Money Management (May 12, 2011)

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Planners reject FOFA

By Mike Taylor MORE than 90 per cent of financial planners responding to a Money Management survey believe that the Government’s current Future of Financial Advice (FOFA) changes will have a negative impact on their businesses.

The survey, conducted over two days last week, revealed overwhelming opposition to the key elements of the FOFA changes – with particular emphasis on the imposition of two-year opt-in arrangements and a total ban on commissions on the sale or life risk products within superannuation.

Nearly 80 per cent of respondents to the survey described themselves as being independent financial advisers.

What little support existed for the FOFA changes was strongest among those respondents describing themselves as being bank-aligned or connected to an industry superannuation fund.

The only element of the FOFA proposals to extract an element of support from planners was the introduction of a ‘best interest’ requirement, with 42 per cent of respondents nominating it as capable of having a beneficial effect on their businesses.

Asked which of the FOFA proposals would have the most negative impact on their businesses, 58 per cent of respondents nominated the two-year opt-in arrangements, while 31 per cent nominated the ban on commissions on life risk products sold within superannuation.

Despite 42 per cent of the respondents

Graph

Which proposed FOFA change will have most negative impact on your business?

3% 8%

The two-year opt-in The banning of all commissions within superannuation The banning of volume-related bonuses Other

31% 58% Source: Money Management

suggesting that the ‘best interest’ requirement would have a beneficial impact on their businesses, 92 per cent said they did not believe the financial planning industry would be improved by the introduction of the FOFA changes.

What became clear from the survey was that a significant number of respondents did not believe the organisations representing the industry had done a good job in dealing with the Federal Government and appropriately influencing its approach to FOFA. When asked which organisations had best represented their interests with respect to FOFA, just over 50 per cent nominated the Association of Financial Advisers (AFA), while around 30 per cent nominated the

Financial Planning Association.

There was no support among respondents for the efforts of the Financial Services Council.

A common theme in the comments attaching to some survey responses was that the FOFA changes were largely inspired by the industry superannuation funds and that, ultimately, the changes would not achieve the outcomes being pursued by the Government.

A small number of respondents argued that the changes would create a divide in the industry with financial advisers providing comprehensive advice while the banks, major institutions and industry funds would provide single-issue advice.

One-stop-shop model returns

By Ashleigh McIntyre

A LEADING financial planning spokesperson has said that the Future of Financial Advice (FOFA) reforms will push wealth management groups into the old ‘one-stop-shop’ business models of the 1990s.

Fiducian managing director Indy Singh has said that the ‘all-in-one’ model being adopted by several groups is nothing new, but is simply history repeating itself, with FOFA creating new opportunities to consolidate.

One such group is Yellow Brick Road (YBR), the new wealth management venture

by Mark Bouris.

By offering mortgage broking, financial planning, accounting and insurance broking all under one roof, Bouris says his licensees can increase their revenue streams while doing business more efficiently.

Licensees do not need to know how to do all of those things in order to open a branch. Rather, all of the accounting and financial planning is done from head office, while the licensee gets payment for originating the client.

According to Bouris, YBR takes the nonrevenue earning hours away from licensees and does the work out of head office.

“We’ve basically deconstructed how financial planning is normally done and we’ve built economies at a head office level to Continued on page 3

Agri-MIS still too risky for advisers

By Milana Pokrajac THE structure of agribusiness managed investment schemes (MIS) would need to change radically before they become attractive again to financial advisers, according to Professional Investment Services (PIS) managing director Graeme Evans.

Furthermore, agribusinesses would have to be “well diversified” with “substantial funds under management” and institutional ownership to complement retail investors, he said.

PIS had taken off all agribusiness MISs from their Approved Product List (APL) in March last year following the collapse of Timbercorp and Great Southern, announcing they would review the position in 12 months.

However, those products have not yet earned their spot on the dealer group’s APL, with Evans saying he did not want investment

Shane Kelly schemes to rely on next year’s investments to “pay the bills for this year”.

“I think it is unfortunate that there are a couple of reasonable players like Macquarie and TFS who are collateral damage in respect to the industry, but I think the risks

are far too great to put our toes back in the water,” Evans said.

Managing director of researcher Adviser Edge, Shane Kelly, agreed the market required the next generation of MISs in terms of the structures and protections that are put in place.

“Until the market settles down and the failed projects are either restructured or purchased by other investment houses, the focus won’t come on to MISs,” Kelly said.

The researcher expected the agribusiness MIS inflows to be around $80 million this year, whereas that figure three to four years ago was over $1 billion.

However, Adviser Edge is seeing the remaining players in the market increasingly focus on investor protection and “putting in place structures that are more likely to allow the projects to actually reach their conclusions.”

Nevertheless, neither Kelly nor Lonsec’s head of agribusiness research Jim Blackburn anticipated that the agribusiness MIS sector would bounce back to its pre-global financial crisis position any time soon.

Lonsec is not covering the agribusiness MIS this year, due to “structural and corporate issues” within the sector yet to be resolved, according to Blackburn.

However, he said the model was still sustainable, as long as it was used only as part of the funding, instead of being the only or the dominant form of agricultural asset and operations funding – supporting Evans’ claim.

“Over time, we expect things like [direct] land ownership and other structures become more evident,” Blackburn said.

Analysts also agreed that greater investment in the sector would not occur until the aftermath of the failed schemes had completely played itself out.

Editor

Reed Business Information Tower 2, 475 Victoria Avenue Chatswood NSW 2067 Mail: Locked Bag 2999 Chatswood Delivery Centre Chatswood NSW 2067 Tel: (02) 9422 2999 Fax: (02) 9422 2822 Publisher: Jayson Forrest Tel: (02) 9422 2906 jayson.forrest@reedbusiness.com.au Managing Editor: Mike Taylor Tel: (02) 9422 2712 mike.taylor@reedbusiness.com.au News Editor: Chris Kennedy Tel: (02) 9422 2819 chris.kennedy@reedbusiness.com.au Features Editor: Angela Faherty Tel: (02) 9422 2210 angela.faherty@reedbusiness.com.au Senior Journalist: Caroline Munro Tel: (02) 9422 2898 Journalist: Milana Pokrajac Tel: (02) 9422 2080 Journalist: Ashleigh McIntyre Tel: (02) 9422 2815 Melbourne Correspondent: Benjamin Levy Tel: (03) 9509 7825 ADVERTISING Senior Account Manager: Suma Donnelly Tel: (02) 9422 8796 Mob: 0416 815 429 suma.donnelly@reedbusiness.com.au Account Manager: Jimmy Gupta Tel: (02) 9422 2850 Mob: 0421 422 722 jimmy.gupta@reedbusiness.com.au Adelaide Agent: Sue Hoffman Tel: (08) 8379 9522 Fax: (08) 8379 9735 Queensland Agent: Peter Scruby Tel: (07) 3391 6633 Fax: (07) 3891 5602 PRODUCTION Junior Designer/Production Co-ordinator – Print: Andrew Lim Tel: (02) 9422 2816 andrew.lim@reedbusiness.com.au Sub-Editor: Tim Stewart Sub-Editor: John Golledge Graphic Designer: Ben Young Subscription enquiries: 1300 360 126 Money Management is printed by Geon – Sydney, NSW. Published every week, recommended retail price $6.95 Subscription rates: 1 year A$280 incl GST. Overseas prices apply.

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Watch the watcher

I

f the Australian Securities and Investments Commission (ASIC) did not receive more funding from last Tuesday’s Budget, then it can expect to do so in subsequent years as it takes on more responsibility for delivering and overseeing the implementation of the Government’s Future of Financial Advice (FOFA) changes.

It is axiomatic of Government policy changes that there are always winners and losers, and ASIC can be counted a winner because of the centrality of its role – something which will create the need for more specialist staff and therefore a larger share of the public purse.

Viewed objectively, ASIC has been treated highly fortuitously in the FOFA processes. Where many Government departments and agencies are treated as simple delivery conduits with respect to policy, ASIC has enjoyed a seat at the table as not only a regulatory delivery conduit but also a ‘stakeholder’.

The net result has been to significantly amplify the regulator’s voice. ASIC has not only been able to have a voice in the policy development which will ultimately be translated into legislation, it will also have a voice in translating that legislation into

“

Planners would instantly recognise Medcraft as the ASIC Commissioner directing the latest shadow shopping exercise.

”

the regulations it will police.

There will be those who argue that there is no great harm in a Government regulatory agency providing its input and expertise, but this overlooks the reality that such agencies are just as capable of pursuing self-interested agendas as any of the major industry groups.

In circumstances where ASIC’s agenda has, over the years, been very much a reflection of those leading the organisation, financial planners would do well to reflect on the background of the man announced

by the Government last week to succeed Tony D’Aloisio as chairman – Greg Medcraft.

Planners would instantly recognise Medcraft as the ASIC Commissioner directing the latest shadow shopping exercise within the financial planning industry but they should also know that he has a strong background in securitisation and structured investments.

Medcraft’s background suggests that while he may have a good understanding of some of the more complex products in the market, he will not necessarily have a good feel for the environment in which independent financial advisers are required to work.

As well, in circumstances where shadow shopping appeared not to be a priority during D’Aloisio’s period as chairman, the industry needs to determine whether Medcraft has any personal ownership of the current shadow shopping exercise.

Where the Government’s approach to FOFA has given ASIC a high level of influence, the views and cultural approach of the man leading the organisation will be vital.

– Mike Taylor

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News

Advice plays small role in ETF popularity

By Caroline Munro FINANCIAL advisers may see the advantages of advising on exchange-traded funds (ETFs), but the increasing popularity of ETFs is being driven by self-directed investors, according to Investment Trends research.

