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Vol.25 No.40 | October 20, 2011 | $6.95 INC GST
The publication for the personal investment professional
www.moneymanagement.com.au
FOFA RESEARCH DISCLOSURE CALL: Page 5 | RETIREMENT INCOMES: Page 14
Legislative blindside By Mike Taylor A LARGE segment of the financial planning industry was effectively blindsided when the Government last week introduced the first tranche of its Future of Financial Advice changes to the Federal Parliament and included an annual disclosure on financial planners with respect to all existing clients. The disclosure obligation, not flagged before the Corporations Amendment (Future of Financial Advice) Bill 2011, was tabled in the House of Representatives, caught virtually all of the major financial planning groups on the back foot. Money Management understands that only a very few financial planning industry officials got wind of the Government's 11th-hour move and had barely enough time to express their objections – which were ignored. The inclusion of the annual disclosure requirement is believed to have been at the behest of the Industry Super Network (ISN), and the complexity of the document means it will add significantly to the administrative burden carried by financial planners. Financial Planning Association (FPA) chief executive Mark Rantall said he was in no doubt that the complexity of the arrange-
Mark Rantall ment made a mockery of the Rice Warner research suggesting opt-in would cost as little as $11 per client a year. "This requirement and the form of the documentation will drive it up to around $100 per client," he said. Assistant Treasurer and Minister for Financial Services Bill Shorten claimed in his second reading speech that the opt-in provisions contained considerable flexibility and that, consistent with what the Government had agreed in negotiations with the FPA and others, the renewal obligation would apply only to
new arrangements after 1 July, next year. However, the minister then dropped the bombshell by saying that while the renewal obligation would not apply to existing clients, the annual disclosure obligation would apply to all clients of advisers. Association of Financial Advisers (AFA) chief executive Richard Klipin said he was in no doubt that the move had been inspired by the Industry Super Network. "We have been left in no doubt as to the influence of the industry superannuation funds with respect to the shaping of government policy," he said. Both Klipin and Rantall said that in light of the shape of the Government's bill and their inability to support it in its present form, they would be intensely lobbying the independents in the House of Representatives, in particular Rob Oakeshott and Andrew Wilkie. For his part, the Opposition spokesman on financial services Senator Mathias Cormann has said the Coalition would be moving to have the legislation referred to a Parliamentary committee – something that has been welcomed by both Rantall and Klipin. "Reference to a parliamentary committee will at least ensure that we can ventilate our concerns," Rantall said.
Ageing challenge for SMSF sector By Chris Kennedy THE current rapid growth of the self-managed super fund (SMSF) sector may present several challenges when a large number of trustees begin to reach an age where they either no longer want or are unable to run a SMSF. Technical services director at SMSF administration firm Multiport, Philip La Greca, said the sector as a whole, despite currently experiencing rapid
growth, may find a cap to that growth when more trustees start reaching an advanced age when running a SMSF becomes too much work or they start to lose their capacity to be a trustee. As SMSFs become too much of a distraction, too time consuming or more complicated than the trustee’s needs, trustees will start to switch back to other products such as retail funds or annuities and will draw back out of the sector, he said. The advice trustees get in that
period will be crucial. Advisers and accountants will need to have some tough conversations to ensure trustees don’t reach a point where they have lost the capacity to make financial decisions, or act as a trustee without making succession plans for funds, La Greca said. No-one likes to address the fact they may become mentally incompetent, but advisers need to be aware of the possibility Continued on page 3
Philip La Greca
Drop in FUM for retirement incomes investments By Milana Pokrajac
RETAIL investments have recorded the worst performance across the retirement incomes sector over the year to June 2011, losing more than $10.6 billion in funds under management (FUM). This represents a fall of 7.2 per cent, according to the Money Management/DEXX&R 2011 Retirement Incomes Survey. The reasons for the drop could be found in the everlasting market volatility and anxiety around the upcoming legislative changes as advisers begin to restructure their clients’ a retirement income portfolio, according to Equity Trustees’ head of wealth management Phil Galagher. “Anecdotally, there has been a lot of internal debate about longevity and how a retirement portfolio should be structured to cope with longevity, and that relates to the mix between a more conservative asset like fixed interest versus a more aggressive growth asset like equities – and the balance between those two,” Galagher added. “But from our point of view, there is a clear difference between what’s required in the first period in retirement and what’s required in the later years of retirement…and I don’t think the industry has come to grips with that yet,” he said. The total retirement incomes market has achieved some growth in the year to June 2011, but has lost $7.4 billion in FUM in the June quarter of this year. Apart from employer super, which has recorded year-on-year FUM growth of 11.6 per cent, allocated pensions have reported the biggest growth of 7.2 per cent. DEXX&R managing director Mark Kachor said the non-super products will continue to slide until confidence returns to equities. Continued on page 3
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