadforth Financial Group joined forces in June, and will adopt the name SFG Australia (subject to shareholder approval). It has been

announced that Snowball chief executive Tony McDonald will leave the company on 4 October 2012.

Zurich Financial Services sold ratings house Lonsec to Mark Carnegie-backed company Financial Research Holdings in June. One month later, Lonsec general manager of research Grant Kennaway departed the company to join Morningstar.

There was also movement at ratings house Standard & Poor’s, with managing director of fund services Mark Hoven leaving on 29 July 2011.

Last month former Professional Investment Holdings (PIH) chief executive Robbie Bennetts formally ended his relationship with the company he founded.

PIH parent company Centrepoint Alliance chose not to continue Bennetts’ two-days-per-week consultancy work.

Perpetual chief executive David Deverall completed the handover of his job to Chris Ryan on 4 March of this year.

In June, Mark Burgess resigned his position as managing director of Treasury Group to take on the general manager role at the Future Fund Management Agency.

Wilson HTM underwent a major reshuffle in March when chief executive David Groth resigned after a year in the role.

UBS Global Asset Management finalised its takeover of ING Investment Management Australia on 4 October, leading to the redundancies of 36 of the 120 ING staff, according to one source.

AMP Capital lost its head of Asian equities Karma Wilson in August, leaving Ragu Sivanesarajah and Jonathan Reoch as acting co-heads of Asian equities.

Finally, the big insurer Tower Australia was acquired

by Japanese insurer Dai-Ichi Life in May. Tower later rebranded as TAL.

“During this time, financial markets have dramatically changed, with more complex and less secure asset classes and products coming on stream, and there have been technology changes which make it more difficult for regulators to track investor fund movements,” Bushby said.

“As such, I believe a number of questions need to be answered,” he said.

Bushby said that among those questions was whether APRA’s prudential supervision strategy remained best practice, and whether its cross-functional approach remained appropriate.

“Does APRA now need dedicated teams of experts who do superannuation-only supervision, and should such experts be provided additional supervisory powers?” he said.

Bushby said he was also interested in whether APRA policies on unit pricing and asset valuation needed to be more aggressively enforced, and whether the regulator needed to adopt new enforcement strategies.

MIS fallout continuing for planning firms

By Chris Kennedy THE fallout from a variety of managed investment schemes (MISs) that collapsed following the onset of the global financial crisis continues to play out through the Financial Ombudsman Service (FOS).

In eleven decisions announced by FOS in the past three months directly relating to MISs, FOS found in favour of the complainant on ten occasions. In those cases, the financial services provider was o rd e re d t o re i m b u r s e t h e client for capital lost (capital invested less distributions received, if any) as well as interest compounded at 5 per cent per annum.

In s o m e c a s e s, o t h e r expenses including management costs were also ordered to be refunded, as well as loan costs in cases where the client w a s a d v i s e d t o b o r row t o invest in the MIS. In one case, although the financial services provider was directed to repay the client, the company was in

Mark Rantall liquidation and the liquidator was not deemed to be liable.

The cases involved both agribusiness and real estate MISs. Failed agribusiness projects that led to findings against financial services providers included projects from Great Southern, Timbercorp and ITC, as well as the No r t h e r n R i v e r s Co f f e e Pr o j e c t , Po r t Ro b e E s t a t e Continued on page 3

Editor

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ISN advertising carries risk

S

ome tough questions have been asked about the Industry Super Network’s (ISN’s) long-running television advertising in recent weeks – a number of times in the Federal Parliament, and then at the Association of Financial Advisers (AFA) annual conference on the Gold Coast.

The questions asked in the Federal Parliament were directed towards the regulators: the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA). Questions at the AFA conference were directed at ISN chief executive, David Whiteley. Those looking for definitive answers would have been bitterly disappointed.

Whiteley declined to specify precisely how much his organisation and its industry fund constituents were spending on television advertising, while officials from both APRA and ASIC also managed to sidestep the immediate issue.

However, Tasmanian Liberal Senator David Bushby succeeded in throwing a new element into the debate around ISN advertising when he queried whether the industry funds had the capital backing necessary to handle any legal action arising from false and misleading advertising.

message for “theTheISNsimple is that a litigation risk exists if the escalator does not go as high as its advertisements suggest.

”

Bushby asked APRA’s deputy chairman Ross Jones whether the regulator had made any estimates or assessments of the prudential risk for trustees who contributed member funds to advertising campaigns which might result in legal claims for false and misleading advertising.

“Essentially, is APRA confident that trustees have sufficient capital or adequate insurance cover to meet member claims in the instance that claims along those lines arise?” he asked.

Jones said, “The simple answer to that would be no, because a number of funds have no capital. If there are issues with funds that would lead to members taking

action against the trustees or the fund and the fund has no capital, there is clearly an issue”.

What is more, Jones acknowledged that it was unlikely such a liability carried by a fund would be covered by the new Stronger Super legislation which provided for an operational risk reserved, saying “given that that is linked to operational risk, I am not quite certain how that would work if members sued the fund”.

Bushby’s question should have set off alarm bells both within APRA and the ISN, because it places on Parliamentary record the possibility of superannuation fund members suing individual funds because of the tenor of advertising suggesting people transferring to those funds will ultimately be better off.

In circumstances where at least one high profile industry fund has failed to perform to expectations and where a number of law firms have signalled their willingness to initiate action in the financial services industry, Bushby’s question would seem to have plenty of foundation.

The simple message for the ISN is that a litigation risk exists if the escalator does not go as high as its advertisements suggest.

— Mike Taylor

S&P

FUND AWARDS

2011 AUSTRALIA

2 — Money Management November 3, 2011 www.moneymanagement.com.au

News

Mortgage fund sector sharply divided

By Milana Pokrajac A SHARP divide in the mortgage fund sector remains between the funds which have suffered little or no effects from the global financial crisis (GFC) and those which have been demolished.

This is the main finding of the Zenith Investment Partners 2011 mortgage fund sector review, which saw three of the 29 funds rated making the recommended list and now candidates for client model portfolios.

The three funds receiving the recommended rating were Equity Trustees Wholesale Mor tgage Income Fund, Australian Unity Wholesale Mortgage Income Trust and La Trobe Australian Mortgage Fund (pooled option).

Zenith analyst Dugald Higgins said the

landscape in the sector was divided ever since the GFC dealt a series of heavy blows through 2008 and 2009, with many funds remaining severely wounded or in the process of withdrawing from the field.

Perpetual closed its $1 billion mortg a g e f u n d i n Se p t e m b e r, b u t h a s announced a new series of funds for retail investors.

AXA too has recently announced that, “after careful consideration”, the Nationa l Mu t u a l Fu n d s Ma n a g e m e n t – a responsible entity for AXA’s mortgage funds – had decided to wind up the funds.

However, he said surviving players in the sector have been presented with a window of opportunity.

“Many of the mortgage funds still in

existence remain unable to undertake lending operations due to funds being frozen,” Higgins said. “These events, combined with the cyclical fall in asset values, have meant that credit margins have been effectively repriced, resulting in higher margins for lower empirical risk than was previously available.”

He said that as a result, mortgage managers should be able to provide a t e m p o ra r y b o o s t t o re t u r n s b e f o re lending environments stabilise and become more competitive once more.

“In comparison to official interest rates, those mortgage managers with disciplined quality operations have proven their ability to maintain a rate of re t u r n w i t h a s i g n i f i c a n t p re m i u m d u r i n g t h i s p e r i o d o f d i s l o c a t i o n ,” Higgins added.

MIS fallout continuing for planning firms Continued from page 1 Pro j e c t a n d Tro p i c a l Forestry Services Indian Sandalwood Project.

Failed real estate MISs that led to findings against planning firms included the Domaine L a n d Fu n d Mo s s Va l e Project; Kebbel Development Capital’s Gilead Retirement Resort and Riverside Pier Trust hotel development; the Prime Retirement Aged Care Property Trust and PCG Capital Management’s Nelson Bay Development Trust.

In all cases where FOS found in favour of the complainant it was deemed that the advice to invest in those schemes was inappropriate because the investments were too high risk for the client’s situation.

In two cases, the longterm nature of the projects was also deemed to be unsuitable as the client was entering or already in retirement and would not be able to access the funds they needed to fund their retirement. In one case it was found that the client should not have been advised to borrow to invest in the MIS because they could not afford the loan repayments.

The investment amounts l o s t ra n g e d f r o m l e s s than $20,000 to $150,000.

In the most expensive case the clients, a retired couple, were advised to invest a total of $295,000 out of a $777,000 retirement portfolio, or 38 per cent of their portfolio, into five high-risk real estate MISs, resulting in losses of $247,000.

Fi n a n c i a l P l a n n i n g Association chief executive Mark Rantall said that a lot of the issues around MISs have been addressed on the advice side in the second t ra n c h e o f Fu t u re o f Financial Advice proposals through the banning of commissions and the b e s t i n t e re s t d u t y.

Howe v e r, i t w o u l d b e good to see similar responsibility placed on the product manufacturing side to close the protection loop around clients regarding these types of investments, he said.

He said MISs can be a legitimate form of investment, but it is important to have the necessar y prudential management controls and reporting requirements to ensure maximum consumer protection. There remains a big question mark over the structure and viability of these sorts of investments going forward, and it could be some time before we see investors returning to these products, Rantall said.

Dugald Higgins

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www.moneymanagement.com.au November 3, 2011 Money Management — 3

News

Strong NAB result, but MLC and NAB Wealth struggle

By Mike Taylor THE National Australia Bank has produced solid full-year results, finishing the 12-month period in good shape, reporting a 23.6 per cent increase in net profit after tax to $5.2 billion and generating a total dividend of 172 cents per share.

However, its wealth-related businesses MLC and NAB Wealth struggled during that period, reporting a 12.5 per cent decline in cash earnings to $533 million, which the bank attributed to weak investment markets and lower earnings in the insurance business.

The company’s announcement to the Australian Securities Exchange said insurance earnings had decreased due to higher levels of claims and changes in the lapse mix, while Funds Under Management as at 30 September had fallen by 2.9 per cent to $112.7 billion “as a result of deterioration in investment markets during the second half of the year and subdued discretionary flows across the industry”.

Despite the tough conditions, MLC and NAB Wealth had continued to invest, with adviser numbers up from 1,555 to 1,864 over the period.

Commenting on the overall result, NAB chief

executive Cameron Clyne said it represented a good result which demonstrated the banking group had continued to strengthen core banking businesses.

Discussing the MLC and NAB Wealth result, Clyne said the reduction in cash earnings was largely the result of weak and volatile markets.

“The sales of wholesale banking products and services across the wider group customer base continued to increase, and MLC and NAB Wealth continued to grow adviser numbers, launch new products, and increase its customer base,” he said.

Cameron Clyne

Hillross practice departure impacts AMP outflows THE departure of a Hillross practice in 2010 saw AMP Limited suf fer net cash outflows of $192 million, according to the company's latest third quarter cashflow report filed with the Australian Securities Exchange (ASX).

The report said net cashflows for the third quarter to 30 September were $335 million, compared to net cash outflows of $170 million for the same period a year earlier.

However the company said that growth in its contemporary platforms and products had partially offset the impact of volatile markets and subdued investor sentiment, with net retail cashflows on AMP platforms up 21 per cent over the same period last year to $119 million.

While the company’s platforms performed well, its wealth management and insurance businesses struggled, with cashflows related to its contemporary wealth management division down 5 per cent for the quarter to $78.4 million.

The contemporary wealth protection business was impacted by higher income protection claims and higher lapse rates.

Where the platforms were concerned, the AMP announcement noted that AMP Flexible Super, after launching 18 months ago, had become Australia’s fastest growing superannuation and retirement p ro d u c t . I t r e c o rd e d a 24 per cent increase over the quarter to $3.5 billion in assets under management (AUM), while AXA’s N o r t h p l a t fo r m h a d increased AUM by 7 per cent during the quarter to $2 billion.

4 — Money Management November 3, 2011 www.moneymanagement.com.au

News

CFP EU aims to improve risk framework

By Chris Kennedy

AN enforceable undertaking (EU) offered by Commonwealth Financial Planning (CFP) to the Australian Securities and Investments Commission (ASIC) was the result of self-reporting, with the EU aimed at improving the overall risk management framework of the licensee, according to Colonial First State general manager of advice Marianne Perkovic.

CFP has been working with ASIC on the matter since 2008. The case is based on

Mortgage fund sector shrinks

By Milana Pokrajac PERPETUALand AXA’s decision to wind up their mortgage funds would result in increasingly limited choices for investors in the sector, according to Equity Trustees portfolio manager, mortgages, John Terlikar.

The mortgage fund sector is still on a rocky road to recovery from the impact of the global financial crisis, but Terlikar said recent developments, such as a watering down of the bank guarantee and rating reports, indicate that mortgage funds should be considered again.

Earlier this month, AXA announced that, “after careful consideration” the National Mutual Funds Management – a responsible entity for AXA’s mortgage funds – had decided to wind up the funds.

Perpetual also closed its $1 billion mortgage fund last month, but has announced a new series of funds for retail investors.

Terlikar believes the reasons why mortgage funds were attractive in the first place were forgotten.