Investment Trends’ 2010 Alternative Investments Report revealed that 70 per cent of ETF investors were self-directed and not influenced by an adviser.

The research was conducted in November and December 2010, and surveyed 7,811 respondents investing in alternative investments. Investment Trends analyst Recep Peker said Australian investors were increasingly embracing alternative investments as the number of investments grew 14 per cent to 330,000 in the 12 months to December 2010, and the current allocation to alternative investments within their investment

portfolios had increased from 16 per cent the previous year to 18 per cent.

The most popular alternative investments were listed investment companies (LICs), followed by ETFs, and commodities and resource funds, Peker said. While the number of investments for ETFs and LICs were similar, the number of investors using ETFs and LICs grew by 39 per cent and 26 per cent, respectively.

Peker said in 2008 financial planner interest in ETFs was increasingly due to diversification (30 per cent) and low cost (31 per cent). “But that really shifted significantly in 2010, when 14 per cent stated that the main benefit of ETFs was diversification and 44 per cent were saying that the main benefit of ETFs was low cost,� he said. “Greater pressure has come on fees from clients, but also as advisers move to a fee-

for-service model it’s harder to justify higher fees. It’s more a cost awareness thing.�

From an investor perspective, diversification was considered to be the main benefit of ETFs, said Peker. Two-thirds of investors surveyed felt that diversification was the main reason for investing in ETFs, while half said the reason was low cost.

Advisers have not played a role in the increasing interest in ETFs from investors, even though they themselves are increasingly seeing the low cost and diversification benefits, said Peker. Only 10 per cent of respondents investing in ETFs stated that they were being advised by a financial planner and a further 10 per cent by stock brokers. Some 37 per cent stated that no adviser played a part in their decision to invest in ETFs, while an additional 33 per cent stated that they did not use financial planners.

One-stop-shop model returns

Recep Peker

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Continued from page 1

i n c r e a s e e f f i c i e n c y,�

Bouris said.

To Bouris, a branch managers’ value comes in “gaining clients, managing clients, having a relationship with clients and fact finds�. “Most of them can deal with mor tgages, some can do life insurance, while the rest we do at head office,� he added.

Since its inception in 2007, YBR has attracted 61 licensees and has set a target of signing an average of one branch per week ov e r t h e n e x t 1 2 months.

Another group that is looking to dabble in financial planning is the mor tgage aggregator, Vow Financial.

Vo w We a l t h wa s launched to enable Vow brokers to diversify their range of ser vices to c l i e n t s , d ev e l o p n ew income streams and help “quarantine� their clients from financial planners who have been “encroaching on their territory�, according to Vow chief executive officer Tim Brown.

It said that while 70 per cent of its brokers would never be planners and would simply act as referrals, 20 per cent

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Tim Brown wished to offer limited advice, while the remaining 10 per cent wanted to become qualified financial planners.

Singh said that while these businesses would be in direct competition with financial planning b u s i n e s s e s l i ke h i s own, he encouraged the move so long as those giving advice were qualified and properly trained. “It’s good that they can offer an extended ser vice. It’s good for them and it’s good for the industry, I say.� “What’s wrong with having a few more players in the game? More people get advice and as long as it’s properly done and it’s good quality why is that wrong?

Bring it on,� Singh said.

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Australian equities managers fall short ONLY 28 per cent of the Australian equity fund managers reviewed by van Eyk have received a recommended rating, the researcher stated. None of the 65 managers reviewed received van Eyk’s ‘AA’ rating in its Australian equities core and concentrated reviews, while 12 core strategies and six concentrated strategies received an ‘A’ rating.

“We are firmly of the view that Australian equities managers need to more actively engage or hire independent industry experts

in order to increase the accuracy of their investment predictions across various sectors,” said van Eyk senior investment analyst, Matthew Olsen.

“Disappointingly, few Australian equities managers currently do this, even though most can certainly afford to given the size of their annual fee intake.”

He added that van Eyk would prefer to see manager fees more actively reinvested into activities that enhanced returns for the

underlying investor.

“We see broker research as providing a valuable service to the Australian market, but fund managers need to go well beyond mere reliance on broker research in order to differentiate from their peers. Some managers demonstrated these insights and were rated favourably in the review process.”

Olsen said managers were assessed holistically. Only 28 per cent received an ‘A’ rating because most managers fell short in certain

areas. He said on average ‘style neutral’ managers showed a greater propensity to conduct deeper research. He added that while managers had a diverse range of views on the market, there were some sectors where the similarity of viewpoints was striking.

“The most common positions as at the review date were that managers were overweight the consumer discretionary sector and underweight both the property and consumer staples sectors,” he said.

AMP Horizons centre broadens training scope

By Caroline Munro

AMP Horizons Financial Planning Academy has evolved to become a national centre responsible for not only recruitment and training of new candidates, but also the ongoing education and development of its entire financial planner base, according to Horizons director Tim Steele.

Steele said a strategic review of AMP’s financial planning advice and services business last year included all of its licensees and support areas, and resulted in the broadening of Horizons’ scope.

Horizons is now responsible for the delivery of training and education of all AMP planners.

Steele said the change had enabled AMP and Horizons to leverage best practices and have real synergies across the group.

“We’ve got a much better structure and the opportunity to do something really special in that particular space,” he said.

A single education and development strategy does not currently include AXA financial planners, although Steele said this was something the group was currently considering.

“We haven’t made any decisions with respect to how Horizons may support any AXA licensees,” he said. “There’s a lot of work being done by our integration team to identify what areas we would look to leverage. We would like to think that our track record is such that Horizons will be one of those areas that would be of benefit more broadly.”

The Horizons Academy attracts candidates from all over the country and 327 graduates

and 53 new AMP practices have come out of it so far. Steele said there was still a long way to go and that the academy would continue to evolve. For example, although higher than the industry average, only 27 per cent of females were coming through the Horizons program, Steele said. Horizons was currently researching what could be done to build awareness around financial planning and make it more attractive as a career for successful professional women, he added.

Steele said women particularly tended to make excellent financial planners as they were generally more empathic and better listeners.

These attributes were important considering that 50 per cent of the Horizons training program revolved around soft skills, he said.

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News

NAB half year report sees profit up 15.9 per cent

By Mike Taylor

Cameron Clyne

NATIONAL Australia Bank(NAB) has turned in a strong half-year performance, announcing to the Australian Securities Exchange (ASX) last week a 15.9 per cent increase in net profit of $2.428 billion.

The company’s cash earnings were up 21.7 per cent to $2.7 billion, which it attributed to market

share gains and disciplined margin gains and cost management.

Like all the other major banks, NAB announced a substantial reduction in provisioning for bad and doubtful debts but referenced the impact of recent natural disasters in both Australia and New Zealand.

Looking at its wealth management interests, the NAB announce-

ment said that MLC and NAB Wealth had grown its financial adviser numbers by 241 and had progressed the integration of Aviva.

It said it now had a portfolio of interests in 10 boutique investment management firms through nabInvest.

Drilling down on the performance of MLC and Nab Wealth, the company said cash earnings being

interest earnings on shareholders’ retained profits increased by 2.3 per cent to $270 million, with the main contributions being net interest income, investment performance and growth in average in-force premiums.

It said funds under management as at 31 March had increased by 6.8 per cent to $121.9 billion, reflecting improved equity markets.

Good quarter for hedge funds

By Chris Kennedy HEDGE funds performed strongly across the board in the March 2011 quarter, with strong inflows and positive returns across most of the sector.

Hedge funds overall were up 2.2 per cent for the quarter, according to the Dow Jones Credit Suisse Hedge Fund Index quarterly review, with eight out of 10 sector strategies finishing in the black.

The industry recorded net inflows of $10.1 billion, although funds with less than $500 million in assets, actually experienced net outflows as larger funds gathered $12 billion during the quarter.

The best performing strategy was convertible arbitrage, which gained 4.5 per cent over the quarter as managers benefited from large institutional investors seeking to increase their exposure in the space.

Equity market neutral gained 3.5 per cent, and event driven gained 3 per cent.

Between inflows and performance gains, total industry assets rose to around $1.8 trillion by the end of the quarter, up from $1.7 trillion at 31 December, 2010.

The favouritism shown to larger funds by investors was “perhaps the most telling indication of current investor sentiment”, according to the report.

Large funds saw net inflows in each month of the quarter, while mid-tier funds (those with between $150 million and $500 million) and smaller funds each saw net outflows in each month of the quarter. This is a clear indication of the increasing preference for larger scale managers that have the established infrastructure and resources sought by investors, the report stated.

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www.moneymanagement.com.au May 12, 2011 Money Management — 5 12/04/2011 10:56:48 AM

News

Westpac registers healthy six-month performance

By Mike Taylor

Gail Kelly

WESTPAC has joined the line-up of major Australian banks reporting solid earnings and profits across the first half of the current financial year, recording a 38 per cent increase in statutory net profit to $3,961 million on the back of solid cash earnings and significantly lower impairment charges.

Westpac chief executive, Gail

Kelly described the result as “healthy” and a reflection of the building of momentum across the business.

“All divisions delivered improved financial results over the second half of 2010 – something we have not seen since before the global financial crisis,” she said.

“The performance of Westpac Retail and Business Banking was particularly strong, with the bene-

fits of our Westpac Local investment clearly emerging. BT Financial Group also performed well, with good flows into our investment platforms lifting wealth income, which more than offset the cost of higher insurance claims relating to natural disasters,” Kelly said.

Drilling down on the company’s direction through the six-month period, the Westpac results

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announcement made clear that wealth management had been a part of its so-called ‘multi-brand’ strategy and made specific reference to “further extending distribution of wealth and insurance products into St George Bank and independent financial planner networks”.

It said wealth management and insurance income had increased by $44 million, or 6 per cent.