“Investors have always liked the diversity that mortgage funds can add to a portfolio, they like the stability of an investment backed by mortgages, they like the regular income and, in the current environment, they like the better rate of return over other options such as term deposits,” Terlikar said.

He added that falling returns and risk considerations in other forms of fixed interest investment also point to the need for mortgage fund consideration.

“This, combined with the declining returns from term deposits offered by banks, means that investors need to look for alternatives to help maintain their income.”

the actions of a small number of advisers, including former CFP adviser Don Nguyen (who earlier this year received a seven-year ban from ASIC), Perkovic said.

Where advice was reviewed and found to be inappropriate, CFP has brought the client back to where they would have been financially without that advice, she added.

From an industry-wide perspective, a lot of the reviewing of adviser actions is based on the audit process. Reviewing whether advice was appropriate happens after the advice has been implemented. CFP is now working through the

EU to try to build a good model for early detection pre-transaction, Perkovic said.

“This is essentially about confirming our commitment to the voluntary program we’ve already commenced,” she said. “We consider this an opportunity to strengthen our risk management framework and operating model, which supports our advisers and clients.”

While the EU is limited to CFP, the group will seek to implement its benefits across all of its dealer groups, she said.

“This program seeks to establish that ownership of consistent risk management

practices starts at the individual adviser level,” she said.

Some changes arising from the program have already been implemented, including the integration of administration systems and increased focus on training and education, CFP stated.

According to ASIC, under the EU, CFP will develop an implementation plan to address any unresolved deficiencies identified by the assessment of its risk management framework, and the process will be subject to a two-year review.

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www.moneymanagement.com.au November 3, 2011 Money Management — 5

News

Still a war to be won – Cormann

By Andrew Tsanadis THE Opposition is not trying to wage a war against industry superannuation funds, but the Fu t u re o f Fi n a n c i a l Ad v i c e (FOFA) bill has to be fair across the entire industry, said Shadow Minister for Financial Services and Superannuation Mathias Cormann.

In his address to the Associat i o n o f Fi n a n c i a l Ad v i s e r s Na t i o n a l Co n f e re n c e 2 0 1 1 , Co r m a n n a l s o s a i d i t w a s important for the Government to undertake the Ripoll Inquiry following the collapse of Storm Financial in 2009, but criticised the Government for not providing further details on the best interest duty. “ T h e Co a l i t i o n w a s q u i t e surprised when the FOFA legislation finally hit parliament a couple of weeks ago, the one thing that was removed was any

provisions to do with the best interest duty,” he said.

In adopting opt-in, Cormann said the Government did not embrace its proposed implem e n t a t i o n o n a s t ra t e g i c consideration, and the Opposition was opposed to it. The senator said the provisions on opt-in were based on lobbying by the Industry Super Network, and he accused the Minister for Financial Services and Supera n n u a t i o n , Bi l l Sh o r t e n , o f

pursuing a vested interest.

“He [Shorten] is chopping and changing, going backwards and forwards, and even after all these years of process we still can’t get the whole comprehensive legislation,” he said.

Cormann said the Opposition had recommended that the FOFA legislation be sent to a Parliamentary Committee for public enquiry, and the Government needed to explain thems e l v e s m o re a d e q u a t e l y i n regards to pursuing an opt-in policy that was not part of the i n i t i a l Pa r l i a m e n t a r y Jo i n t Committee inquiry.

Cormann also accused the Government of implementing policies that unfairly targeted boutique advisers and were not i n t h e b e s t i n t e re s t s o f t h e public.

“There’s still a battle to be won, and there is certainly a war to be won,” he said.

Choice insurance review irresponsible

By Milana Pokrajac THE Insurance Council of Australia (ICA) has criticised Choice’s review of flood insurance as irresponsible, claiming it may frighten at-risk property owners away from obtaining insurance.

Consumer group Choice has published its 2011 Shonky Awards, with the insurance industry receiving one for “calamity after the storm”.

The group claimed “thousands of homeowners were left high and dry by insurance companies that rejected their claims following the 2011 Queensland, NSW and Victorian floods”.

Among the biggest culprits were CommInsure, CGU and RACQ – with around 15 per cent of claims being knocked back, according to Choice.

The awards summary for this category stated that policy holders were dissuaded from making

claims, that the claims process was confusing and complex, and that flood cover often did not cover floods.

However, the ICA chief executive officer Rob Whelan said only 725 of 130,000 flood insurance claims resulted in disputes, and those have been referred to the Ombudsman.

“In 2008 the insurance industry agreed to a standard flood definition, but it was rejected by the [Australian Competition and Consumer Commission] at the time,” he said. “In January the industry again called for a standard definition of flood, and repeated this in May in its submission to the Natural Disaster Insurance Review.”

“Handing out dummy awards is a stunt, not a solution; it’s not worthy of CHOICE,” Whelan added.

Regulatory changes unlikely to stop deliberate fraud

By Mike Taylor O N E o f Au s t r a l i a ’ s m o s t senior financial services regulators has acknowledged that the money lost in the Trio/Astarra collapse had been gone for a long time before the Australian Prudent i a l Re g u l a t i o n Au t h o r i t y (APRA) acted with finality on the issue.

APRA’s deputy chairman Ross Jones has told a Senate estimates committee that with hindsight “I think the money had been gone for a very long time”.

Jones was responding to questioning from Opposition s e n a to r s w h o s u g g e s te d they needed clarity around what, precisely, happened with respect to Trio/Astarra in the context of the Government’s current changes with respect to Stronger Super and the Future of Financial Advice (FOFA).

Jones said if people were d e l i b e r a te l y e s t a b l i s h i n g arrangements to facilitate fraud, then it was very difficult to catch.

Referring to the Parliament’s consideration of the FOFA changes, the Opposition spokesman on financial services, Senator Mathias Cormann said he was trying to get a sense as to whether, if somebody with deliberate intent to defraud were to go

Ross Jones down the same path again, t h e s y s te m wa s b e t te r equipped to deal with the issue.

“We are having discussions on things like forcing people to resign contracts with their financial advisers, which is quite low level compared to the sorts of things that we are talking about here, where hundreds of millions of dollars are put into hedge funds overseas…with the deliberate intent to defraud,” Cormann said.

“It seems to me – and I am not being critical – in the way t h e c i rc u m s t a n c e s developed, there was very little on the face of it that regulators were able to do to intervene at an appropriate t i m e to t a ke c o r r e c t i ve action,” he told the APRA deputy chairman.

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6 — Money Management November 3, 2011 www.moneymanagement.com.au

News

FOFA an industry own goal ASIC outlines details of education regime

By Chris Kennedy

THE financial planning industry needs to take the intent of the Government’s Future of Fi n a n c i a l Ad v i c e ( F O FA ) reforms and build on them into the future so the Government isn’t compelled to intervene again, according to chartered accountant and former financial adviser Robert MC Brown.

D e s p i t e g i v i n g c re d i t t o bodies like the Financial Planning Association for plans to improve the profess i o n a l i s m o f t h e i n d u s t r y, Brown described it as “too little too late”.

Brown said it was disappointing that at no stage through the FOFA consultation process had the industry shown a modicum of contrition for past sins or conceded that FOFA might be an own goal caused by its lack of willingness to “comprehensively self-regulate its vertically integrated product distribution structure”.

Instead, the industry insists there are a few bad apples that

Robert MC Brown need to, be removed by the regulator after which, all will be well, he said.

There has been emotional and at times petulant criticism of the proposed legislation, which is now full of compromises that will allow the industry substantial scope to avoid the legislation’s spir it and intent, he said.

Industry leaders have stated their organisations will circumvent the legislation through actions, including

white labelling product platforms within advisory groups, effectively allowing them to sell their own products, which is clearly not the intention of the reform package, he said.

“If we claim to be a profession we should take on board t h e p r i n c i p l e s i n F O FA , support that, and then go further,” Brown said.

The industry cannot claim to be a profession while persisting with conflicted re m u n e ra t i o n s t r u c t u re s, which includes not only trail commissions but any assetb a s e d f e e s, a s t h e St o r m Financial disaster highlighted, he said.

I f w e re m ov e a l l t h o s e conflicts, then the criticisms being levelled at the industry from the likes of the industry super fund sector will go away, he said.

It’s not just about disclosing or managing conflict but removing the potential for that conflict, and the industry will not become a profession until i t c re a t e s a n e n v i r o n m e n t where there is absolute trust from the consumer, he said.

By Tim Stewart AUSTRALIAN Securities and I nve s t m e n t s C o m m i s s i o n (ASIC) chairman Greg Medcraft has outlined the regulator’s proposed measures to improve the “competency and quality of advice”.

Speaking at the Finsia n a t i o n a l c o n fe r e n c e , l a s t week, Medcraf t confirmed ASIC’s intention to introduce a national entrance exam for all new advisers from 2012.

However, he acknowledged the start date could be too s o o n , a n d wa s o p e n to a three-year transition period.

When it came to continuing professional development (CPD), all advisers will be required to take the online Knowledge Update Review every three years, Medcraft said. The eLearning module will not require preparation, and will earn advisers gener-

ous CPD points, he added.

A fellow financial planner with at least five years experience will monitor new advisers for one year, Medcraf t said.

ASIC also plans to create a central database containing all of the results recorded by the new regime.

Medcraf t acknowledged there were some reservations in the industry about the Knowledge Update Review, but he said “this is more a reflection of the lack of unders t a n d i n g o f t h e Rev i ew ’ s objectives”.

He added ASIC intended to keep the costs of the new education regime “to a minimum”.

“We are working to a target figure of $300 for the examin a t i o n s i t t i n g fe e , a n d between $250 and $300 for the completion of the Knowledge Update Review,” Medcraft said.

www.moneymanagement.com.au November 3, 2011 Money Management — 7

News

ASIC reviewing ISN advertising

By Mike Taylor THE Federal Opposition has succeeded in having the Australian Securities and Investments Commission (ASIC) review some of the Industry Super Network’s ‘compare the pair’ television advertising.

The regulator gave the undertaking after the matter was raised within a Parliamentary Committee by Tasmanian Liberal Senator David Bushby, who pointed to an upsurge in the number of television advertisements appearing and asked ASIC officials whether they were doing anything about it.

“I would be very interested in knowing whether you have taken any interest in those [advertisements] and, if you

have, whether you have taken any action or will look into it,” he said.

ASIC senior executive officer Warren Day asked Bushby whether he was aware of any of the industry fund advertisements which did not comply with the guidance issued by the regulator.

The Senator said the advertisements did not appear to contain the figures regarding the assumptions that were previously in the advertisements.

ASIC chairman Greg Medcraft agreed to take Senator Bushby’s question on notice, saying he was neither aware of any problems, nor had he been briefed on any issues associated with the industry funds advertising.

AFA unveils new grassroots campaign THE Association of Financial Advisers (AFA) has unveiled a new advertising campaign to promote the value of financial advice and the need for everyday Australians to form a relationship with an adviser.

The campaign, entitled ‘Make a Plan’ (MAP), is about opening a conversation with the Australian community in language that they understand, said AFA chief executive officer Richard Klipin.

Referring to the Association’s ‘Back to Basics’ report from 2010, Klipin said the new campaign is part of three strategic initiatives to promote financial planning and encourage Australians to engage with an adviser.

He said the AFA is focused on growing the market, developing an understanding of what advice can do to change a person’s life, and building trust within the community.

He said Australians do not see the

Richard Klipin need to seek a planning service partly because it is part of an Australian cultural attitude that people can handle their own affairs.

“Our campaign is not going to be run on prime time television during the AFL grand final or during the cricket. But it is going be fatty, it’s going

Getting real with Gen Y and X clients

By Andrew Tsanadis MOST prospective Generation X and Y clients do not know what they want to do financially – and they are a market that requires more industry focus, according to Experience Wealth Advice director and personal wealth adviser Steve Crawford.

Financial advisers need to take a different approach to setting goals with this age group by making what they want most – such as purchasing a property in a particular area within a realistic time frame – into a genuine proposition.

“X and Ys are interested in what they want to do financially but they change their mind or don’t stick to a plan over the long term,” Crawford said.

“If clients get through 12 months without changing their goals they’re slow movers in my world.”

Clients in this age demographic will generally exam-

ine their financial goals once a year, something Crawford said his strategy focuses on.

He said what sets Gen X and Y clients apart from pre- or post-retiree clients is that an adviser must focus their attention on adding value to the planning process in terms that this age group understands.

“Engaging them with strategy early on is premature. You need to get them to the starting line first,” he said.

“Traditional risk and superannuation planning will be less appealing to them than an approach that offers extra advice on goal setting, spending, and saving and debt advice.”

Crawford said that rather than being risk averse, Gen Y in particular, who have seen global share markets rise and fall regularly due to the extensive media coverage, are perhaps more tolerant to risk than previous generations.

to be agile and it’s going to be about real people, real advisers and real situations” Klipin said.

Brand ambassador and Channel 7 anchor Naomi Robson said the most common thread that runs through the common approach to Australians’ finances is clearing debt and debt consolidation. She said the MAP campaign is about giving financial advice a human face.

“Debt is not just a financial problem – it’s also taking a toll on people’s relationships, their health and their happiness,” Robson said.

Revealed in the main conference hall, the MAP pilot – entitled ‘Your Best Interest’ – depicts Noall and Co. managing director Marc Bineham working with a ‘real-life’ Australian family to form a strategy to clear their debts and begin a savings plan.