Further CGT rollover relief necessary

By Ashleigh McIntyre

THE Government has announced a three-month extension of the capital gains tax (CGT) rollover relief for merging superannuation funds, but at the same time ruled out the possibility of permanent relief.

The new deadline will be 30 September, 2011, which is intended to give those funds currently in the process of merging time to complete mergers and still qualify for the temporary loss relief.

While the decision has been welcomed by industry associations, many are warning that it does not go far enough, and it will be members who end up footing the bill.

The Australian Institute of Superannuation Trustees chief executive Fiona Reynolds said that three months did not give merging superannuation funds enough time to properly plan and complete mergers – especially when they were awaiting details of the coming Stronger Super reforms.

Reynolds said she would be recommending to the government a more appropriate date of 1 July, 2013, the date at which the default MySuper funds can be offered for the first time.

The Association of Superannuation Funds of Australia chief executive Pauline Vamos said that while she was pleased the government chose to listen to the industry, she believed a permanent CGT rollover relief would be of greater benefit to members.

News

Australians better served by lift in compulsory SG: ASFA Pauline Vamos

By Mike Taylor THE Association of Superannuation Funds of Australia (ASFA) appears to have abandoned the notion of ‘soft compulsion’, arguing that voluntary savings beyond the superannuation guarantee (SG) will not succeed in delivering Australians a comfortable retirement.

In a report issued this week, ASFA concludes that compulsorily lifting the SG to 12 per cent is necessary because “the available evidence suggests” voluntary contributions will not achieve the desired outcomes.

ASFA policy had previously argued for “soft compulsion” as a means of dealing with Australia’s retirement incomes shortfall.

“Despite significant tax incentives for marking voluntary superannuation contributions, only around 20 per cent of employees do this,” the report said. “As well, the incidence of making salary sacrifice contributions only really begins to pick up

after age 45.

“Compulsory superannuation contributions are both needed and wanted. Leaving decisions about the level and timing of contributions to individuals would mean the great bulk of Australians would not make additional contributions,” it said.

The ASFA report suggested that for the minority of Australians that did make additional contributions, these would generally be made later in life when the impact on final retirement savings would be less.

In pointing to the report findings, ASFA chief executive, Pauline Vamos said it confirmed that Australians would be better served by a lift in the compulsory SG than under the recommendations of the Henry Tax Review.

Indeed, the ASFA report analysis of the Henry Review pointed out that its recommendations were based on interactions with a proposed personal income tax system that was substantially different to the current one and which the Government had ruled out adopting.

As well, it said the Henry recommendations with respect to superannuation would result in substantial ongoing costs to tax revenue, individuals having to pay tax out of what was previously take-home pay, and administration complexity.

Tower becomes TAL Ltd TOWER Australia Limited has announced the name change that follows its acquisition by big Japanese insurer, Dai-Ichi: TAL Limited.

Tower, which originated out of a New Zealand Government department selling life insurance policies in 1869, was required to cease using the Tower name in November this year as part of an agreement entered into with the now-separate New Zealand company five years ago.

Commenting on the name change, Tower chief executive Jim Minto said he believed the new name was sharp and

strong and resonated positively with many stakeholders.

TAL is the code used to define the company on the Australian Securities Exchange (ASX).

“TAL has a close positive association with our company’s strong reputation and performance in the Australian market,” he said.

Minto said the new name would be progressively incorporated into the operations of the business up until November, when the current licence to use the Tower name will expire.

New manager Avoca launched

By Caroline Munro FORMER UBS small cap specialists John Campbell and Jeremy Bendeich have launched Avoca Investment Management in partnership with Bennelong Funds Management.

Avoca is majority-owned

by Campbell and Bendeich, and Campbell will serve as

managing director and portfolio manager, while Bendeich has taken on the roles of chief investment officer and portfolio manager.

Michael Vidler, another former UBS portfolio manager, has joined Avoca as senior investment analyst.

Campbell stated that the partnership with Benne-

long would enable the small cap manager to be nimble and proactive, while supported by the strength and backing of the Bennelong team.

Bennelong Funds Management chief executive officer, Jarrod Brown, said Bennelong had been looking to expand into the small caps sector for some time.

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www.moneymanagement.com.au May 12, 2011 Money Management — 7

News

Vow promises assistance to brokers

By Caroline Munro

Tim Brown

MORTGAGE aggregator Vow Financial has entered the financial services sector to help brokers “quarantine” their clients against financial planners, according to chief executive Tim Brown.

Vow Financial has entered into a joint venture with a financial planning firm to form Vow Wealth Management, providing brokers with another opportunity to diversify their range of services and develop new income streams, Brown stated.

“There’s also been a sentiment among brokers that financial planners have been encroaching on their territory, and as such we believe this strategy will help brokers quarantine their clients,” he added.

Brown said the joint venture achieved the broker’s long-term goal to enter the financial planning space, especially regarding property.

“It will enable our brokers, if they choose to do so, to fill in all those voids involving property transactions, such as risk insur-

ance, investment advice and superannuation,” he said.

Brown stated that the joint venture would mean that the majority of brokers would continue to focus on home mortgages, offering referral services to its aligned financial planners, while about 20 per cent would provide limited advice and 10 per cent of brokers would receive assistance from Vow Wealth to qualify as financial advisers.

Vow Wealth will be led by newly appointed national sales manager Justin Dale.

Time is right for unlisted infrastructure

Wealth management growth set to improve

By Mike Taylor

THE ANZ Banking Group has specifically earmarked Australian wealth management as a growth proposition, after reporting a solid first half statutory profit of $2.7 billion.

However, the big banking group acknowledged that its bottom line had been crimped by the natural disasters that had occurred in both Australia and New Zealand.

ANZ chief executive, Mike Smith, said the result was in line with the company’s first quarter trading update and demonstrated good underlying momentum in its core businesses and continued progress with respect to its strategic goals.

Looking at the company’s Australian operations, he said that profit before provisions had increased by 4 per cent but added that the net profit had been impacted by a 69 per cent

Mike Smith increase in the provision charge, largely due to the impacts from severe weather events.

Referring directly to the wealth business, Smith said it was making good progress with respect to the OnePath integration program and that the cost

to income ratio had improved by 60 basis points with management having been strengthened with new appointments to leadership roles.

Those appointments included the recruitment of former Colonial First State general manager of advice, Paul Barrett.

He said wealth management growth rates were expected to improve as the integration process (with ING) took hold.

“The focus is on distribution efficiency and developing products which more easily integrated into the bank channel and work well in a simpler superannuation environment,” he said.

While being upbeat about the outlook for ANZ, Smith said the operating environment continued to present challenges, with parts of the Australian economy having hit a flat spot with consumers and businesses becoming more conservative after the financial crisis.

Emerging markets fund Fiduciary duty not addition to Realindex the best approach COLONIAL First State subsidiary Realindex Investments has added an emerging markets fund to its suite of fundamental indexing products, which re-weight stocks within a portfolio based on fundamental measures of a company’s size.

These factors are derived from the past five years of accounting data from a global database of companies, with companies then weighted according to dollar sales, dollar cash flow and dollar amount of dividends, as well as the company’s actual book value, according to Realindex chief executive Andrew Francis. The portfolio is then rebalanced quarterly, he said.

Traditional indexing is inefficient in that it results in a portfolio being overweight to overvalued companies and underweight to underval-

ued companies, causing return drag when prices revert, Francis said.

The Realindex emerging markets fund holds around 400 stocks across 21 countries, holding only stocks in markets that are defined as ‘emerging’ according to the MSCI Index, although Francis pointed out that the individual stocks do not mirror those in the MSCI Index.

He cautioned that this approach can and will underperform a cap weighted index in a growth oriented bubble-type market but added that in a lower return environment such as the one we are currently looking at, removing that return drag can have significant long term return benefits.

The fund is aimed at advisers and end retail clients, as well as institutional investors.

8 — Money Management May 12, 2011 www.moneymanagement.com.au

By Milana Pokrajac

NEWLY appointed head of the UK equivalent of the Australian Securities and Investments Commission, Martin Wheatley, has hinted that fiduciary duty might not be the optimal approach to investor protection in the upcoming reforms.

Speaking at the Australian Centre for Financial Studies lecture, Wheatley said enhancing investor protection was pivotal to the reform process, but that a better approach was needed since ethical behaviour could not be legislated. “[Rebuilding] investor confidence … will require greater use of judgement and a forward- looking perspective, and pre-emptive actions to stem any potential build-up of risk before significant damage is done,” he said.

“Financial markets are about managing and pricing risk, not eliminating it,” Wheatley added.

Wheatley, who will soon become the head of the UK Financial Conduct Authority, had come out in support of greater regulatory intervention in retail and wholesale financial products, noting regulators and governments are now taking a more ‘considered’ approach to reforms.

Russell Clarke

By Chris Kennedy CURRENT market volatility and the threat of inflation combined with increasing demand for private sector involvement in infrastructure development mean now is a good time to invest in unlisted infrastructure, according to Mercer.

Private infrastructure offers protection from volatility due to its decreased correlation with equity markets, and its inflation-linked returns also protect from the threat of inflation, both of which are appealing in the current global market conditions, according to Mercer’s chief investment officer and leader of its portfolio construction team in Asia Pacific, Russell Clarke.

Although Australia is an exception, the governments of many developed markets are highly indebted and will increasingly be looking to the private sector to become more involved in the provision of public infrastructure, Clarke said.

In the coming years, Australians will get access to a variety of interesting assets that they may not have got exposure to historically, allowing investors to step up in bridging the capital shortage, he said.

And although the Federal Government is in a good position, many state governments may be making more infrastructure assets available as they are keen to maintain their credit ratings, he said.

Mercer has significantly boosted its exposure to infrastructure assets over the past six months, acquiring stakes in German gas transmission utility Thyssengas and Czech transmission towers business Ceske Radiokomunikace through underlying manager Macquarie Specialised Asset Management.

Mercer also seeded Westbourne Capital in December to provide exposure to a range of investments, such as the port assets of the Newcastle Coal Infrastructure Group, Mercer stated.

“The winners in today’s infrastructure market will be investors who pay sensible prices based on realistic assumptions for future growth and inflation, at appropriate discount rates,” Clarke said.

“Those who can strike the optimal capital structure for an asset and have a superior ability to manage it effectively once acquired will be successful investors.”

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News

Model needed to reduce extent of underinsurance

By Mike Taylor

Jim Minto

THE life industry should look to develop a sustainable commission model capable of resolving the Government’s concerns about conflict of interest, according to the chief executive of TAL ( previously Tower Australia Limited), Jim Minto.

Co m m e n t i n g o n t h e

IOOF acquires Patron stake

By Chris Kennedy

IOOF Holdings has acquired a minority stake in boutique financial advice firm Patron Financial Advice for an undisclosed sum, with the transaction to be completed in early May. Patron was established in 2007, is based in New South Wales and cur rently has around 50 advisers, according to IOOF. Patron, which is currently non-institutionally owned, will retain its operational independence and existing management team and board of directors, IOOF stated.

IOOF’s general manager of distribution Renato Mota said that par t of IOOF’s growth strategy involved aligning to dealer or planning groups that are also experiencing strong growth, and Patron fits the bill.

Patron had fairly aggressive growth targets over the next three year s in ter ms of adviser numbers and profitability, somewhere in the order of 50 per cent, Mota said.

IOOF had also supported Patron since the group’s inception in 2007, he added.

The most important thing is that IOOF had already developed a relationship with Patron’s key management, Mota said.

“That is the cornerstone; we’ve got a high degree of comfort and confidence in the management and believe we can wor k with them quite closely. It’s important to have that respect,” he said.

“IOOF sees this as a winwin scenario for both parties.”

Patron’s Rob McCann said that Patron had grown strongly since inception.

“The IOOF partnership will enable us to accelerate our growth while offering our clients the best possible quality service, investment and life products and research,” he said.

10 — Money Management May 12, 2011 www.moneymanagement.com.au

Government’s release of the Future of Financial Advice reforms, Minto said the life risk industry could continue to push back or it could develop changes “that make the model viable for the longer term and attempt to win Government confidence in these”.

However, Minto said that any rules developed by the

industry should be applied both inside and outside of superannuation – something that would remove concern about unequal treatment and help ensure that underinsurance is not exacerbated.

Despite his calls for a proactive industry approach, Minto pointed to independent research that had shown that policy lapse rate had

been rising both inside and outside of superannuation.

“An independent report s h ow s p r o f i t re d u c t i o n s across the industry of $100 m i l l i o n a y e a r,” h e s a i d . “ T h i s h a s c re a t e d s o m e sustainability concerns around this model for the i n d u s t r y a n d , i n t i m e, potential cost increase for consumers.”

News

Variable cashflow story for AMP and AXA Asia Pacific

By Mike Taylor

AMP Limited has released its first quarter cashflows report inclusive of those for the now-merged AXA Asia Pacific Holdings (AXA APH) business and the data has painted a very mixed picture.

The company announced to the Australian Securities Exchange (ASX) last week that AMP Financial Services net cash

flows for the first quarter had been just $42 million, compared to $236 million in the first quarter of last year “as higher cash inflows were offset by higher cash outflows”.

The company said net cashflows for AMP’s retail superannuation and pension business were up $23 million on the same period last year, with cash inflows 30 per cent higher as a

result of higher rollovers into AMP Flexible Super from new customers.

It said corporate superannuation net cashflows were $122 million, down $68 million on the first quarter last year.

Looking at AXA APH, the AMP announcement said AXA Australian wealth management had experienced a net outflow of $634 million.

It said platform net cashflows were down $8 million on the same period last year to $84 million, while cash inflows were up 9 per cent as a result of higher sales in the Multiport self-managed superannuation offering.

However cash outflows increased 13 per cent due to higher outflows from the Summit and North platforms.

It said advice net cash out-

flows were $184 million, down from a net cash inflow of $35 million in the first quarter of 2010.

The analysis said cash inflows decreased by 12 per cent and were impacted by continued low investor sentiment and a reduction in Genesys adviser numbers resulting in lower inflows to the badged wrap platform used by Genesys advisers, Solar.

Emilio Gonzalez

Solid halfyear for BT BT Investment Management (BTIM) has recorded a strong half, reporting a 10 per cent increase in net profit after tax of $15.6 million.

BTIM chief executive Emilio Gonzalez attributed the result to a higher market and continued positive institutional flows into the BT core business.

The result saw the directors declare an interim fully franked dividend of 6 cents per share.

Announcing the result to the ASX, the company said closing funds under management as at 31 March stood at $36.1 billion, compared to $36.3 billion at the same date last year and $35.4 billion at 30 September, 2010.

It said BTIM had recorded net outflows of $0.8 billion in the six months, primarily from two lower margin sources – the Westpac retail ‘legacy’ book and institutional cash.

Discussing the company’s outlook, the company said the wholesale market remained a sector for the wealth management industry and afforded BTIM “substantial opportunities to grow revenue and margins”.

Gonzalez said the domestic economy was continuing to perform well with increasing investment in the resources sector continuing to underpin growth.

“The structural fundamentals of the fund management industry overall remain positive despite the current trend for investors to favour defensive assets, a trend which I believe will shift once better returns are recorded in the riskier asset classes,” he said. www.moneymanagement.com.au May 12, 2011 Money Management — 11

News

Financial planning job growth stagnant, says eJobs

By Milana Pokrajac

Trevor Punnett

THE financial planning industry loses almost as many advisers as it gains each year, which explains the slow growth in adviser numbers over the past decade, according to recruitment specialist eJobs.

According to eJobs figures,

there were around 1,000 financial planning roles advertised each month for the past 12 months, while the figures prior to the global financial crisis were significantly higher. Job numbers have also risen 18 per cent over the last quarter.

But eJobs managing director and financial planning

recruitment manager Trevor Punnett noted that while one would suspect the financial planning industry had grown massively over the past ten years, “the total number of advisers has only increased a flat 2 per cent a year”. eJobs analysed published data from Money Management and other trade publi-

cations and found the number of advisers in the top 100 dealer groups has risen from around 13,000 in 2001 to about 16,000 last year.

“We’re not far off losing the same number of advisers through retirement or leaving the industry than we are in welcoming newcomers,” Punnett said.

He also referred to the shallow talent pool, as the proposed Future of Financial Advice reforms would force practices to recruit more staff just to assist with additional administration work.

“We see a continuation of similar employment levels and increasing supply challenges,” Punnett added.

Hedging relief mitigates short selling risks

By Ashleigh McIntyre

THE Australian Securities and Investments Commission (ASIC) has granted extended relief for market makers wishing to hedge risk by short selling securities.

Naked short selling will now be allowed on securities in the S&P/ASX300 index, where it was previously restricted to those that appeared in the S&P/ASX200 index.

ASIC stated that while naked short selling is prohibited in the Cor porations Act, licensed market makers have been afforded relief in order to allow them to mitigate the risks involved in their activities.

A condition of the relief is that market makers must have reasonable grounds to believe securities lending arrangements can be put in place to allow delivery and market makers acquire or borrow sufficient products by the end of the day to ensure they can deliver all products sold at the time delivery is due.

Fo r t h e a d d i t i o n a l 100 stocks in the S&P/ASX300, ASIC stated that it believes the liquidity ease with w h i c h t h e m a r ke t makers can cover short positions are broadly in line with the S&P/ ASX200 index.

Hence, it anticipates this change in rules will have little impact, with sufficient investor and market protections in place.

12 — Money Management May 12, 2011 www.moneymanagement.com.au

PointofView Reality check

GDP SNAPSHOT Australia’s largest GDP contributors:

10.8

With the Government having released its FOFA proposals, Rick Cosier writes that financial planners have fallen victim to a range of blatant misconceptions that need to be recognised and addressed.

%

Financial services

9.5% Manufacturing 7.4% Professional Services 6.2%

Health

7.9%

Construction

8.3% 5.1% 4.3%

Mining Transport Retail

Source: ABS

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L

ike most other financial advisers, I have been living in a state of suspended animation, awaiting the exact nature of the FOFA reforms.

Expecting the worst whilst hoping for the best. Now that the reforms have been announced, it seems that some critical messages have simply not got through to the people that matter.

The relentless campaign by the industry super funds has convinced the government that if they ban commissions and rebates and do everything they can to prevent advisers getting paid via deductions from a client’s investments, everyone will live happily ever after. In my opinion, these measures are based more on political agendas than on the major underlying issues. Furthermore, there is a series of ‘inconvenient truths’ that are blatantly obvious to financial advisers but have been either papered over or totally ignored.

Inconvenient truth number one

The people most in need of financial advice are working families with a mortgage to pay, kids to educate, elderly parents to look after, student children living at home. These people invariably have a cash flow problem already. Given a choice between paying an invoice and having the money deducted from their super account, does anyone really think that they would prefer to pay a bill?

Inconvenient truth number two

Contrary to the industry funds and media ravings, asset-based fees are not ‘commission by another name’. Commissions are hidden payments to licensees by fund managers/platforms which the client cannot access, even if they sack the adviser.

Asset-based fees are mutually agreed, transparent fees paid from the client’s account balance which the client can turn off at any time. The ‘opt in’ provisions are an unnecessary, onerous and expensive impost which

14 — Money Management May 12, 2011 www.moneymanagement.com.au

will force many independent financial planners out of business.