Robson said advisers become the hero of the campaign.

Need for fee transparency on scaled advice THE Australian Securities and Investments Commission (ASIC) has agreed there must be transparency around the fee structures applying to scaled advice and appropriate controls around remuneration to avoid conflicts of interest.

The regulator's views were made clear during official responses to questions posed by the Opposition spokesman on Financial Services, Senator Mathias Cormann, during Senate Estimates Committee hearings. Cormann had previously expressed concern about the manner in which industry funds might deliver scaled advice.

ASIC senior executive leader John Price said the regulator supported scaled advice, referencing a report issued by ASIC last December which held that the majority of Australians do not necessarily want a full financial plan.

"Typically, a majority of Australians who want financial advice are keen to get advice on specific things relevant to their financial circumstances, and that, in essence, is scaled advice," he said. "So scaled advice, in essence, is relatively constrained advice about particular items rather than what

Mathias Cormann has been termed holistic advice, which is a full, comprehensive financial plan about everything to do with someone's finances. So an example of scaled financial advice might be the simple question, 'Should I contribute more to superannuation or should I pay off my mortgage faster?'"

However Price declined to give his opinion on who should pay the fees for scaled advice, beyond saying he believed there should be transparency around fees and "appropriate controls around remuneration arrangements that might lead to conflicts in the provision of the advice".

Sydney-based firm has AFSL suspended

By Chris Kennedy SYDNEY-based financial services firm Far East Capital has had its Australian financial services licence suspended by the Australian Securities and Investments Commission (ASIC) for failing to comply with key obligations under that licence.

ASIC found Far East failed to lodge financial statements, auditor reports and auditor opinions over consecutive years despite repeated demands from ASIC; and

did not advise ASIC of those breaches.

ASIC Commissioner Dr Peter Boxall said ASIC has a program in place to follow up licence holders regarding lodgement of their accounts, which seeks compliance and may then result in action such as suspension or cancellation of a licence.

ASIC said it may consider revoking the suspension period in the event Far East lodges the outstanding reports.

Far East offers services including research reports on market trends for prospective investors, according to ASIC.

Dr Peter Boxall

SMSF cash holdings up, shares down SELF-managed super funds have increased their cash and fixed interest holdings and significantly reduced their Australian share exposure, according to a Multiport survey of 1600 of the funds they administer, representing around $1.3 billion.

Cash holdings increased nearly 2 per cent in the September quarter while shares dropped close to 3 per cent in the quarter, due to a combination of dividends being paid out and not being reinvested and a decrease in the share market over the quarter, Multiport found.

Fixed interest holdings also increased close to 2 per cent and property was up slightly, while there was a slight drop in international shares and other assets, including hedge funds and private trusts.

Cash is currently at 24.7 per cent, its highest level for

8 — Money Management November 3, 2011 www.moneymanagement.com.au

two years, as many funds sell off assets due to market uncertainty, according to Multiport.

Direct property allocation reached its highest level since December 2008 as more funds took advantage of gearing strategies, possibly exacerbated by share market uncertainty, Multiport found.

Overall around 16 per cent of funds in the survey were utilising a limited recourse borrowing arrangement, with just over half of loans invested in property at an average of $217,000 per loan and just under half in financial assets at around $238,000 per loan.

An increase in loan amounts for financial assets in the quarter was predominantly due to the use of protected equity products, with higher gearing ratios than is currently available for direct property, Multiport stated.

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News ISN brands advice Whiteley refuses detail on cost of ISN advertising industry ‘90 per cent sales’

By Mike Taylor

By Chris Kennedy INDUSTRY super lobby group the Industry Super Network (ISN) has used a recent Australian Securities and Investments Commission (ASIC) report to label the advice industry as 90 per cent sales and 10 per advice, and to reiterate its calls for a ban on commissions and the introduction of opt-in.

The ISN was referring to ASIC’s September study Report 251: Review of financial advice industry practice which found that among the country’s 20 largest licensees (representing around 70 per cent of the country’s advisers), only around 10 per cent of remuneration is received in the form of client fees and neutral product payments. Around 90 per cent is paid by product providers in the form of ongoing commissions, up-front commissions, and volume rebates or manager fee rebates, ASIC found.

ISN also pointed to a finding that around two thirds of clients from the top 20 licensees were regarded as inactive.

“The ASIC report has pulled back the curtain to reveal the extent to which the structure of the financial planning industry impedes planners from being able to act in the best interests of their client,” the ISN stated.

Future of Financial Advice reforms are essential to serve the interests of clients, the ISN stated. It said financial planning industry opposition to the reforms was easy to understand because “this is an industry built around conflicted remuneration and passive income charged to millions of unwary clients (often from their compulsory super) who receive no ongoing services”.

The report also found that among the top 20 licensees there is a concentration of funds under advice into related party products.

“Consistent with an industry that is, operationally, a sales and distribution channel, rather than an impartial source of advice, the ASIC report revealed that advisers concentrate product recommendations into a few products, often issued by related parties,” the ISN stated.

The ISN called for ongoing reporting on matters related to those considered in the ASIC report. These included the business models; ownership structures; remuneration practices; assets under management; product concentration; qualifications and number of advisers; risk management; and practices related to approved product lists.

ASIC’s report was based on a questionnaire sent to licensees in December 2009 and on data from the 2008 and 2009 financial years.

INDUSTRY Super Network (ISN) chief executive David Whiteley has refused to detail what his organisation is spending on national television advertising beyond saying it is “minuscule” when measured against what is being extracted in commissions in the financial services industry.

Sitting on a panel at the Association of Financial Advisers (AFA) national conference on the Gold Coast on Sunday, Whiteley refused to be drawn on how much the

ISN campaign was costing, saying he doubted whether such information would be made public by other groups.

Under questioning on the panel, the ISN chief executive also suggested that planners were only prompted to ask the questions because they disliked the content of the advertisements.

Other panelists had earlier suggested that industry superannuation funds had been placed in a privileged position by the Government, which had chosen to treat the superannuation

industry differently.

The president of the AFA, Brad Fox, had earlier used his opening address to the AFA conference to ask whether the ISN would be prepared to accept an olive branch from the industry and act to promote the value of advice.

Later, Whiteley acknowledged that industry superannuation funds were now providing advice and pointed out that a number of the planners providing that advice were members of the Financial Planning Association (FPA).

Opt-in and best interest a waste of time

By Andrew Tsanadis OPT-IN and best-interest reforms are a waste of time and a cost burden, according to Alexis Compliance and Risk Solutions director Christina Kalantzis.

Speaking at an industry panel on the opening day of the Association of Financial Advisers (AFA) National Conference 2011, Kalantzis said the financial advice industry already has contractual arrangements with their clients and opt-in is an expensive, bureaucratic exercise.

Sitting opposite the Federal Member for Oxley, Bernie Ripoll, Kalantzis said that all advisers have fiduciary duties to their clients that are currently enshrined in the Corporations Act 2001.

When Ripoll was asked whether he believed the second tranche of the Future of Financial Advice (FOFA) bill was faithful to the 2009 Parliamentary Joint Committee recommendations,

he said the reforms were better than he expected. He also denied recent allegations by the AFA that the implementation of parts of the legislation breached best practice policies.

“There’s a difference in what exists in law and what exists in the culture of the adviser network,” Ripoll said.

“It’s about trying to get some of this [legislation] more ingrained and part of the norm rather than something that is done by only some sections.”

Kalantzis argued that another major problem with the FOFA bill is that it fails to deal with the issues that surrounded the collapse of Opes Prime in 2008 and Storm Financial in 2009, the reason why the PJC was set up in the first place.

“What we’ve fallen short on is this whole focus on advisers and I can’t really get it clear as to what’s going on with product manufacturing.”

Christina Kalantzis

Countries need new growth model: PIMCO

By Tim Stewart IN the low-growth ‘new normal’ of the global economy, countries need to find a way to grow that is not accompanied by the accumulation of debt, according to PIMCO head of global portfolio management Scott Mather.

“We’ve moved into a phase where we really anticipate for most of the developed world that growth is going to be teetering around zero,”

10 — Money Management November 3, 2011 www.moneymanagement.com.au

Mather said.

He added that a low-growth and low-inflation environment could create lots of opportunities for bond investors, but those opportunities meant that bonds were no longer risk-free.

Countries are not going to be “pulling together” when it comes to monetary and fiscal policy any longer, he said.

While there used to be the appearance of economic coordination, countries will

now be uncomfortable doing the same things, Mather said.

“Several years from now, we’re not going to end up in the same place where growth and inflation look the same everywhere,” Mather said.

PIMCO recently surveyed 16 of its institutional clients who represent $300 billion in superannuation assets. In March, respondents were split 50-50 on whether US growth would be closer to zero or 3 per cent; today, 80 per cent of respon-

dents said US economic growth would be closer to zero.

The biggest three concerns for PIMCO clients were the uncertainty in the Eurozone; the potential effects of the collapse of the Euro; and the prospect of deflation around the world. The three biggest opportunities were the rise of skilled alpha strategies; fixed income carry strategies hedged into Australian dollars; and infrastructure and infrastructure debt.

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FPA. BEST PRACTICE

SMSF Weekly Lack of capacity overlooked in SMSFs

By Damon Taylor

Bryce Figot

NOT preparing for loss of capacity within a selfmanaged super fund (SMSF) can severely cr ipple that fund’s day-to-day operation and is an issue not on e n o u g h t r u s t e e ra d a r s, according to Br yce Figot, Se n i o r A s s o c i a t e a t D B A Lawyers.

Outlining the most c o m m o n s c e n a r i o, F i g o t said it began with the lack of an appointed enduring power of attorney.

“A n d t h a t i s a l l t o o common,” he said. “The next part of this scenario – and

this is the case in about two t h i rd s o f S M S F – i s t h a t yo u’v e g o t m u m a n d d a d members and mum and dad as individual trustees.

“So if dad’s a bit older and he loses capacity, what a lot of people don’t realise is that, under general law, you actually need all trustees to come together to make a decision.”

Fi g o t s a i d e v e n i n t h e event of a loss of capacity, a trustee’s obligations were not relinquished and added that there was no law that could change that fact.

“So f o r t h e re m a i n i n g t r u s t e e, m u m i n t h i s i n s t a n c e, i f s h e w a n t s t o

make a decision, dad also has to make that decision and that may not necessarily be possible.”

Howe v e r, a c c o rd i n g t o Figot, that is just the short v e r s i o n o f t h e s t o r y. T h e longer version is that there may be a way out of it.

“So, f o r e x a m p l e, e a c h s t a t e h a s i t s ow n s p e c i a l Trustee Act and most deeds a c t u a l l y h a v e p r ov i s i o n s regarding how you can go about hiring and firing the trustee,” he said. “And hopefully your specific state or territory’s Trustee Act or the actual trust deed will provide a solution, but at that stage,

you’re just hoping for the right outcome rather than having a planned outcome.

“Of course, that’s just the v a n i l l a s c e n a r i o,” a d d e d Fi g o t . “It c a n g e t m u c h hairier if mum and dad are on their second marriage with kids from a previous relationship, particularly if the wrong person gets control of the fund.

“They might attempt to rip all the money out of the fund, knowing that any challenges a re g o i n g t o h a v e t o g o through the Supreme Court, could take up to 10 years and be extraordinarily messy in the meantime.”

Dangers in trying to time the market Products needed to meet SMSF objectives

By Mike Taylor

SUPERANNUATION fund members have been cautioned against trying to ‘time the market’ during the current volatility.

The warning has come from Chant West principal Warren Chant at the same time as he confirmed that the September quarter had produced the worst three-month returns since the dark days of the global financial crisis (GFC) in December 2008, following the collapse of Lehman Brothers.

According to the Chant West analysis, the median growth fund fell by another 1.0 per cent in September, contributing to a loss of 5.1 per cent for the quarter.

Chant attributed the decline to continuing concerns around the European debt crisis and the manner in which this had continued to send jitters through financial markets.

He pointed out the Australian share market was down 11.6 per cent for the quarter, with international shares falling 14 . 9 p e r c e n t i n h e d g e d te r m s a n d around 8 per cent in unhedged terms.

Chant said that property securities had

Warren Chant also retreated, with Australian Real Estate Investment Trusts falling 8.1 per cent and global REITs down 14.5 per cent.

He said that while some people might feel tempted to switch their money into cash or some other low risk option, they needed to be mindful of not crystallising their losses and exposing themselves to the risk of missing out on any potential upswing.

DESPITE the steady increase in the number of self-managed superannuation funds (SMSFs) in Australia, there has not been a commensurate r ise in the number of products capable of giving them a wellbalanced spread of investments.

That is the analysis of Macquarie Specialist Investments executive director, Peter van der Westhuyzen, w h o a c k n ow l e d g e d t h e l a t e s t Australian Prudential Regulation Authority (APRA) data revealing the amount of SMSF investment still directed towards cash.

He said these belied the amount of interest being shown by SMSF trustees and advisers in other investment products specifically tailored for SMSFs. van der Westhuyzen said that in circumstances where many SMSF trustees had been made cautious by the continuing market volatility,

BGL attracts 20,000 new funds in third quarter

By Chris Kennedy SELF-managed super fund (SMSF) administrators BGL attracted around 140 new clients representing roughly 20,000 new SMSFs in the last quarter, according to the firm’s managing director Ron Lesh.