Inconvenient truth number three

Situations where Australian investors have lost lots of money have been caused by criminal or fraudulent activity by licensees, or bad product design by manufacturers.

No n e o f t h e f o r t h c o m i n g l e g i s l a t i o n addresses these. Commissions were often a symptom but not the underlying cause.

Inconvenient truth number four

Licensees are responsible for the training of their employees/representatives and have absolute responsibility for their actions and advice. In turn, these organisat i o n s a re re g u l a t e d by A S I C w h i c h i s supposed to make sure the licensees are operating properly and identify any misdemeanours. If this system is not working, it will not be fixed by banning commissions and rebates.

Inconvenient truth number five

Rebates are paid by platforms to licensees, not financial advisers. In most cases financial planners have no knowledge of exactly what is paid to their licensee. So how can they possibly affect the advice? And there are usually hundreds of products from dozens of different fund managers listed on the platform menu. A platform is not a product, it’s a supermarket.

Inconvenient truth number six

Insurance commission in super is usually a relatively small amount of money deducted on an annual basis from a client’s account. Insurance outside super is usually a relatively large upfront commission payment with a relatively small amount paid annually. The former will be banned, the latter will not. Ask yourself whether this measure ‘will see Australians receive advice that is in their best interests’.

Inconvenient truth number seven

The Industry Super Funds campaign has damaged the reputation of financial advisers to such an extent that many Australians have decided to set up their own self-managed super funds. Most of these people do not have the time or the expertise to run their own funds, are doing it ‘on the cheap’ and a sizeable proportion are non-compliant. Why are these funds not regulated properly?

Inconvenient truth number eight

The average financial adviser does not make much money. Do Bill Shorten and his cohorts know that the cost of running a practice is rarely less than $250,000? Office rental, support staff, professional indemnity insurance, compliance costs, research, licensee fees, IT, accounting, auditing, etc, etc. The majority of these costs have to be paid monthly. The Industry Funds campaign gives people the impression that financial advisers are making millions by cheating innocent people. The average superannuation balance is barely $20,000 and the commission is at best 0.6 per cent per annum. This adds up to the princely sum of $120 a year. Given that the average retirement age is 57, has anyone actually bothered to look at how realistic the ‘compare the pair’ statistics are?

I accept that commissions are bad and should be banned. I accept that many financial planners focus exclusively on selling product, and this is also bad. However, our profession has the potential to do an enormous amount of good. To help people with their cash flow, debts, investments, super, insurance, estate planning and tax. Yet this potential is being destroyed by people and organisations with ulterior motives, aided and abetted by government officials who seem disinclined to ask the right people the right questions.

Rick Cosier is a practising financial adviser with his own AFSL.

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ESG

Proceeding with caution

Environmental, social and governance (ESG) issues are increasingly guiding portfolio construction. However, taking an ESG approach can introduce new risks. Chris Kennedy reports.

CONCERNS remain about the benefits of an environmental, social and governance (ESG) approach to investment, partly due to the increased investment cost and also the potential to shift the risk profile of a portfolio.

In a recent analysis of AMP Capital Investors’ sustainable funds strategy, Morningstar senior research analyst Julian Robertson said that the focus on ESG could push out many larger cap and more defensive stocks, increasing the risk profile.

This is partly because it can be harder to analyse the governance of larger conglomerates, because when you try and apply the ESG approach to individual companies it results in many of those larger stocks falling out of the portfolio. The universe then gravitates towards the smaller end and mid cap stocks, he said.

An ESG filter also removes many

companies with exposure to uranium (and other mining), gambling, alcohol, tobacco and armaments – and these can often be larger cap and defensive stocks, Robertson said.

The resulting portfolio is cleaner in terms of being able to analyse the ESG practices of companies, he said.

AMP Capital’s new head of sustainable share funds, Dr Ian Woods, has been involved with the strategy for the 10 years since its inception. He said that while the ESG focus had contributed to the fund’s underperformance over the past 12 months, over three to four years it had boosted returns.

“It’s not whether it’s a smaller pool of companies to invest in, but do you have a better pool of companies to invest in?

Over three to four years that pool of companies has performed better than ASX,” he said.

Companies that do better on ESG factors tend to perform better overall, he added.

16 — Money Management May 12, 2011 www.moneymanagement.com.au

is no disputing “thatThere adding a layer of ESG research adds to the overall investment cost. ”

Key points • An environment, social and governance

(ESG) approach to investing is becoming more popular among investors.

• However, there are concerns about the increased cost of ESG and the potential to shift a portfolio’s risk profile.

• It is possible to maintain exposure to a particular sector by switching to a different company.

• Portfolios that are concerned with climate change tend to focus on smaller cap companies.

AMP Capital’s sustainable funds take a slightly different approach to ESG filtering. Rather than striking off stocks or sectors with suspect ESG criteria, the strategy applies higher governance hurdles to companies that operate within sectors that tend to be redflagged in terms of governance, such as mining.

Fo r e x a m p l e, a m i n i n g c o m p a n y would have to satisfy more stringent ESG criteria, and would be expected to do more to manage their environmental risk compared to a telecommunications company, Woods said.

ESG But Hartnett believes the benefits to a portfolio outweigh the extra costs. “[ESG research] has been a performance enhancement for us and the additional costs are made up for in a holistic evaluation of stocks,” he said.

Helga Birgden, Mercer’s head of responsible investment for Asia Pacific, said that clients see ESG as an area of both risk and opportunity, adding that it is important to integrate risk management mechanisms when building a portfolio.

ESG is not necessarily a penalty, and the investments should stack up on a traditional risk return basis, she said. It is difficult to generalise and say that an ESG approach will necessarily reduce returns, she added.

An ESG approach can also help identify other drivers of risk; for example, companies that are exposed to climate change risk, she said.

Climate change

Making adjustments

In terms of managing the risk profile, Woods said there were few companies on the ASX200 that were completely excluded, but often it was also possible to maintain exposure to a particular s e c t o r by i n v e s t i n g i n a d i f f e re n t company.

So if the team decided that Woolworths did not pass ESG hurdles, the fund could maintain exposure to the retail sector through another company such as Wesfarmers or Metcash, he said.

Bill Hartnett is the sustainability manager at Local Government Super, one of the most proactive super funds in the country when it comes to responsible investment.

Hartnett does not feel that the potential for an ESG screen to shift the risk profile of a fund needs to be a factor, because there are enough options in terms of companies to run a fund without ending up under weight to defensive stocks or a particular sector.

There is no disputing that adding a layer of ESG research adds to the overall investment cost, whether that is done internally or through purchasing external research from a provider such as Regnan that LSG subscribes to.

The major theme of climate change is an area that requires good governance.

It is important not to look at it narrowly in terms of whether or not you are investing in green real estate. Rather, you should ask if the portfolio as a whole is managing risk with regards to the new issues that climate change is presenting to investors all over the world, Birgden said.

Managers need to understand the impact on their portfolio if they have a high exposure to infrastructure such as ports, airports and roads, and if there are ways to make those investments more resilient to climate change risk, and also consider major thematic stresses on economic activity in portfolios, she said.

Depending on the type of portfolio an investor is looking for, smaller cap stocks tend to predominate, and clients looking for sustainably themed investments would find more on the unlisted side, which could also contribute to a smaller cap weighting, she said.

However, if a manager was integrating ESG into a fundamental bottom-up analysis that would be less likely to be the case, she said.

When looking at ESG investments it is important to choose a manager that has superior ideas and can implement them right through the portfolio construction and management process in the ESG area, Birgden said.

You need to be confident they are constructing the portfolio in a way that’s true to these ideas, as well as managing the risk well, she added.

A 2009 Mercer review of academic studies found that 10 of 16 studies identified a positive relationship between ESG factors and a company’s financial performance, while two of those studies found a negative relationship.

Of four studies looking at the effects of environmental factors, one found a positive relationship between environmental factors and company value, while overall, Mercer noted the financial community assigned more value to environmental factors within high environmental risk industries.

Four studies investigating the effects of social factors on financial performance found overall that improved social

Helga Birgden performance of companies within an investment portfolio can lead to improved financial returns.

Four studies examining the effects of governance factors also found that strong and actively promoted corporate governance had a positive impact on firm and portfolio performance.

Further studies examining the impact of screening out ‘sin’ stocks such as tobacco and arms also found mostly neutral or positive effects, according to Mercer.

“The results are leaning in favour of

the value-added proposition of ESG integration,” Mercer concluded.

Aside from the potential return benefits, Birgden said there is increasingly an overall trend towards ESG integration due to client demand, because clients want to know how mainstream portfolios are managing ESG risk.

Investors see ESG as an area of portfolio resilience in terms of long-term risk versus reward, she said.

“ESG is very much part of world we live in and the way companies operate,” she said.

MM

www.moneymanagement.com.au May 12, 2011 Money Management — 17

ESG

Warming to ESG With climate change at the forefront of many investors’ minds, now may be the time to get started with an environmental, social and governance approach to investing. Ashleigh McIntyre reports.

AS a country that does not experience the obvious effects o f c l i m a t e c h a n g e, i t o f t e n becomes difficult for Australians to care about investing responsibly.

But a recent study by Deutsche Bank found that throughout Europe, the countries that are closer to the North Pole have greater levels of investment in funds with an environmental, social and governance (ESG) approach.

Stephen O’Brien, chief executive of Deutsche Asset Management (DAM) in Australia and New Zealand, jokes that witnessing the real effects of pollution and climate change – like acid rain and melting ice caps – makes responsible investing hard to ignore.

“The Nordics are doing more and the Spanish are doing less. If that doesn’t say something, I don’t know what does,” he says.

While the science of climate change is n o t q u e s t i o n e d i n Eu ro p e, h e s a y s Australia’s debate has become extremely politicised, which has not helped i n v e s t o r s e n t i m e n t t ow a rd s E S G approaches.

But O’Brien sees this as a temporary phase, and in the meantime DAM has committed to investing in ESG funds for investors to turn to regardless of how the debate pans out.

“We expect that there will hopefully be investors out there who do want to employ capital in a way that is consistent with their value framework and so we think it is only logical to provide solutions in that space,” O’Brien says.

DAM is considering setting up an Australian bond fund with an ESG focus, which it is talking about getting seeded from its parent company Deutsche Bank.

While ESG strategies have traditionally been thought of as venture capital for investments in clean technology companies, O’Brien says it does not have to be a ‘boom or bust’ approach.

“That’s the way people have thought

about approaching it. Either you are in it in a big and potentially risky way, or you are not, and I think that’s where some people have become stuck doing nothing,” he says.

Getting started

There is building pressure on both institutional and retail investors to invest e t h i c a l l y, b u t t h e re i s a l s o a l o t o f caution surrounding the risks involved, O’Brien says.

“This is a potential way of putting your toe in the water, getting some exposure, but it’s not like either it all

Andrew Canobi goes brilliantly or terribly – it’s just slowly working into the real economy through fixed income as a defensive component of the portfolio,” he says.

DAM has had an ESG approach for the fixed income asset class for more than two years.

The process starts with 700 investment grade issues worldwide, as provided by ESG research company Sustainalytics, which is then distilled down to between 70 and 100 names with both strong ESG ratings and investment ideas.

18 — Money Management May 12, 2011 www.moneymanagement.com.au

If DAM’s Australian bond fund were to go ahead, it would be run by Andrew Ca n o b i , f i x e d i n c o m e p o r t f o l i o manager.

Canobi says the defensive nature of fixed income goes hand-in-hand with an ESG approach, as it comes down to issues of trust.

“Fundamentally, what we do is lend money to corporations. We have seen many high profile examples over the last 10 to 20 years of companies that run on poor ethical principles and with poor governance structures. These tend to be the ones that you just don’t want to have in a portfolio,” Canobi says.

Companies that run on sound governance principles, have strong management frameworks and are cognisant of their impact on the society around them tend to produce good investment outcomes over the medium-to-long term, he says.

As for the environmental aspect of ESG, Canobi says companies that are positioning themselves now for future changes to government carbon pricing policies will be the beneficiaries when and if these policies are revealed over time.

Companies that are actively dealing with climate change now, in a real way, will be better positioned in the coming years and will experience a lower cost of capital and less abrupt change when policies are introduced, he says.

While this approach sounds appeali n g , O ’ Br i e n c o n c e d e s t h e re a re a number of retail managers who have

had products available in the market for a long time that have not attracted large amounts of money.

Championing ESG

But with the backing of the global head of asset management, Kevin Parker – whose ‘hobby horse’ is ESG – and much debate surrounding the issues of a carbon tax and climate change, O’Brien believes there will eventually be a tipping point in public opinion.

“What we are seeing is a lot more of the general population interested in something being done,” he says.

“It’s proven and tested with big portfolios that we have in Europe that have been going for more than two years.

“I don’t think it is something that is going to get 20 per cent of portfolios here next week, but over time, I think people will get fed up with what is happening on a policy level and will want to make decisions on their own,” he says.

“We’ll be there and ready when they do decide to come aboard.”

One of the biggest struggles ESG approaches face is giving investors a compelling reason to change their i n v e s t m e n t s t ra t e g y, w h i c h o f t e n involves proving investors will not forego returns for the sake of being ethically responsible.

Canobi says this is an area he struggles with, as it is difficult to prove in a fixed income environment.

But being well-resourced makes it

ESG Because our investment “universe is so large, even when we invest along ESG principles, I don’t believe we necessarily give up or sacrifice a lot of excess returns just because we are investing in that framework.

- Andrew Canobi

”

possible to generate strong portfolios that have a good chance of excess return performance versus the benchmark, he says.

“Because our investment universe is so large, even when we invest along ESG principles, I don’t believe we necessarily give up or sacrifice a lot of excess returns just because we are investing in

that framework.”

De s p i t e t h i s, Ca n o b i s a y s i t w i l l always be difficult for fixed income approaches, ESG or not, to compete in the retail market if they are judged solely on performance.

“I feel very strongly, as does Deutsche Asset Management, that within the fixed income component of a retail investors’

portfolio, what is paramount are those defensive characteristics – those offsetting, uncorrelated characteristics,” he says.

“Clearly throughout the crisis we saw a number of high-achieving fixed income solutions that suffered horrendous returns because it came to pass that the risks embedded in those portfolios were quite high.”

Canobi says that he feels very strongl y t h a t w h a t i s d e l i v e re d t o re t a i l investors needs to be robust from a risk perspective.

“I doubt we’ll ever compete with high-yield more risky style solutions purely head to head in the retail space.

“The way we differentiate ourselves is we are in the business of building solutions that stand up in volatile conditions – and frankly that’s when you need your fixed income portfolio to stand up,” he says.

Another question Canobi says he hears a lot is: ‘What difference will it really make on a global scale if little old Australia adopts a framework to mitigate carbon emissions?’

“I think the obvious answer is that someone has to begin somewhere in taking responsibility for these sorts of issues and that is also true at the investment level,” he says.

“It m a y n o t c h a n g e t h e w o r l d overnight, but the point is: let’s begin.

Let’s begin to actually apply what are good pr inciples to our investment portfolios.”

MM

www.moneymanagement.com.au May 12, 2011 Money Management — 19

OpinionILBs Inflation-linked bonds: the mechanics Stephen Hart gives a working example of inflation-linked bonds.

L

ast month I wrote about how well inflation-linked bonds (ILBs) have performed against equities over the last 20 years.

This month I’m continuing with the subject of ILBs showing some working examples of how the consumer price index (CPI) uplift works in a capital indexed bond (CIB) and what a real yield means for the holder.

The basics

Discussions with financial advisers often bring up the following questions: • How does the CPI uplift work?; and • What does the real yield on a corporate ILB mean?

CPI uplift

The Australian Office of Financial Management defines the way the uplift of most CIBs works, as shown in formula 1. In this formula, • CPI t is the CPI for the second quarter of the relevant two-quarter period; and • CPI t-2 is the CPI for the quarter immediately prior to the relevant twoquarter period.

An example would be the CBA 2020, uplifts, which can be worked out as follows.

First, one needs to define the relevant CPI dates and values. These dates and values are available from many places, such as the Reserve Bank of Australia website, as shown in the first column of figure 1. In this case: • CPI t is December 2010, which corresponds to the CPI index value of 174; and • CPI t-2 is June 2010, which corresponds to the CPI index value of 172.1.

One then needs to insert these values into the formula (see formula 2).

P is then used to increase, or ‘uplift’ the capital price of the bond to the new adjusted capital price, as shown in figure 1. Using formula 2, you can then determine a series of capital uplifts, as shown in formula 2.

In the case of this ILB, this outcome means that the adjusted capital price of the bond goes up by 0.55 per cent, as shown in the third column of figure 1.

Hence the old adjusted capital price is multiplied by 1.0055 (rounded to 4 decimals) from 112.87 to 113.49, as shown in the fourth column of figure 1. This means that the ILB issuer now has an

p=

[

CPI t CPI t - 2

- 1]

CPI Release Date

CPI index

September 2009

Capital uplift

Current index factor

168.6

December 2009

169.5

March 2010

171.0

0.71

111.26

June 2010

172.1

0.77

112.12

September 2010

173.3

0.67

112.87

December 2010

174.0

0.55

110.48

113.49

Source: FIIG Securities Ltd, Reserve Bank of Australia

Figure 2: Effective yields Yield

Purchase price

Effective yield

5%

100

5.00%

75

6.67%

50

10.00%

25

20.00%

Source: FIIG Securities Ltd

Figure 3: Pricing comparison of a nominal bond and a theoretical ILB Nominal bond

Inflation-linked bond

Settlement date

28 March 2011

28 March 2011

Maturity date

23 March 2031

23 March 2031

3.12%

3.12%

Coupon

Formula 2

Current adjusted capital value

p=

Formula 1 100 2

Figure 1: Capital uplifts

p=

100 2

100 2

[

[

CPI t CPI t - 2

174 172.1

- 1]

- 1] = 0.55

Purchase price

Purchase price

Yield to maturity

135.7256

1.2%

153.3290

1.12%

100.0000

3.12%

153.3290

1.12%

75.1582

5.12%

85.5500

5.12%

71.3573

5.50%

81.2600

5.50%

Note: Adjusted capital value is reflected in the higher ILB price when compared to the normal bond Source: FIIG Securities Ltd

20 — Money Management May 12, 2011 www.moneymanagement.com.au

113.49 Yield to maturity

obligation to pay 113.49, not 100, or the pr ior 112.87, to the investor, upon the maturity of the bond.

Understanding how the CPI feeds into the adjusted capital price is important if you are looking for value among ILB issues.

Effective yields

If an investor can purchase an interest bear ing secur ity, not necessarily an ILB, with a yield of 5 per cent, at a price of 100, then the yield on that security is 5 per cent. However, if an investor purchases that same security at a price of 50, or 50 per cent of the original issue price, then the yield on the security is 10 per cent, as indicated in figure 2 – along with other possible purchase prices. In other words, if an investor pays half the purchase price for a security that returned 5 per cent at a price of 100, then that security effectively yields 10 per cent.