The new clients are mostly accountants, with many joining from competitors as well as many new clients, some of whom haven’t had SMSF software previously, Lesh said.

One factor Lesh attributes to the growth is automation. BGL has been focused over the past 12-18 months on automating necessary processes and is now nearing the point where a SMSF holding only listed securities can now be fully automated, he said.

SMSF administrators (including accountants and advisers, as well as genuine self managing trustees)

are looking to reduce their data input obligations.

They are also making sure a fund complies with all its legal obligations, with payments and contributions a major potential tripping point, Lesh said.

“We’ve tried to warn people of those things within the software. If they’re processing every day they get to the contributions, or they see the pension limits, then the software will tell them,” he said.

Lesh said that BGL administers around three quarters of SMSFs in Australia. He anticipates that the current growth of the SMSF sector means the rapid growth in BGL’s business will continue for some time.

BGL is currently looking at adding a webbased version to increase the options for how trustees and administrators can administer funds, Lesh said.

12 — Money Management November 3, 2011 www.moneymanagement.com.au

Peter van der Westhuyzen they were nonetheless interested in investigating and understanding opportunities when market conditions improved.

SPAA and Russell again surveying trustees THE Self Managed Superannuation Professionals’ Association (SPAA) is again seeking to gauge the views of self-managed superannuation fund (SMSF) trustees on the key issues.

In what represents a follow-up to SPAA’s joint survey with Russell Investments published earlier this year, SPAA has gone back into the market seeking responses to a series of questions with the new results, expected to be published in early 2012.

According to SPAA, the intention of the survey is to understand trustee views on investing, Government regulation, financial advice and managing an SMSF. It said it was also seeking to track the changing and evolving nature of SMSFs. SPAA said the report would be used by professionals, regulators, Government and the industry to better understand the superannuation sector’s future intentions.

InFocus WEALTH SNAPSHOT Between January 2010 and June 2011

1.9

trillion (USD) Increase in Australia’s total wealth

$396,745

Caveat emptor – or industry fund admen?

Any failure by industry funds to out-perform retail funds over the long haul may act as a catalyst for future litigation. Mike Taylor reports.

W

hen the Australian Securities and Investments Commission (ASIC) released in late August Consultation Paper 167 – its ‘Good Practice Guidance’ with respect to advertising financial products and advice services – it made no mention of the capacity for such advertising to give rise to civil legal action.

Instead, the ASIC document focused on financial services advertising in the context of the information it delivers to consumers According to the ASIC analysis, “Advertisements are an important source of information to consumers. Advertisements: (a) promote consumer knowledge about the range and choice of financial products and services available; and (b) are an important way for promoters to raise awareness of their financial products and services in the market.

“Advertising therefore holds many benefits for both industry and consumers,” the ASIC guide said.

“Advertisements are designed to attract consumers and be easily understood. This has consequences for both promoters and consumers,” it continued.

“For promoters, there is a temptation to focus on the benefits or advantages and to give less prominence to unattractive features.

For consumers, there is a temptation to make decisions on the basis of advertisements alone and not to seek further information, even though advertisements necessarily only contain limited information about the product or service.”

For an organisation extensively inhabited by lawyers, ASIC appears to have paid little heed to the consequences extending beyond its own regulatory activities when assessing best practice around financial services advertising.

Further, this is despite the number of occasions on which law firms have injected themselves into the aftermath of major financial services collapses, including many of those involving agricultural managed investment schemes.

Indeed it is a measure of the degree to

which particular law firms have targeted the financial services industry that industry spokesmen and dealer group heads last month suggested the involvement of lawyers was motivated more by greed than by client interests.

To date, litigation in the financial services industry has been focused on advice and the manner in which it related to particular investment products such as Westpoint.

However, as indicated elsewhere in this edition of Money Management, Tasmanian Liberal Senator David Bushby has raised the possibility of financial services organisations, including major superannuation funds, being sued because of the content of their advertising, particularly the promise that by investing in a particular fund or product investors would be better off.

Indeed, Bushby even went so far as to ask the deputy chairman of the Australian Prudential Regulation Authority (APRA), Ross Jones, whether he believed superannuation funds would have enough money to meet the cost of such litigation.

Bushby left little doubt that he was referring to the multi-million dollar advertising campaign which has been run by the Industry Super Network over the past seven years, and his belief that there was the potential for litigation on the part of superannuation fund members if the claims made in those advertisements were ultimately not reflected in reality.

For his part, Jones had to acknowledge that in the event some superannuation funds were successfully sued over those advertising claims, they might not have the capacity to meet those obligations.

Asked whether APRA had made any estimates or assessments of the prudential risk for trustees who contribute member funds to advertising campaigns which might result in legal claims for false and misleading advertising, Jones said the simple answer was “no”.

He said this was because “a number of funds have no capital”.

“If there are issues with funds that would lead to members taking action against the trustees or the fund – and the fund has no

capital – there is clearly an issue.

Bushby said he believed the possibility of funds facing legal action as "probably a small risk at this point.

“But I have seen some of the ads that have been running again recently, which I do not think have even the disclosure that they used to have, and the basis on which the figures are calculated may well create an impression in some superannuation payers' minds that they are going to get that sort of return, and if it turns out that they do not – for reasons that are completely out of the control of the fund or otherwise – then they may well feel that they have an action and go and talk to Slater & Gordon or somebody about it,” Bushby said.

When Jones asked whether the senator was referring to some form of class action, Bushby said he was and asked whether APRA had actually considered the issue.

Jones confirmed that it was not something that had been contemplated by the regulator.

It would seem from its Best Practice Guidance that ASIC has also not considered the issue.

Of course, in the minds of lawyers the Industry Super Network ‘compare the pair’ advertising campaign will probably only represent ammunition for legal action in the event that the superannuation returns significantly disappoint some industry fund members, who are then prepared to pursue their complaints through the courts.

The time-scales and indicative return differentials outlined in the ISN advertising suggest that it may be at least another decade or more before they have to worry about a class action, but Bushby's questions have raised a number of issues for both APRA and the superannuation fund trustee boards it regulates.

At the very least, and irrespective of small print disclaimers, industry superannuation fund trustees will be hoping that the returns they manage to generate for members more than meet the broad promise contained in the ‘compare the pair’ advertising they first funded in 2005.

Average wealth per Australian adult

37%

+

Change per Australian adult since January 2010

Source: Suisse Research Institute

What’s on

ASFA National Conference & Super Expo 2011 9-11 November 2011 Brisbane Convention & Exhibition Centre www.superannuation.asn.au/ asfa2011-conference/

Procure to Pay 2011 15-17 November 2011 The Sebel, Sydney www.procure-to-pay.com.au

FPA 2011 National Conference 17-18 November 2011 Brisbane Convention & Exhibition Centre www.fpaconference.com.au

Australian Securitisation Forum Conference 21-22 November 2011 Hilton, Sydney www.abs2011sydney.com.au/

Perth Investor Education: Running a Self-Managed Super Fund 23 November 2011 The University Club of WA – Seminar Room 1, Crawely, Perth australianshareholders.com.au

www.moneymanagement.com.au November 3, 2011 Money Management — 13

Asian equities

Asian equities coming of age

Despite a wave of indiscriminate selling by Western investors, the fundamentals remain strong for Asian equities, writes Tim Stewart.

ASIAN stock markets have taken a battering over the last few months along with rest of the global economy, and there could be worse to come if the sovereign debt issues in Europe remain unresolved.

Asian stocks are down 15 per cent year to date, with the Taiwanese market faring the worst – down almost 17 per cent since January.

But the short-term volatility in the Asian market belies the fact that companies are cashed up and in good financial shape, according to AMP Capital Asian equities cohead Ragu Sivanesarajah.

“The long-term fundamentals are still there. Asia has high savings rates and good demographics. Post the Asian currency crisis, a lot of the excesses that were in many of the countries are not there,” Sivanesarajah says.

Asia ex-Japan is trading at a price to earnings (PE) ratio of just under 10 times, says Sivanesarajah. However, he added that in an environment where earnings are uncertain, it is more accurate to assess valuations on a price-to-book basis. Under this measure, Asia ex-Japan is trading at 1.5 times book value, making it about one standard deviation cheap, he says.

“It looks attractive from a valuations perspective, but if the global economy continues to deteriorate, it’s not at the bedrock valuations that we’ve seen in previous troughs,” Sivanesarajah says.

Premium China Funds Management head of distribution and operations Jonathan Wu agreed there could be a significant downside from here, unless a lasting solution to Europe’s sovereign debt woes is reached.

The recent carnage in Asian stock markets bears many similarities to the experience of

2008, with redemptions from US and UK hedge funds leading to indiscriminate selling, says Wu. “Private investors from outside of Asia are pulling out money at an increasing rate.

Funnily enough, it’s the fund managers based in Asia who are picking up the stocks that everyone else is dumping, because they’re so cheap,” he says.

The Asian market looks attractive on a price-to-book basis, but when there is forced selling in the market, the ‘P’ in PE ratios becomes meaningless, according to Wu. “Some of the property developers we’re holding in China have just reported a 60-70 per cent increase in profit last month, and they’re trading at a PE of two. That just doesn’t make sense. How could the earnings of a company be earned back in two years?” he asks.

Premium China Fund reduced its short position from 10 per cent in August to 5 per cent in September, Wu says.

“Some stocks just got so ridiculously cheap. We don’t just look at the stock market valuation, we look at the physical valuation of companies,” he says.

Treading carefully As strong as the fundamentals driving Asian equities may be, Australian investors are still reluctant to devote a significant portion of their portfolio to Asia, according to Sivanesarajah.

“I’m yet to see the big funds allocating directly to Asia. The clients we speak to are willing to allocate to global equities, but to actually directly allocate to Asia, that step is rare,” says Sivanesarajah.

There were signs that a big allocation to Asia was on the cards in 2003 – which would

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have been a great time to do it – but superannuation funds didn’t follow through, says Sivanesarajah.

Part of the reluctance may be down to the perception among Australian investors that Asian markets are still immature and lacking in sufficient market controls to make Asian stocks ‘investment grade’.

But great strides have been taken in improving the quality and quantity of disclosure, along with increased dialogue between investors and companies, according to Fidelity Asia Fund portfolio manager David Urquhart.

“Most of the Asian countries have already adopted international financial reporting standards, so the accounting standards are now the same as they are in Australia, and they’re consolidated accounts,” says Urquhart.

Standard & Poor’s director of fund services Paul O’Connor agrees that the Asian equities market is maturing, pointing in particular to fixed income. More and more Asian companies are now starting to raise debt via their own securities that they’re issuing into the marketplace, he says.

Corruption is no more a problem in Asian markets than in the rest of the world, O’Connor adds.

“Regulations on the Hong Kong stock exchange are as sound and as well managed in terms of listing rules of businesses as the ASX here in Australia,” O’Connor says.

The typical problem in China is a lack of understanding of the role of the shareholder, rather than any outright corporate fraud, he says.

“Most of the top businesses in China understand their responsibilities, and

they’re also pretty strictly policed as well,” O’Connor adds.

Getting the numbers right So how much of a portfolio should be allocated to Asian equities? For Wu, one-third of the total equities allocation in a portfolio should be invested in Asia.

Wu breaks tradition with most fund managers in Australia, and does not differentiate between ‘Australian equities’ and ‘global equities’.

“We don’t class Australian equities as a sector, because I find that ridiculous.

Australian equities are part of a sector called ‘equities’. Equities for an accumulator are generally about 60-70 per cent, and I would say that you allocate one-third of that to Asia,” Wu says.

While he appreciates the ‘home bias’ effect, Wu objects to the hugely overweight position taken by local fund managers when it comes to Australian equities.

“Researchers are building models that are 40 per cent Australian equities – and I can’t see why. We represent 2 per cent of the entire world and we’re stocking up 40 per cent … If Australia was to go into a deep hole and a deep recession again, where are you running to?” he asks.

For O’Connor, if you strip Asian equities out of the broader emerging markets sector they can provide good diversifying benefits to a portfolio.

“Asia is less correlated to Australian equities because you are removing the resources of Africa, South Africa and Brazil, and gaining more of an exposure to exporters and the growing domestic economy [in Asia],” he says.

MM

Asian equities

Riding the trade winds Major considerations for investors in Asia are the same as for any asset class – risk and return. In Asia though, the potential returns and risks can be very different from those in western markets, as Alex Prineas writes.

THE upside potential of Asia is well-known – the region is forecast to grow more quickly than western economies, based on tailwinds such as a growing middle class, urbanisation, and rising household incomes.

Meanwhile, the major western economies face headwinds such as high debt, deleveraging, and ongoing financial crises.

But economic outperformance does not always translate into stockmarket outperformance. Furthermore, Asia has its risks, as we saw in the 1997 Asian crisis, and in 2008 when the Chinese stock market fell by more than 40 per cent*. We should also be careful not to overstate the diversification potential.

Australian investors may already have significant exposure to Asia, either directly or indirectly. For example, more than 50 per cent of the ASX 200 is made up of materials, energy, and mining stocks, whose performance is highly dependent on demand from Asia, especially China – and that figure would be even higher if we included services companies such as WorleyParsons which support the mining industry.