Buying an ILB at a discount is just an extension of this idea. Here, buying the ILB at a discount is similar to buying a nominal (fixed rate) bond at a discount, except for the adjusted capital price has changed as shown above. If the coupon on the ILB is fixed at 3.12 per cent, and a seller needs to sell the bond at a yield higher than 3.12 per cent, then the 3.12 per cent is effectively applied to a value smaller than the adjusted capital price, as shown in figure 3.

All that means is that this settlement amount is the value that solves the discounting of the coupon of 3.12 per cent at a much higher rate of 5.50 per cent over a long period. Figure 3 shows different yield levels for different bond settlement prices, for both a nominal (fixed rate) bond, and for the theoretical ILB. Discounted bonds (those trading at less than $100) pay higher yields to matur ity, whereas bonds trading at a premium (above $100) will have lower yields to maturity.

Purchase at par, at 3.12 per cent When investors purchase a

nominal (fixed rate) bond at par or at a yield that equates to the coupon, then the settlement price of the bond approaches 100, as noted above. Yet, in the case of the ILB, the settlement value approaches the adjusted capital price, of say, 113.49, as shown in figure 1.

nominal (fixed rate) bond at a y i e l d l owe r t h a n t h e c o u p o n level, then the price will be above 100, in the case of the nominal (fixed rate) bond, and above the adjusted capital price of 113.49 at say, 153.3290, as shown in figure 3.

Purchase at 2 per cent below the coupon level, or at 1.12 per cent W h e n i n v e s t o r s p u rc h a s e a

Purchase at 2 per cent above the coupon level, or at 5.12 per cent When investors purchase a

nominal (fixed rate) bond at a yield higher than the coupon level, then the price will be below 100, in the case of the nominal (fixed rate) bond, and below the adjusted capital price of 113.49, in the case of the ILB, at 85.5500, as shown in figure 3.

Purchase at 5 per cent real Here, as with the above example,

when investors purchase a nominal (fixed rate) bond at a yield higher than the coupon level, then the price will be below 100, and below the adjusted capital price of 113.49, in the case of the ILB, at say 81.2600, shown in figure 3.

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

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OpinionEurope Behind the mask Strong economic growth in core Europe is masking the weaker performances of the peripheral economies, writes Alexander Scurlock.

U

ntil recently, the defining theme of European economic monetary union since its introduction in 1999 was the convergence of the peripheral economies (ex-Soviet bloc and outlying countries) and core Europe (France, Germany, the UK and so on). The move to a single currency provided the impetus for fiscally weaker, less-competitive peripheral economies to catch up to the stronger, more-competitive core.

Short-term interest rates converged once the European Central Bank (ECB) began to set monetary policy for the entire eurozone.

Over time, inflation declined in the periphery, which brought down long-term bond yields and reduced the risk premium for peripheral markets. Further economic benefits followed as the â&#x20AC;&#x2DC;one-size-fits-allâ&#x20AC;&#x2122; eurozone policy benefited the periphery more than the core. Interest and exchange rates were invariably too high for Germany, for instance, which meant that its export sector struggled.

The eurozone debt crisis of 2010 has upended this situation. Faced with steep unemployment, broken banking sectors and indebtedness, economies in the peripheral south and west, such as Greece, Ireland and Spain are enduring the deepest recessions of the financial crises.

22 â&#x20AC;&#x201D; Money Management May 12, 2011 www.moneymanagement.com.au

At the same time, economies in the centre, such as Germany, France, the Netherlands and Belgium are enjoying stronger growth. Germany is the standout; buoyant activity there is, in fact, masking weaker performances at the periphery in overall measures of eurozone activity.

German exports are more competitive because, after the asymmetric impact of the financial and sovereign debt crises of 2010, eurozone interest rates have been kept low to support struggling peripheral member states and the euro fell. This is, however, just one aspect of the reversal of core-periphery fortunes. As table 1 shows, a range of political and economic factors are combining to reinforce the continued outperformance of core Europe.

Still partly the preserve of national governments, fiscal policy has become the weak point of the eurozone experiment. At the periphery, large public deficits exacerbated by banking sector bailouts have led to unavoidable and painful austerity measures, which have caused sovereign spreads to rise precipitously for Greece, Ireland and Portugal.

When the euro was introduced on 1 January, 1999, sovereign bond spreads in the periphery converged to record lows.

From 2001, the average spread over German government bonds stayed within a 10 basis point range until 2007 (based on an unweighted average of bonds from Portugal, Italy, Ireland, Greece and Spain).

It was at this point the prevailing forces that had favoured all countries in the eurozone first showed signs of abating. As we now know, the credit crunch caused a serious de-convergence in sovereign spreads that continues to remain with us.

There has been a positive correlation between higher peripheral sovereign spreads and funding costs in the aftermath of the credit crisis, suggesting that there is a meaningful spill-over effect from the

public to the private sector.

That increased cost of corporate funding is a significant headwind for companies in the periphery that reinforces my view that divergence will remain a defining theme in the eurozone for much longer than investors expect.

Divergent labour trends also seem here to stay.

Peripheral countries face significant unemployment.

Spain must deal with nearly 20 per cent of its workforce being out of work. Ireland and Greece also have double-digit unemployment, which, in the case of Ireland, has encouraged an upturn in emigration. Part of the explanation is the fact that labour costs surged in peripheral countries during the good times (by more than 30 per cent in Ireland and Spain from 2000 to 2008), when wage indexation agreements were often a feature.

Germany’s unemployment rate (at about 7.5 per cent) is less than the European average. Once ‘the sick man of Europe’, a perceived lack of competitiveness several years ago encouraged deep labour market reforms and collectively bargained minimum wages were effectively abolished.

As a result, Germany controlled unit labour costs, meaning the economy became more competitive relative to its peripheral peers.

With strong demand for its high-quality capital goods as well as for premium auto brands like BMW, the German economy can be expected to benefit from further growth in emerging-market consumption for years to come. And the good feeling is not confined to the export sector; the domestic economy is also humming.

The German consumer, so often a laggard historically, appears to be enjoying a welcome revival of confidence. If the Bundesbankers were still in charge of national monetary policy, they would be applying the brakes.

Peripheral eurozone countries, meanwhile, must overcome major hurdles to be competitive again. This will become more apparent as competition from emerging economies intensifies.

Without the safety valve of

a floating exchange rate, their economies face ‘internal devaluations’ (deflation) that could have painful social costs.

In terms of European Union (EU) governance, the outlook is similarly polarised. The EU and International Monetary Fund have already announced a €750 billion (A$985 billion) package to cover several years of deficit financing.

However, European leaders have

been keen to respond to the accusation of ‘incremental reactive policymaking’ in response to the sovereign crisis. As a result, the EU summit in March was expected to see policymakers deliver a ‘competitiveness pact’, designed to draw a credible line under the debt crisis.

Significantly, however, now that the negotiating power of peripheral states has been weakened, the architecture of the pact has been domi-

nated by a vociferous Germany and France.

Beyond the expected expansion of the European Financial Stability Facility lending capacity to €440 billion, the focus of change is away from austerity and more structuraldebt brakes, an end to automatic wage indexation, increases to retirement ages and corporate tax harmonisation.

All of this points to further pain

for peripheral Europe. While there may be investment opportunities for the agile, from an asset-allocation perspective I believe that investors in Europe can profit from concentrating the focus of their portfolios on the core eurozone economies that are benefiting from powerful and self-reinforcing trends.

Alexander Scurlock is portfolio manager,European equities,at Fidelity.

www.moneymanagement.com.au May 12, 2011 Money Management — 23

OpinionAdvice Access all areas With remote access and flexible working hours becoming par for the course, Bruce Gingell considers the viability of the mobile financial planning business model.

F

ull lifestyles and packed working habits have combined to make time a valuable commodity today and while many people are happy to travel to an adviser’s office for financial planning advice, it may be difficult for others. Time-poor clients and those with limited mobility are less likely to wish to, or be able to visit an adviser’s premises.

Two obvious niche markets for mobile financial planning businesses are the elderly and the disabled.

Many advisers overlook these niches in the belief that the FUA (Funds Under Advice) will be small and the advice Centrelink-related. We need to move away from this thinking if we are to become widely regarded as genuine professionals operating via a fee-forservice model.

FOFA provides the perfect opportunity for us to demonstrate to the public that we can service client requirements in a genuine and professional manner and still operate a viable business servicing all levels of need.

At the opposite end of the spectrum rests another niche market: extremely time-poor, high-level executives who are reluctant to leave their offices, except to go home.

Client meeting venues

Convenient alternative venues for mobile financial advisers to meet clients outside of regulation business hours include: • The client’s home; • The client’s workplace; • The office of one of the client’s other professional advisers; and • Meeting rooms.

The client’s home

Seeing clients in their own home can present benefits not available at other locations. An astute adviser can take advantage of a more relaxed environment for the client. Another benefit is that any relevant records or information is likely to be on hand and can be immediately sighted by the adviser.

However, an adviser needs to be prepared for distractions which can prolong a home meeting. Here are a few tips to overcome these potential problems: • Provide a pre-visit guide for clients and highlight the necessity to keep the meeting on track • Suggest a quiet corner of the home for the meeting • Allow time for clients to introduce their family and, perhaps, show off some of their possessions.

24 — Money Management May 12, 2011 www.moneymanagement.com.au

The client’s workplace

Ask the client to arrange to meet in an area of their workplace – ideally a boardroom or private office – where they will not be interrupted by the phone or work colleagues.

Offices of other professionals

It is fair to say that some clients prefer contact with their adviser in a formal office situation, as they feel their personal life should remain private. This is not a problem for the many financial planning businesses which maintain an office front as well as a mobile service.

Where a financial planning business is completely mobile, joint client meetings with the client’s accountant or solicitor make good sense. A joint meeting also offers you the potential to build a referral relationship with the client’s other professional advisers.