The same is true in global equities. Multi-

national companies often derive a significant portion of their sales from Asia and the broader emerging markets. Colgate-Palmolive generates 50 per cent of its sales in Asia, Africa and Latin America. The trend is not limited to basic consumer products – a wide variety of companies rely on emerging markets, from European luxury goods provider LVMH to US industrial machinery supplier Caterpillar.

Asia exhibits its own fundamentals which will ultimately drive performance in the region, but there remains a fair degree of correlation between Asia and the developed markets. Investors can intuitively observe this. For example, when global share markets plummeted during the global financial crisis, so did Asia – and so did Australia. The important point is that Asia did not fall as far as global equities. That’s not to say that Asia is always a safe bet. Their markets suffered amid the 2008 financial crisis, even though it emanated from western economies. The region can also suffer its own crises, as we saw in the 1997 Asian crisis, when western stock markets were largely unperturbed.

Rather, this reaffirms the point that

16 — Money Management November 3, 2011 www.moneymanagement.com.au

“

Investors should first consider their potential indirect exposures through Australian and global share holdings already in their portfolio.

”

spreading investments brings a diversification benefit even if the different investments have a degree of correlation. Over the past 10 years, investors in Asia (excluding Japan) earned an average of 6.4 per cent per annum*, while investors in global equities lost 3.3 per cent p.a.* Australian shares gained 7.24 per cent p.a.* but a significant part of this return was driven by strong demand in Asia for Australia’s

commodity exports.

In determining the appropriate allocation to Asia, and the right vehicle, investors should first consider their potential indirect exposures through Australian and global share holdings already in their portfolio. This is especially true where investors hold specialist funds – for example, a resources fund – as part of their Australian or global equity exposure, as they are therefore likely to already have significant exposure to Asia and the emerging markets.

Many investors will argue the economic fundamentals and the demographics of Asia and the emerging markets are an attractive investment proposition. We don’t disagree with this, but we believe that it's best to use dedicated emerging market strategies in moderation, and suggest blending them with a broader developed world allocation.

MM Alex Prineas is a research analyst at Morningstar. *All returns calculated in Australian dollars, unhedged, based on the S&P/ASX 200 Index, MSCI World ex-Australia Index, MSCI China 10/40 Index and MSCI Asia ex-Japan Index.

Asian equities

China will grasp the nettle The debt problems in the US have provided challenges for China but, according to Jonathan Wu, there is every sign that the Chinese Government will adopt an appropriate response.

THE events of the past few months have created a whole new level of volatility in the markets which, although not reaching the levels of the global financial crisis (GFC), has served to create ongoing uncertainty.

Since the striking of the “deal” with the US debt problem in early August, the market is still pricing in a lot of uncertainty and still lacks visibility – with Europe still playing a game of musical chairs with its own debt. The question we pose at this point in time is, with the US credit rating being slashed from ‘AAA’ to ‘AA+’, what is the impact in reality? This article discusses its impact on China, and potential strategies the Chinese Central Government could utilise to deal with the challenges that lie ahead.

First and foremost, let's provide some context. The Chinese Government now holds over US$3.2 trillion in foreign reserves, of which just over US$1 trillion is in US Treasury bonds. Most countries need only around six months of reserves to cover import needs, but China is well in excess of this.

China is a very unique case when it comes to dealing with its accumulation of foreign reserves. As Chinese companies are selling their goods outside their own borders, they are usually paid in US dollars.

In most other nations, the bank which receives this foreign currency has the flexibility to find the best return. But in China, the banks need to exchange this money with the PBoC (Peoples Bank of China) or our equivalent RBA into yuan, which then moves it to SAFE (the State Authority for Foreign Exchange), which has the power to control the flow of these reserves.

This process is very important to understand, as the Government will continue to face challenges related to this “sterilization of yuan”.

Trade surpluses over the years have largely been a factor of an undervalued Chinese yuan. This has meant that as Chinese exports are cheap, and competitive, they will exceed the level of imports.

Given the fact the country already has such vast reserves, there is no real requirement to keep building them up, and this in itself does pose a tough situation for the Govern-

ment on many fronts. On one hand, as part of China’s five-year plan starting this year, they want to be able to run a trade surplus of zero by 2015. This will solve the accumulation issue of foreign reserves, but appears very ambitious. The one major problem keeping them from doing so is the internal printing of RMB, due to that aforementioned conversion system by the PBoC and SAFE (this is very different to the US printing money though).

To keep the RMB undervalued, the printing of excess RMB causes inflation to feed through into the economy as liquidity is abundant (especially compared to their Western peers). This is the situation that China has been facing consistently for a number of years. There is no ‘magic pill’ or policy to solve this, but we’re not here to talk about inflation.

The Chinese now have a tough choice to make. From a political perspective, the Chinese population now understands the concept that the Chinese have effectively funded the latest rounds of the US war machine, the endless spending, and the massive social security safety nets the US public live off – and they are not happy.

China’s official news agency Xinhua stated on 6 August, “the days when the debtridden Uncle Sam could leisurely squander unlimited overseas borrowing appeared to be numbered.” The population simply doesn’t want to continue funding the US

with little or no return (especially with the long-term structural decline of the US dollar). China, in the last few months, has diverted its foreign reserves to buy Japanese sovereign debt. But this creates two problems flowing on from the political perspectives. With less support for US bonds and thus demand, the US dollar declines, and the $1 trillion in US denominated bonds that the Chinese already holds devalues. This doesn’t directly impact the internal Chinese economy, but certainly deteriorates the paper value.

For the US, if the above strategy is taken, the impacts are far more wide reaching.

With the drop in the US dollar value, this will lead to a further bulk sale of US treasury bills, which then would lead to bond prices dropping, coupled with the natural increase in yields. The tragic consequence of this is the fact that mortgage rates are determined in the US by government bond yields, which will make housing affordability worse than it already is. Rubbing salt into a wound, by comparison, seems like a better option! Ultimately, this will lead to a further devaluation of US property prices.

Over time, the Chinese will diversify their US-denominated assets, but any meaningful diversification will still take at least a decade. One must always keep in mind that there aren’t many ‘safe’ haven sovereign bonds left in the world. So ultimately, the Chinese do need to move to a zero trade

surplus strategy. In the past five years, China has learnt a lot about how to ‘not’ manage an economy, and avoid the traps seen in the West. Now that a lot of spending has occurred in infrastructure and utilities, the Central Government is trying to increase disposable income at least at the speed of GDP growth to ensure the movement from an export-orientated economy to an internal consumption one chugs along solidly.

Without this, the Chinese Government can foresee that external economies will not, or may not, be willing to save China if that day was to come.

China, fortunately from our perspective, still has a potential to operate a strong export market, as well as to boost discretionary spending through an increase in disposable income. The aim would be to move manufacturing from the coast into the interior (which reduces labour costs, but increases income for those in rural areas, thereby increasing disposable income). This is already beginning. The Government has launched subsidy plans for relocation of production plants, as well as tax holidays for those to have the motivation to move.

Finally, comes China’s environmental cost of continuing to drive the manufacturing market in order to generate higher consumption internally. Even with solar, wind and nuclear power investment, the country’s increasing standards of living mean many will also be consuming more power resources, putting more pressure on the environment. What we need to see developing is a way for China to move more GDP to service-based and high-tech industries to offset losses in manufacturing production. We haven’t seen this move very much in recent times, but we will wait and see. So even with China’s growth roaring strongly, there are still headwinds to consider which will also have flow-on effects into Australia. These headwinds, no doubt, will iron out over the long -term, and if there is anything we need to convince investors of in this environment, it is to re-focus on the long-term.

MM Jonathan Wu is associate director of Premium China Funds Management.

www.moneymanagement.com.au November 3, 2011 Money Management — 17

Asian equities

Bull and bear tussle in China As Australia becomes more aligned to its biggest trading partner Asia, Dale Gillham takes a look at Chinese and Hong Kong markets – and what the next 12 months holds for Asian equities.

EVERY day in the morning news we are told about what is happening in the US markets, as if the US market is the barometer of what we can expect on our market. While I accept that the US market can influence world markets, its statistical correlation to our market is approximately 60 per cent, and I would argue Australia has a similar correlation to other world markets. That said, we are becoming more aligned to Asia, a region critical to the future of our economy. What is important to understand is that Asian share markets do not necessarily run in harmony with western markets, but rather have their own unique timing.

Economically, our most important partner is China, which will continue to have a big impact on the Australian economy and share market. So it’s wise for us to look at what’s in store for their market. In the graph below I take a technical view of the Shanghai Composite Index (SSEC).

As you can see, the SSEC has a regular

“

Two things bother me about the current fall – the length of time HSI has fallen, and the severity of the fall.

”

movement from low-to-low of around 40 months. Currently, the SSEC has unfolded over 35 months since the last major low in October 2008, with the last 26 of those 35 months since August 2009 being bearish.

This equates to a massive 75 per cent of the past 35 months as bearish. This movement in the SSEC is vastly different from both our

18 — Money Management November 3, 2011 www.moneymanagement.com.au

market and the Dow, and suggests that more bearish times are to come. If the SSEC continues to repeat the 40-month cycle, then we can expect a low to form approximately 40 months after October 2008, with the expectation for it to occur sometime in 2012. While not labelled on my chart, it can quite easily be seen that the SSEC has so far failed to rise back up half of the distance it fell from its high in October 2007 to its low in October 2008. Again this is a bearish sign and not too dissimilar to what has occurred on our market. Given all this, the probability suggests the SSEC is bearish. As such I have a target for price falls into 2012, which is that the SSEC will move down to between 1770 points and 1250 points. It is possible it could fall further; however the positive thing is that the move is likely to be quick. After the low occurs I would expect a long-term sustainable bull-run will start, and that will most likely take our market with it.

When looking at China we need to examine not just the SSEC but also the Hang

Seng (HSI) in Hong Kong.

The HSI picture is quite different from that of the SSEC, and this is partly due to the fact that we have much more history on the HSI. For many years Hong Kong was under British and not Chinese rule and was subjected to different economic trading conditions. What is evident here is Asian markets are more erratic, with much larger swings in price than western markets. A study of other Asian indices such as Malaysia, Indonesia, Vietnam and Singapore would further highlight this.

The HSI has quite a different movement from low-to-low than the SSEC. It is closer to 60 months between major lows. In fact the average of these movements is 62.5 months, and like all cycles we have a window in which they can arrive. In the case of the HSI it is plus or minus 10.4 months, or in other words approximately 52 to 73 months between lows. With the SSEC the timeframe is 42.5 months, with an allowable timeframe of between 35.5 to 49.5 months between lows.

While the sample size is not large for either

Asian equities market, every major low within the allowable timeframe.

Whilst both the HSI and the SSEC made highs (October 2007) and lows (October 2008) during the GFC in sync, what has occurred since then has been different. The HSI has been far more bullish, and until this year it had unfolded more like the Dow Jones. The HSI, unlike our market or the Dow, started falling earlier and has been bearish over the past 12 months, falling 35 per cent in price. That said, it does look more bullish than our market and the SSEC, but only time will tell if this remains the case.

Two things bother me about the current fall – the length of time HSI has fallen, and the severity of the fall. In saying that, this current fall could be a repeat of the past. For example, a mid-cycle fall occurred in the first two periods, with a reasonable fall also occurring in 2004, and in all cases the market turned to rise to new all-time highs.

Nevertheless I am slightly leaning to the HSI being bearish. This month the it has been bullish, and if it can maintain this bullrun then the upper level of my price target for 2012 is that it will rise to around 29,000 points before falling into its next low in 2013.

If the HSI fails to hold above the current level in the next few months then I believe it will generally fall away to around 11,900 points over the coming two years, interspersed with some bullish periods.

MM Dale Gillham is the executive director of Wealth Within.

Graph: Shanghai Composite Index (SSEC) (WI) – [1 Month] Bar Chart

Source: Market Analyst Data

www.moneymanagement.com.au November 3, 2011 Money Management — 19

Asian equities

Take advantage but be selective Evan Erlanson takes a look at the broader Asian market and identifies opportunities based on countries’ economic orientation.

IN recent years, Australians have come to accept Asian economic growth as a forgone conclusion.

According to many commentators, Asian demand for Australia’s natural resources will grow reliably and indefinitely, shielding Australia from global economic shocks.

Perhaps as a result, the concept of Asia as a superior investment opportunity has become almost mainstream.

Without a doubt, many Asian countries are experiencing high levels of growth and development that should last for the next two decades.

But at the same time, investors and their advisers must be aware of the complexity and variety of markets and economies and the different stages of the economic cycle, and actively manage exposure.

Diverse economies From a high-level view, Hong Kong and Singapore are wealthy, services-driven entrepots while Japan and Korea are advanced but highly cyclical manufacturing-based economies. Among emerging economies, China and India are experiencing rapid investment and consumption-led growth, while Indonesia and the Philippines have bootstrapped themselves back onto consumption-led growth trajectories.

Such differences need to be factored in when building portfolios, as risk and return vary significantly.

Domestically-oriented countries In this category, we are looking at the Philippines and Indonesia. These are fundamentally strong economies with strong balance sheets – stronger than many countries currently rated AAA – but still rated junk by the major ratings agencies.

We believe there must be an upside here.

Indonesia has run a current account surplus since 1998 and has foreign reserves of US$114 billion; the Philippines has run a current account surplus since 2002 and has foreign reserves of $76 billion.

Historically, these economies have consistently delivered 5 to 7 per cent of gross domestic product growth despite the global economic slowdown. Inflation is under control and financial and political health is better than in any time over the last century.

While the stock markets of these countries are moderately overvalued due to investor concentration in the larger and most liquid names, there are still some very interesting secular opportunities in consumer, property, financials, and resources.

Government has been conservative in public spending on infrastructure and a change would open up huge potential in the manufacturing and resource sectors.

Export-oriented countries This includes Japan, Korea, Taiwan and Thailand. Japan and Thailand are arguably

export/domestic hybrids as they have large domestic markets for fast-moving consumer goods, autos, consumer electronics, and service, but each of these markets is beholden to the global economic cycle and, increasingly, Chinese consumer demand and fixed capital formation.

All these economies are fundamentally healthy, with Korea the most sensitive to risk-off events and currency fluctuations.

However, the combination of slowing demand in Europe and the US and ongoing credit tightening in China is dragging on the export engines that power these economies.

Average year-on-year export growth has fallen from highs of 30 to 35 per cent in 2010, to 20 per cent in the second quarter of 2011, to roughly 15 per cent in September 2011.

Taiwan’s September export orders, for example, grew by just 2.7 per cent, due mainly to declining orders from Europe and Japan and lacklustre order growth in China.

We believe we are now three to four months away from the trough of the earnings downgrade cycle and are becoming very interested in cyclical sectors.

Investment-driven countries In China, the market environment and stock prices have been driven almost entirely by fixed asset investment trends and government policy for the last three years. As the developed world stalls again, Chinese stocks remain in thrall to domestic monetary and fiscal policy, which we expect to stay in tightening mode until well into 2012.

A hypothetical Euro-shock resulting in an effective appreciation of the Renminbi (RMB) against the Euro would likely force

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the government to consider another economic stimulus package. However we believe that: 1) It will not repeat the heavily-criticised 2008 stimulus; 2) It will avoid making long-term commitments on behalf of the next generation of leadership as it prepares to exit; 3) The latitude for increased lending or fixed asset investment is circumscribed by inflationary pressures.

These tensions suggest that the government will tolerate more market “pain” – in the form of falling real estate and stock market value – than most expect, before stepping in to save the day.

However, the Chinese market is among the most attractively valued in the region and we believe those prepared to accept short-term volatility will enjoy outsized payoffs over a 12-18 month period. Industrials, financials and first-tier property developers will provide investors with attractive investment opportunities over the next two years.

Portfolio diversity These economies and markets are very different in terms of structure, level of maturity, and potential.

This does have its advantages; for instance, creating automatic diversity within a portfolio. Compare this to Europe where most economies are mature and highly correlated due to history, regional politics, and financial linkages.

So Asia, while volatile at times, is a lowerrisk long-term investment option than either Europe or the US. Many Asian economies are less affected by issues such as European sovereign debt

defaults and a potential US recession than current market valuations suggest, buffered by growing domestic demand, continued market share gains, and favourable demographics.

Asia isn’t fully immune from the economic and fiscal plight of OECD [Organisation for Economic Co-operation and Development] economies, as many Asian manufacturers are dependent on Western consumers, and near-term liquidity flows often cause a disconnect from fundamentals in Asian markets.

In the short term (three to six months), Asian equity valuations may thus be among those worst affected by a risk-off event triggered by European sovereign default, bank crises, or political fragmentation. A significant and sudden Euro devaluation would cause resumed capital flight from emerging markets into havens such as Treasuries, US dollar, Japanese government bonds, and the Yen. We can position for this by hedging Asian currency exposures, taking long positions in beneficiaries of a strong Yen, or by shorting commodity plays. However, we expect any correction to be short term, offering a great opportunity to pick up Asian cyclical stocks and small to mid-cap stocks on the cheap.

So now is a particularly opportune entry point, considering the strength of the Australian dollar and low valuations in Asian markets. When risk appetite improves globally, investors will benefit not only from the underlying growth of Asian markets, but also from the normalisation of valuations and Asian currency appreciation.

MM Evan Erlanson is the chief investment officer of Seres Asset Management.

OpinionClientRisk Meeting risk halfway

When clients fail to do their bit in the client-adviser relationship, planners are often blamed for unfavourable outcomes. Col Fullagar proposes a way to avoid such situations.

W

hen an adviser was asked recently why an insurance application had been in new business suspense for more than 120 days, the reply was, “The client is really slack about having the medical tests required by the insurer but he is an important client so I can’t say too much.”

And another adviser, when asked how often her clients’ insurance portfolios are reviewed, replied, “I try to do it every year but it is difficult with some clients as they are not always easy to tie down.”

In a less than ideal world, these and similar examples might be seen as an unfortunate but normal part of the advice business. In an ideal world they would be examples of a professional firm being hampered in its ability to operate effectively and profitably.

Recent reforms have mooted the placing of an increased responsibility on the adviser to act in the best interest of the client. This reform has focussed on the interest of the client over the interest of the adviser;

however, perhaps there is a supplementary responsibility, ie the effective management of the adviser’s business such that the generic best interests of all clients are not compromised by the actions of a small number of clients.

The aim of this article is to consider some business risks associated with situations such as those set out above. These business risks are real.

In an endeavour to offer solutions, a proposed way forward is suggested. It is recognised, however, that any proposed solution may work for some businesses but not others; it may work for some clients but not others; or a derivation of it might be more appropriate.

How a business addresses issues that arise – if in fact it does address them – is ultimately up to each individual business.

The business risks The business risks associated with situations typified by the above are numerous.

Delays in the provision of new business

This may lead to a “heightened frustration on the part of the adviser who is forced to work in an environment where control over their financial future is being eroded.

”

requirements by a client can lead to: - The adviser’s administration staff needing to spend additional time following up the client and updating the insurer; - Delays in the conversion of interim cover into the full cover deemed necessary in line with the adviser’s recommendation; - The insurer calling for additional but otherwise unnecessary requirements, for example a declaration of continued good health or fresh application form.

- Service standards for the adviser’s other clients who ‘do the right thing’ may be put under pressure; - The payment of new business remuneration or the invoicing of an advice fee being delayed, compromising the cash flow and profitability of the adviser’s business.

An unwillingness of a client to undertake a regular portfolio review can lead to: - An increased potential for a deficient claim payment from an out-of-date insurance portfolio, with obvious adverse conseContinued on page 22

www.moneymanagement.com.au November 3, 2011 Money Management — 21

OpinionClientRisk Continued from page 21 quences for the client or their estate, and poor publicity or rumour for the adviser which could damage their personal and business reputation; - Problems arising out of any of the above may in turn lead to the loss of the client in question or other clients; and importantly - When a client acts in a way that is potentially detrimental to the adviser and the adviser’s business, it may reflect a lack of, or lead to a reduction in, the respect the client holds for the adviser.

The sum total of all the above might well lead to a heightened frustration on the part of the adviser who is forced to work in an environment where control over their financial future is being eroded.

These are only some of the problems that can arise in the situations cited. There are of course other problems, in other situations.

As serious as some of these problems are, however, they are not necessarily the major concern.

Case study Janet is a well-established financial adviser.

She meets with two new clients, Karesh and Margaret, who run a successful IT company. As part of her standard approach, Janet sets out the various commitments she makes to all her clients, ie her value proposition.

These commitments include: - To gather the necessary information such that a comprehensive financial needs analysis can be undertaken; - To recommend a solution comprising both wealth creation and protection; and - To ensure that the solution is implemented in a timely manner.

Karesh and Margaret are impressed and agree to proceed.

Janet undertakes the necessary fact find and analysis and in turn recommends a comprehensive investment and risk insurance package. The recommendation is accepted and risk insurance applications are completed and submitted. Because of the level of cover, Karesh is required to undergo various medical tests.

Janet makes an appointment for Karesh to have the tests but unfortunately he gets caught up in his business commitments and fails to attend.

Meanwhile the investment package is implemented including var ious gearing strategies.

Weeks and then months go by and despite several follow-ups by Janet and her staff, the insurance applications remain uncompleted. Rather than run the risk of irritating and losing her important but busy client, Janet decides to let the applications stay in suspense and simply wait until Karesh has time to attend for the tests.

A short time later, while driving home, Karesh is killed in a motor vehicle accident.

Unfortunately, as the insurance was not in force and interim cover had expired, no benefit was payable. The investment strategy that was implemented is not backed up by the insurance, and as a result it collapses at considerable financial loss to Karesh’s estate.

Janet is understandably concerned for

her client’s family but she reconciles herself as she feels she did as much as she could in trying to get Karesh to undertake the necessary tests so that his insurances could be finalised.

Margaret sees things differently and commences an action against Janet, citing that Janet had put in place an investment strategy that was exposed to risk; and that despite making written and verbal commitments that insurance protection would be put in place, Janet had not met those commitments.

This is a fictional case study so there is no actual outcome, but the scenario was posed to a solicitor who specialises in financial services matters. The question was asked as to whether Margaret might have a reasonable chance of success. The answer was “yes”.

The same response was received when the solicitor was asked to comment on a scenario where a client suffered a material loss because their financial position had changed and their risk insurance portfolio had not been updated despite written assurances from the adviser that it would be done on a regular basis.

There may be a temptation to brush the above off as ‘no way’. However, there may in fact be a way to mitigate the above exposure and potentially achieve a solution for the issues set out previously as well.

A business solution In the case study, when Janet provided Karesh and Margaret with her value proposition she gave a number of one-way undertakings without any conditions or restrictions on the commitments being made. The only time this can be done is if the person making the commitment has total control over all the factors necessary to meet the commitment.

This was not the case with Janet because, as it turned out, she had minimal control over the actions of Karesh.

While not making any commitments at all may seem a possible alternative, it is hardly going to excite the client.

The solution lies in acceptance by the adviser and the client that achieving the desired outcome in many situations is not just a matter of the adviser making and meeting commitments – but also the client.

For example, the adviser cannot gather the information necessary to undertake a proper risk analysis if the client refuses to provide that information; client engagement and co-operation is needed.

If the adviser is to achieve a commitment of having policies completed in a timely manner, the client in turn must commit to attending to the necessary medical requirements.

It may be that a client is quite unaware of the necessity to assist the adviser in these ways or it may be that they see the priorities of their situation as greater than those of the adviser. Either way, there is merit in the adviser not only setting out their value proposition but also setting out details of the assistance needed from the client so the proposition can become a reality.

For some clients, a verbal briefing, as it were, may be all that is required. For others something more tangible might be preferred.

Verbal or in writing, the concept of

22 — Money Management November 3, 2011 www.moneymanagement.com.au

“

An ideal time to discuss the concept of two-way commitments with a client would be either before or after the presentation of the adviser’s value proposition.

”

setting up two-way, agreed commitments can be a valuable tool in facilitating greater business certainty for the adviser.

Agreed client commitments An ideal time to discuss the concept of two-way commitments with a client would be either before or after the presentation of the adviser’s value proposition.

The ideal place to set out the commitments would be the statement of advice.

One way of presenting them might be: “I have set out and explained what we will commit to do for you now and going forward but in order to deliver on these things we need the support of our clients, so we ask them to assist us in a number of areas. We call this our Client Commitment Agreement and it goes like this: We ask you, as one of our clients to support us: (i) By taking an active part in the factfinding process – without this we may not be able to obtain the necessary information to undertake an appropriate analysis; (ii) By making a decision on our recommendations in a timely manner but no longer than XX days after the recommendation is presented – delays can be costly; (iii) By fully complying with the duty of disclosure when completing the insurance application form – without this the insur-

the same for all clients; the list could be made client-specific based on the adviser’s previous experiences with different clients, or knowledge of what will be needed in a specific business situation, for example: - If the adviser was setting up a complex business insurance arrangement, a client commitment might include assistance in gaining access to the necessary financial information from the accountant such that a business analysis can be undertaken; or - If the client was the gatekeeper in a multi-life insurance arrangement, the commitment might be to ensure the other clients similarly commit to support the adviser in the ways set out.

The list of commitments can be reviewed from time to time to ensure it remains fresh and relevant.

If issues are identified, the adviser simply decides what client action needs to occur in order to overcome the issue and this becomes the basis of the commitment. So, for example, if the issue is clients disengaging during the fact find process, and the necessary action is for clients to be actively involved in the fact find process, this becomes the particular client commitment.

And, of course, the adviser can call the commitment agreement whatever they wish.

The business outcome

ance may be invalidated; (iv) By undertaking to attend to any insurance assessment requirements in a timely manner but no longer than XX days after the request is received – again, delays can be costly; (v) If necessary, by contacting the medical practitioner if an insurance report is required but delayed; (vi) By meeting with me or a representative of my organisation on a regular basis to have your financial plan and insurances reviewed, but no longer than once every XX months – this helps us to keep your plans on track; (vii) By immediately contacting me or a representative of my organisation if a material change occurs in your personal or business life – this may impact on the insurance we have in place, for example: - A change of occupation or level of earnings; - A change in work hours; - Extended leave – long service, maternity, paternity, sabbatical, unpaid, etc; - Living, working or travelling overseas; - The expected birth or adoption of a child, grandchild, etc; - A material change in your level of debt; - A change in marital status; - A change in educational status of dependants; or

“

Business success for the adviser in this environment may in part rest on how well they can manage the client risk as well as the client’s risk.

”

- You becoming a carer; (viii) By immediately contacting me or a representative of my organisation if you or a member of your family needs something in an area where I can assist; (ix) If you are comfortable to do so, by contacting me or passing on my contact details if a personal or business associate of yours needs something in an area where I can assist – we may be able to assist them in the same way we assisted you; (x) By settling invoices in a timely manner, ie within XX days unless other

arrangements are agreed to – it is important that my business is maintained so that it can continue to support you; and (xi) By ensuring that we work together in such a way as to engender a professional respect and courtesy for each other – it’s important that we maintain a professional division between our friendship and our business association.

If regulations change such that clients are required to opt-in to a business relationship, the agreement could be amended accordingly: (xii) By meeting every X years to review and, if both parties agree, to recommit to our professional relationship.

The “X” above could in fact be a period of time less than any required by regulation, ie a period that tied in with the previously agreed regular review.

Agreed client commitments should as much as possible be objective rather than fluffy, mothering statements.

The above list is an example only and obviously a reasonably lengthy one. An actual list could be developed based on generic, client-related issues faced by advisers, plus any specific issues faced by the particular adviser drawing up the agreement. The list can be as short or as long as the adviser feels necessary.

Client commitments do not have to be

The effective introduction of some form of agreed client commitments would have provided Janet with a number of opportunities: - There would have been greater certainty of client response time, which would have enabled better structuring and resourcing of her business; - The business relationship between Janet, Karesh and Margaret would have been positioned as one based on sound business principles, between professional equals, a positioning that is particularly important if the client is or becomes a personal friend of the adviser; - Janet would have had improved leverage in dealing with issues such as the delay in Karesh undertaking the necessary new business requirements, the leverage coming of course by way of referral back to the commitments previously made and agreed to; and - If Karesh had been unwilling to agree to a list of reasonable commitments, it may have rung warning bells for Janet as to whether Karesh was in fact a good match for her business.

There has been much talk lately about whether risk insurance advice will go down a similar path to investment advice, with fees rather than commission being the basis of remuneration.

If fees do become more of a reality, the adviser’s value proposition will become a key element in whether or not sustainable fees can be charged. The ability to be able to deliver on that value proposition will be pivotal.

Business success for the adviser in this environment may in part rest on how well they can manage the client risk as well as the client’s risk.

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

www.moneymanagement.com.au November 3, 2011 Money Management — 23

OpinionSentiment

Glass half full?

Investor sentiment is still low and financial advisers are blamed for losses. Advisers will face a difficult period in the next 12 months, but will be presented with a range of opportunities, writes Jim Minto.

T

he past four years have seen very high levels of regulatory uncertainty and change for the advice industry.

Parallel with this, the adverse effects of very difficult and volatile investment markets have been seen by savers, investors and retirees.

It is a fact that when markets are weak, advice is blamed for losses; and when markets are strong, advice is often, but not always, given credit.

Aside from markets themselves, the advice industry is presently discredited by product offer failures (such as Westpoint) and advice and governance failures (eg Storm Financial).

Advisers feel that they are marginalised as the Government responds to reform advice and four years of constant reviews, which have frankly been too long for all parties. Hopefully, we are now at a point where the future is clearer and advisers can get on with their jobs, although there is still uncertainty with respect to the legislative process.However, the outlook remains cloudy at best.

Turning away from the proposed changes to the regulatory advice world, the outlook on the consumer confidence side around superannuation and investment is difficult at best. In my view, there is a real risk that the next year will see consumer confidence in superannuation deteriorate more. As someone who has been at the advice and consumer end of the market during my career, I am reflecting how difficult it is now for both consumers and advisers. It could become even more difficult.

There are some wider themes that are driving this, and the lack of confidence has a significant effect on how client opportunities develop with advisers.

1. Global markets have been difficult since the global financial crisis. For a balanced fund holder there is every chance that by the third quarter next year, the investor will have seen three negative or flat return years in the prior four years.

2. Retirees (or near retirees) no longer have the appetite in many cases to simply

stick with growth assets. There is an acceleration of investors emerging toward more certain returns including cash, bonds and deposits inside superannuation. In short, individual investor appetite is steadily becoming more conservative. This is not a short-term issue.

3. As consumers face difficult asset markets and tougher economic times, they are looking to reduce their risk themselves, by paying off debt, reducing consumption, price shopping and avoiding increasing superannuation contributions. All of this can be seen happening, and these behaviours are flowing negatively through the economy. Rising household living costs are also driving these behaviours, and those who travel a lot globally will understand how relatively expensive it is to live in large cities in Australia. One senses a release point or correction in this cost of living emerging. The strong mining sector has been holding the dollar up and making that correction more difficult. It will come eventually because it has to.

4. Public confidence in superannuation is now a mainstream concern. It is in fact now a global issue. As global governments and employers have for 30 or so years now encouraged schemes where individuals built their superannuation savings, the investment risk was transferred to individuals. A great idea in strong and steady markets, but when individuals lose capital they blame the system design and – if they have an adviser – they blame the adviser as well.

5. The tax regime, with negative gearing benefiting those on high marginal tax rates around growth assets and in particular equities and properties, has distorted investment markets. This tax policy was always foolish as is the complexity of the tax system. A simpler tax system, with lower marginal rates and fewer deductions, including lower or no income offsets from gearing, would encourage an environment where people could invest because it made good sense, rather than primarily to save on tax.

6. Geared investors in property and

24 — Money Management November 3, 2011 www.moneymanagement.com.au

equities are now seeing this is as painful at best, and it has been for some time.

Core assets in some cases have dropped at least 25 per cent. In a geared environment the equity losses are higher. The old dogma of ‘time in markets is more important than market timing, so stick with it’ is all very well, but investor appetite is badly bruised. Who knows when asset prices around property will improve – but the behaviour of investors to stay conservative in cash is reinforcing the market weakness. It is too simplistic to say that this is just another market cycle and all will return better than ever.

7. Investment managers – especially around superannuation – whether retail, industry or both, are either discredited or severely tarnished by these effects, in the same way that advisers are receiving nega-

tive responses from investors. The asset and strategy consultants will in turn come under more criticism for failing to respond to funds’ concerns for fresh thinking around strategies. Consumers aren’t interested in whether they are losing less than benchmark. They look at absolute returns.

This is especially the case as they get older and start approaching retirement.

So what will flow out of all this?

Advisers and all superannuation funds face a difficult 12 months ahead. Good luck asset consultants need to think about another script. Some fresh thinking is required; there should be no more reliance on the next results being better when investor memories are of four difficult years.

Frustrated investors will continue the

drive for more control. This will see more growth in do-it-yourself (DIY) funds and directed funds of collective schemes. Cash, bonds and deposits will grow in portfolios.

Investors don’t understand the composite management expense ratios of DIY funds that can be very high when one accumulates all the costs of administration, the underlying investment management expense ratios of assets invested in, and so on. But frustrated investors will go for it – just as they have in the past bought properties. At least they will feel in control.

The superannuation guarantee contribution increase from 9 per cent to 12 per cent is becoming more difficult to sell but it is staged over a longer period, which may allow it to flow through. Advice will continue to be doubted, including advice

As difficult as the environment is, people will really need “advice more than ever. If they value it, they will be prepared to pay for it. ”

provided by funds themselves.

The most material conclusion I have of all is that, as difficult as the environment is, people will really need advice more than ever. If they value it, they will be prepared to pay for it.

The glass is half full and Australia has many frustrated savers, investors and

retirees who need to be listened to and provided with valuable advice and strategies. The challenge for the advice industry is to be contemporary and to listen, tuning into what people are feeling on a case-bycase basis and giving them confidence.

By contemporary I mean we can’t just keep trotting out the advice of the past

when people have changed appetites and are looking to limit their downsides. The old adage of staying for the long run may no longer be enough. The advice needs to connect to the investor’s needs and aspirations. The lower confidence tells us that perhaps it has not been in all cases connecting well.

With increased needs for security, life insurance will potentially play an even larger part in future – another good opportunity where strong, sound advice will be needed and appreciated Despite these and other challenges, 2012 will also be a period of opportunity for advisers.

Jim Minto is the managing director of TAL Limited (formerly TOWER Australia).

www.moneymanagement.com.au November 3, 2011 Money Management — 25

Toolbox Insurance in super – what is about to change?

Following the Government’s release of the Stronger Super information pack, Jeffrey Scott outlines some of the major changes about to happen with respect to insurance within super.

O

n 21 September 2011, Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, issued the Stronger Super Information Pack 1.

The Government addressed a number of issues regarding life insurance inside super.

It has been proposed that MySuper products will be required to offer life and total and permanent disability (TPD) insurance to all members on an opt-out basis, and members of MySuper products will be able to increase or decrease their insurance cover (if offered by the trustee) without having to leave the MySuper product.

There may be particular factors from a workplace perspective which influence the appropriate level and structure of insurance for employees. Therefore, within a MySuper product, it will be possible for the insurance cover to be tailored for a particular employer for the benefit of its specific workforce. Given the standardisation of most other aspects of MySuper products, insurance will become a key differentiator.

Automatic consolidation Automatic consolidation of superannuation accounts may pose the risk that in certain cases, where a member is funding insurance premiums from an inactive account, they may stand to lose insurance cover. Unless a super fund member chooses to opt-out, then this mechanism will combine their inactive account with the member’s active account. The Government has announced that lost and inactive accounts (two years without contributions or rollover) with balances less than $1,000 will be automatically consolidated into the active account unless the member opts out.

Term, TPD and income protection within superannuation The Government has decided that trustees must allow members to opt-out

of life and TPD insurance within 90 days of the member joining a fund, or on each anniversary of the member joining the fund.

If trustees are unable to obtain optout cover at a reasonable cost, trustees of MySuper products will be required to offer compulsory life and TPD insurance. Trustees of choice products can either offer compulsory insurance or no insurance.

The Government has decided that it will be left to the trustee’s discretion whether to offer income protection insurance on an opt-in or opt-out basis, or at all.

Insurance policy definitions Currently, there are some insurance policies which offer benefits that may not meet an immediate condition of release when an insurance payment is made to the superannuation fund. The Government wishes to ensure that the definitions used in all insurance policies purchased through super align with superannuation conditions of release so that insurance is consistent with the purpose of superannuation and that insurance monies are available to members at the time of their disability.

The Government wants this change to be made as soon as possible, and to facilitate a phase-out of existing policies which are not consistent with the Superannuation Industry Supervision (SIS) Act definitions of life, TPD and income protection insurance.

This means that any definition sitting within the super environment that does not meet strict SIS definitions will not be permitted. This will likely have the biggest impact on definitions of TPD within superannuation; specifically, own occupation TPD will likely be banned.

Other TPD benefits that are likely to be affected are ancillary benefits such as: loss of limbs and sight, activities of daily living, and act of daily work. This new

provision may also impact income protection benefits. Agreed value income protection policies may be affected, leaving only indemnity policies within superannuation. Also, it is likely that there will be a ban of ancillary benefits on income protection policies paid in the event of: specified injury, critical illness, and rehabilitation benefits.

Where own occupation TPD proceeds have been used by a client to boost their retirement funding within super, this will no longer be possible. The only alternative to this will be where an individual has the ability to receive an own occupation TPD benefit outside of super and then makes a non-concessional contribution to super, up to the legislative cap ($150,000 per annum or $450,000 over three years).

Trauma insurance will be banned in its entirety from being held within super; this is consistent with the recommendations of the Cooper Review and the Government’s Stronger Super response in December 2010.

To improve transparency and comparability of insurance provided through superannuation, the Government will consult on an approach to ensure policy terms are disclosed in a standardised way.

Insurance strategy As part of the Stronger Super reforms, the Government has also indicated trustees will be required to develop and maintain an insurance strategy to demonstrate that insurance is being managed in the best interests of beneficiaries.

The Government has placed a significant emphasis on insurance within superannuation. It appears that their primary objective is to ensure most individuals have life insurance and TPD cover at a reasonable cost.

Jeffrey Scott is the executive manager, business growth services at CommInsure.

Briefs MORTGAGE aggregator turned broad financial services provider, Vow Financial, has moved further into the wealth management space by opening a second Sydney office in Parramatta.

The company announced this week that Vow Wealth Western Sydney would offer exclusive support and products to a select number of Vow Financial brokers to help them expand their business into wealth management.

It said the opening of the Western Sydney office was part of a push by Vow to create similar partnerships around Australia over the next few months.

Vow Wealth national sales manager Justin Dale says the company’s latest development shows that an aggregator recognises the need for diversification to help brokers grow their business from beyond offering just mortgages.

“Vow Wealth can now offer a full financial planning structure to brokers that includes mortgages, insurance and wealth management,” he says.

IOOF has introduced a third model to its Pursuit platform - IOOF Pursuit Focus.

According to IOOF, Pursuit Focus offers low cost access to the company’s suite of multi-manager trusts, with personal superannuation and pension options.

It said the offering would have an administration fee of 0.34 per cent, therefore allowing clients to build their retirement savings quickly through a range of multi-manager investment options, including IOOF MultiMix. The company said clients could also access insurance via the platform.

Commenting on the launch, IOOF’s general manager, distribution, Renato Mota said the company was focused on helping financial advisers service their clients.

“In a post-FOFA world, advisers will need to develop clear value propositions for each segment of their client base,” Mota said.

AMP Bank has come to market with a variable rate loan it says is the lowest in the market.

The Bank this week launched the new AMP Essential Home Loan with a variable interest rate of 6.85 per cent per annum.

It said the loan product had no ongoing fees, and as an introductory offer, settlement and establishment fees would be waived until 31 December 2011.

AMP Bank chief operating officer Robert Slocombe said the new home loan was designed to ensure customers could access a simple home loan at a low cost and competitive interest rate.

“The AMP Essential Home Loan is a great alternative to the major banks, especially for entry-level customers and people looking for a competitive basic low cost loan that still gives them the more popular home loan options,” he said.

Get the satisfaction you’ve been looking for with FirstWrap & FirstChoice. Contact your Business Development Manager for transition services, call 13 18 36 or visit colonialfirststate.com.au/satisfaction This is general information only and does not take into account any individual objectives, financial situation or needs. Investors should consider the relevant PDS available from us before making an investment decision.

Colonial First State Investment Limited ABN 98 002 348 352 is the issuer of the FirstChoice range of super and pension products from the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557.

Colonial First State also issues interests in investment products made available under FirstChoice Investments and FirstChoice Wholesale Investments. Avanteos Investments Limited ABN 20 096 259 979 AFSL 245531 is the issuer of the FirstWrap super and pension products from the Avanteos Superannuation Trust ABN 38 876 896 681. Avanteos operates the FirstWrap service. CFS2042/MM/AS/T 26 — Money Management November 3, 2011 www.moneymanagement.com.au

Appointments

Please send your appointments to: andrew.tsanadis@reedbusiness.com.au

PLAN B Group Holdings has appointed certified financial planner Paul Cramer as group executive – product and distribution, in the first step of a targeted expansion strategy.

Cramer represents the first strategic hire under new chief executive Andrew Black, who said Cramer will lead the firm in the areas of wealth management product and business development.

Cramer has previously worked for MLC, William Buck and Macquarie Private Wealth in a variety of senior management, sales management and business development roles.

“I am pleased to be able to attract an executive of Paul’s calibre to the team, and look forward to Plan B capitalising on the growth and development opportunities ahead of us,” Black said.

THE Fi n a n c i a l S e r v i c e s Council has elected Fidelity Australia managing director G e r a rd D o h e r t y and U B S Global A sset Management Australia and New Zealand managing director Ben Heap as directors.

They replace former Alliance

23 January 2012. He was previously the International Organisation of Securities Commissions (IOSC) secretary general and spent time as ASIC’s executive director for consumer protection and international relations.

Move of the week GUARDIAN Advice has appointed Wes King as State Manager for Western Australia, starting 3 November.

King joined the industry as a financial planner in 1999 and has held business development and sales management roles with BT and Tower, working most recently for CommInsure as a business development manager.

King will be based in Perth and will be responsible for managing and growing Guardian’s advice network in the state by attracting and retaining advisers and finding growth opportunities for the business, Guardian stated. He will also help advice practices to grow through practice management and coaching.

Guardian Advice executive manager Simon Harris said that as a former adviser King brings a deep understanding of the challenges advisers face from recent regulatory change.

“He has a strong interest in the financial planning process, from wealth creation to retirement strategies with a focus on insurance, and ensuring planners have the skills and tools to educate clients on the inherent value of insurance,” Harris said.

Bernstein chief executive Michael Bargholz and former managing director of wealth at A N Z Jo h n Va n D e r W i e l e n , who both recently resigned from the board.

Financial Services Council chairman Peter Maher, group head of banking and financial services at Macquarie Bank, said Doherty and Heap bring a wealth of exper ience and knowledge of the financial services industry and will be valued

contributors to the work of the Financial Services Council.

THE Australian Securities and In ve s t m e n t s Co m m i s s i o n (ASIC) has announced the appointment of Peter Kell and Greg Tanzer as the regulator’s new commissioners.

Kell and Tanzer will replace current ASIC commissioner Michael Dwyer, who has decided not to seek reappoint-

Opportunities BUSINESS DEVELOPMENT ASSOCIATE – FUNDS MANAGEMENT Location: Melbourne Company: Kaizen Recruitment Description: A global fund manager is currently looking for a business development professional.

Due to continued growth in its Australian operations, the company requires an associate who will work with a team of experienced BDMs and client relationship professionals.

You will report to the head of institutional business development and provide analytical sales and client services support to the BDMs. You will have experience within funds management from a client services, analyst and business development background.

You will possess tertiary qualifications in a relevant business degree and a technical understanding of multiple asset classes would be highly regarded.

For more information and to apply, visit www.moneymanagement.com.au/jobs, or contact Kaizen Recruitment, 9095 7157.

SENIOR FINANCIAL PLANNER Location: Adelaide Company: Terrington Consulting Description: A financial institution is searching for a senior financial planner to

Wes King

ment when his contract expires at the end of the year.

Kell, who joins ASIC for a fiveyear period from 7 November, is currently the Australian Competition and Consumer Commission’s (ACCC) deputy chair. He was previously chief executive of Choice and a board member of the global consumer organisation Consumers International.

ASIC has appointed Tanzer as commissioner for a four-year ter m, commencing from

BOUTIQUE funds manager Private Portfolio Managers (PPM) has recruited Ian Hardy from Centric Wealth to its portfolio management team.

Hardy is an investment management and research specialist with over 30 years experience, having worked as group chief investment officer (CIO) at Challenger, overseeing $8 billion in funds under management prior to his role as Centric CIO. He was also the investment manager for Centric Wealth’s Private Capital division.

PPM founder and director Hugh MacNally said Hardy’s investment views align with PPM in terms of adopting a long-term approach, investing in a limited number of exceptional companies, managing company risk and minimising tax to produce super ior outcomes for investors.

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

work with a portfolio of high net worth clients.

You will have the opportunity to grow your own portfolio referral networks and be rewarded with a highly competitive salary and career development opportunities.

You will have several years experience in providing senior financial advice to sophisticated clients and proven sales and networking capabilities.

Should the current position be unsuitable to you, you will be notified of new opportunities as they become available.

For more information and to apply, visit www.moneymanagement.com.au/jobs, or contact Myra at Terrington Consulting – 0404 853 895 / (08) 8423 4466, myra@terringtonconsulting.com.au.

FINANCIAL PLANNER Location: Adelaide Company: Terrington Consulting Description: A number of businesses in the financial services and financial planning sectors are currently looking for financial planners to fill a number of diverse positions.

You will be working with market leading and reputable brands.

You will have experience in providing advice and tailored financial strategies to a

portfolio of high net worth clients and have an insight into wealth management solutions.

To find out more and to apply, visit www.moneymanagement.com.au/jobs, or contact Myra at Terrington Consulting 0404 853 895 / (08) 8423 4466, myra@terringtonconsulting.com.au.

SENIOR ANALYST – COMMERCIAL Location: Adelaide Company: Terrington Consulting Description: A team of professional bankers is currently looking for a commercial analyst to provide risk and credit support to a major client group portfolio.

On a daily basis, you will be responsible for researching and preparing detailed credit submissions, liaising with existing portfolio clients, conducting review and identifying opportunities to improve existing portfolio service levels.

You will have accounting or auditing experience or have provided credit services within the SME or commercial sector.

Aspiring commercial bankers who currently work within the SME space are encouraged to apply.

To find out more and to apply, visit www.moneymanagement.com.au/jobs, or contact Emily at Terrington Consulting – 0422 918 177 / (08) 8423 4466,

emily@terringtonconsulting.com.au.

RELATIONSHIP MANAGER – COMMERCIAL Location: Adelaide Company: Terrington Consulting Description: A tier-1 bank specialising in corporate banking is looking for a commercial relationship manager to come on board as part of an internal restructure.

You will be responsible for servicing an existing book for corporate clients, while identifying opportunities for further portfolio growth through the introduction of new product solutions.

You will be expected to build strong relationships with third party referrers and support analysts and other internal stakeholders.

You will have proven skills as a business or commercial banker and will provide holistic solutions to your clients – including deposits, wealth, and transactional service offerings.

You will possess 3-5 years experience working in an RM or BDM role in an Australian Bank. Tertiary qualifications are not essential, but will be highly regarded.

For more information and to apply, visit www.moneymanagement.com.au/jobs, or contact Emily at Terrington Consulting 0422 918 177 / (08) 8423 4466, emily@terringtonconsulting.com.au.

www.moneymanagement.com.au November 3, 2011 Money Management — 27

Outsider

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

Lights! Camera! Um … ambassador?

THE dreaded conference season got underway recently courtesy of the Association of Financial Advisers (AFA), with Outsider making his way up to the sunny Gold Coast in time for the Sunday afternoon kickoff.

No stranger to criss-crossing the nation for the latest in financial services industry news, Outsider is used to sitting in on session after session to find something to write home about.

So when it was announced that former Channel 7 presenter Naomi Robson had been chosen as the brand ambassador for the AFA’s new ‘Make a Plan’ campaign, Outsider began to worry that extended exposure to the Gold Coast sun had affected his reasoning.

While Outsider appreciates the AFA had good reason to make a ‘personality’ the face of an advertising blitz which will ‘make the general public aware of what we do’, he was left wondering whether the planning organisa-

tion had done its due diligence on the things that had made Ms Robson memorable.

Although Outsider is not a reader of gossip magazines, his young colleagues mentioned something about an alleged relationship with a personage who in more polite times might have been known as a ‘colourful Sydney businessman’. Then, too, they referenced a 2005 expletive-laden exchange between Ms Robson and her Channel 7 producer, apparently over an autocue.

Clearly, then, Ambassador Robson has proved she is capable of forcefully conveying her views.

Indeed, Outsider must acknowledge the subtlety of the AFA strategy – and that in some eyes Robson’s distinguished career on a program such as Today Tonight can only serve to cast financial planners in a better light.

Roll camera. Roll autocue.

Bully for you

Chris Kennedy admires the view but Milana Pokrajac feels uncomfortable.

Photo courtesy of Damien Ford Photography.

Getting down for charity IT is now a little over 12 months since Outsider formally decided that stepping off a skyscraper was most definitely not on his bucket list.

And a year on not much has changed, with Outsider once again politely declining a generous offer from AMP to abseil off the 26th-floor balcony of their Circular Quay office tower.

This was despite the fact that the twoday Urban Descent fundraising event was for an excellent cause – raising money for the Sir David Martin Foundation, which provides help and rehabilitation for troubled youngsters.

Luckily, once again, two of the younger Money Management staffers were brave/insane enough to put their hands up. This year it was the turn of intrepid news editor Chris Kennedy and irrepressible features editor Milana Pokrajac to take the plunge.

Outsider is highly sceptical of the pair’s

claims that they calmly stepped over the railing and lowered themselves down the 100-metre, 26-storey descent as if it was all in a day’s work. He does have some inside sources, after all.

He is less sceptical of the pair’s tales of an AMP Capital staffer wearing a Spiderman T-shirt who departed at the same time but took roughly 2 per cent as long to arrive at the bottom after stepping off face-first and running down the side of the building, Navy SEAL-style. Those fundies are a different breed.

Despite the supposedly more measured approach of the journos, Outsider shall continue to resist the temptation to step out over 100 metres of thin air and trust in a slim rope to support his not inconsiderable girth. If the offer rolls around again next year he is sure there will be fresh victims, er, volunteers, in the Money Management ranks putting their hands up.

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

OUTSIDER is aware the financial services industry acquired a certain image following the release of the movie Wall Street in the 1980s – an image of win-atall-costs that lingers to this day.

Outsider will be the first to acknowledge that life often imitates art, but having rubbed shoulders and chowed down with quite a few chaps in managerial positions, your correspondent believes 96 per cent of Australia's financial services types are pleasant individuals not much given to the mantra that ‘greed is good’.

He would therefore never have guessed that one of the problems haunting the financial services industry (as if there aren’t enough nowadays) is workplace bullying.

Outsider received a media release last week from the Financial Services Union calling upon all employees to dob in bullying by calling a new hotline. Apparently, the FSU is worried about the amount of pressure finance workers are forced to deal with when selling products to the everreluctant investor. For

“

many, the FSU claims, lack of sales volumes would often result in being bullied – something the union has decided to root out of the sector.

In fact, Outsider has noted that the fight against bullying has become a worldwide trend endorsed by all sorts of celebrities and pop-culture superstars.

While he might publicly indicate his support for this fight for the greater good, Outsider will not be relenting where his young colleagues are concerned. Quite simply, the whippings will continue until morale improves.

Out of context

“It’s what I say to my one-and-a-half year old – look honey, it looks like a kinda surprise.”

Alexis Compliance and Risk Solutions director Christina Kalantzis on the draft FOFA bill.

“I think this is quite fascinating – probably because I’m a regulatory lawyer.”

Minter Ellison principal Richard Batten admitting to his obsession with ASIC’s powers.

“Many of you are wondering who the hell is he and why is he channelling Johnny Cash.”

Bush Corporate Consulting managing director Dr Christopher Clarke looks like the man in black as he addresses the Association of Financial Advisers National Conference 2011.