Meeting rooms

Local libraries, community centres and hotels usually have meeting rooms which you can hire for an hour or two at a nominal rate. Check with local councils regarding their provision of this facility and choose a meeting room which is in a convenient location for your client.

Establishing a mobile service

Professionalism Professionalism results from the actions and presentation of the adviser and is not constrained by the workplace environment. There should be no reasons why an adviser operating a mobile service does not have consistent branding and be regarded by potential clients as a true professional. This means: • Personal presentation – look the part; • Material – have professionally produced, consistent presentation material; and • Advertising – have attractive, professionally produced advertising material, which may include your business name/logo on your vehicle, briefcase and give-aways.

Travel times To make best use of your travel time: • Research the directions together with the estimated time needed to get to an appointment venue – be aware of peak traffic times; • Buy a good quality GPS for your car or smart phone (most smart phones have GPS, which is great when using public transport); • Save phone calls (where possible) and make them during travel time (observing

driving regulations, of course); and • Try to make multiple appointments in the same area, or on the way/return trip.

Revenue model Assuming that an adviser wishes to operate a strictly mobile business their revenue should be similar to that earned by an adviser who works in a full-time office. Business overheads, however, can vary dramatically as many mobile advisers can work out of a virtual office, or their home, substantially reducing overheads. On the other hand, operating costs such as fuel and fares and/or leasing and servicing vehicles will prove a greater expense to the business.

Mobile businesses which also have an office and/or support staff will obviously have greater overheads than those that do not.

Operating tools Vehicles used in mobile businesses need to be comfortable, reliable and suitable to the task, and it is essential that they are equipped with Bluetooth and GPS. Fuel consumption is also a major expense, making diesel or LPG-powered vehicles well worth consideration as cost-effective alternatives to the traditional petrol model.

Mobile phones, smart phones, laptops and tablets are also essential tools. In my opinion, smart phones are the most convenient and flexible although they have their limitations, especially for word processing applications.

Tablets such as the iPad provide the best overall compromise and will probably be the preferred communication tool in the future. Before selecting a mobile phone carrier, be sure to do the background research to assist you in deciding which provider offers the best coverage in your area.

Robust and user-friendly software is a key tool for all financial planning businesses and is no less so for a mobile practice. My preference is for an Internetbased service rather than one which sits on my own equipment. This means I can access at various loca-

tions and also eliminates the worry about backup procedures for client data. Since Internet-based service comes with IT support, it remains one less thing I have to worry about if server problems do develop. Also the compliance guys can look at things without me being there.

Pros and cons

Benefits include the ability to

understand better a client’s situation, the opportunity to niche market to elderly/disabled clients and time-poor executives, and the flexibility to work outside both a formal office environment and traditional business hours. Better communication with other professionals is also a built-in benefit of the mobile business.

Drawbacks include travel times and the need to strike a balance

between time spent doing administrative tasks and time spent at client meetings. Having adequate support via technology, systems and back-office staff will help streamline the day-to-day successful running of a mobile consultancy. Being required to attend client meetings outside normal business hours can intrude on your personal time.

It is likely that financial planning

business structures will evolve to meet future expectations, both from a legislative and client perspective. Since the primary aim of financial planners is to establish a worthwhile, convenient and flexible range of service options, a mobile service can become a viable alternative.

Bruce Gingell is a financial adviser at Fiducian Financial Services.

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Toolbox TTR: Pros and cons Tim Sanderson considers the benefits of implementing a transition-to-retirement strategy for clients.

A

transition-to-retirement (TTR) strategy will be more beneficial to some client situations than others. It is still important, however, to investigate this strategy for clients outside the typical TTR ‘target market’, because many of these clients will still benefit from its implementation. This article highlights the value that can be added for these clients by implementing this strategy.

Background

Since their introduction in 2005, TTR income streams have become a central feature in the retirement strategies of many clients. Primarily introduced to allow for a reduction in working hours prior to full retirement, in practice they are now frequently used as part of a strategy that involves continued fulltime work and increased super contributions – the ‘transition to retirement, or TTR, strategy’.

Historically, many advisers have recommended a transition to retirement strategy to clients aged 55 and over, who: • Have a relatively large existing super balance; • Are subject to a marginal tax rate (MTR) of at least 30 per cent; and • Have not used up their concessional contributions cap (concessional cap).

This target market is in the best position to benefit from both the tax-free pension-phase earnings and upfront tax benefit of concessional contributions. These two tax savings combine to make the transition to retirement strategy one of the most effective available for pre-retirement clients.

TTR strategies recommendations have been less common for a number of other client types, particularly those: • Unable to make further concessional contributions without breaching their concessional cap; • Subject to a MTR of only 15 per cent; or • With low super balances.

However, the following examples suggest that TTR strategies are still valuable to many clients in these situations.

Concessional cap already used up

Catherine (age 60 with a MTR of 37 per cent) is already making concessional contributions up to her concessional cap. She has $500,000 in super and wants to retire at age 65. Will she benefit by implementing a transition to retirement strategy in the lead-up to her retirement? You should: • Use $500,000 to commence a TTR account-based pension; • Elect to receive a minimum payment of 4 per cent; and • Re-contribute the minimum payment to super as after-tax contributions (to maintain existing net income).

Analysis one

Catherine will have $34,469 more superannuation available by implementing a TTR strategy that involves after-tax contributions. While she does not receive any additional up-front income tax concessions (as would be the case if she could make further concessional contributions), she still receives substantial tax savings by moving her super balance into pension phase (where earnings are tax-free).

As Catherine has reached age 60, any pension payments are also received tax-free, ensuring that her income tax bill will not increase by implementing this strategy.

A client aged under 60 and in a similar situation to Catherine may still benefit from implementing a TTR strategy. However, the actual outcome will depend on each client’s circumstances, including marginal tax rate and tax components within superannuation.

Low marginal tax rate

Donald (age 60 and working part-time with assessable income of $25,000) has $300,000 in super and wants to retire at age 65. Will he benefit by implementing a TTR strategy in the lead-up to his retirement? You should: • Use $300,000 to commence a TTR account-based pension; • Elect to receive a minimum payment of 4 per cent;

• Re-contribute the minimum payment to super as after-tax contributions (to maintain existing net income); and • Government to make $1,000 cocontribution per year.

Analysis two

Donald will have $26,567 more by implementing a TTR strategy. He receives no upfront income tax concessions, but does benefit by moving his super balance into pension phase (where earnings are tax-free) and receiving a full Government co-contribution each year.

Low super balance

Judy (age 55 with a MTR of 30 per cent) has $70,000 in super (50 per cent taxable component) and wants to retire at age 60. Will she benefit by implementing a TTR strategy in the lead-up to retirement? You should: • Use $70,000 to commence a TTR account-based pension; • Elect to receive a maximum payment of 10 per cent; and • Salary sacrifice to super to eliminate income surplus generated by pension payments.

Analysis three

Judy will have $9,838 more superannuation available by implementing a TTR strategy. When compared with a client who has a much larger existing super balance, clearly Judy cannot receive the same level of benefit. This is because of a lower level of earnings within super being moved into pension phase, and also because the relatively low pension payment reduces the size of concessional contributions that can be made while still maintaining her existing level of net income.

However, Judy can still receive a clear benefit by implementing this strategy, with the only additional cost being incurred by minor administration fees.

Tim Sanderson is senior technical manager at Colonial First State.

Briefs BOUTIQUE investment manager Mason Stevens has announced the launch of what the company believes is the first global stock portfolio structured as a managed account.

Mason Stevens Global Concentrated Portfolio will be managed by Caledonia (Private) Investments, according to the managing director Thomas Bignill.

Mason Stevens will hold and administer the individual stocks via its managed account service, giving investors direct international equities ownership.

Bignill said the launch of global equity managed accounts was previously thought to be impossible, and admitted the company was forced to overcome numerous challenges.

“One of the biggest challenges is execution – you are breaking it up, down to the individual parcels for individual clients,” Bignill said.

“The second challenge is currency – you’re doing an enormous amount of foreign exchange in between different currencies,” he added.

IRESS has released a new client engagement tool linked to advice platform Xplan, which it says will allow intra-fund and full-service advisers to leverage off each other’s work.

Engage is a web-based application that provides both superannuation funds and financial advisers with access to limited scope statements of advice on all types of devices.

It operates in three modes: a client mode to allow individual clients to self-assess their needs, an adviser engagement mode to facilitate the advice process for both full service or intra-fund advice, and an integration layer for websites to allow advisers or super funds to see the data input from clients.

Iress managing director Andrew Walsh said Engage would be useful for all advisers across the industry, as it helps individuals self-assess their needs, it aids call centre advisers in the delivery of intra-fund advice, and the data can then be used by full service advisers.

COLONIAL First State subsidiary Realindex Investments has added an emerging markets fund to its suite of fundamental indexing products, which reweight stocks within a portfolio based on fundamental measures of a company’s size.

These factors are derived from the past five years of accounting data from a global database of companies, with companies then weighted according to dollar sales, dollar cash flow and dollar amount of dividends, as well as the company’s actual book value, according to Realindex chief executive Andrew Francis.

The portfolio is then rebalanced quarterly, he said.

The Realindex emerging markets fund holds around 400 stocks across 21 countries, holding only stocks in markets that are defined as ‘emerging’ according to the MSCI Index, although Francis pointed out that the individual stocks do not mirror those in the MSCI Index.

Great value for More of your clients.

We’ve lowered the minimum investments for FirstChoice Wholesale Personal Super and FirstWrap, giving more of your clients the ability to benefit from lower fees and great features which may have previously been out of reach. Contact your Business Development Manager, call 13 18 36 or visit colonialfirststate.com.au/lowerfees

Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (Colonial First State) is the issuer of interests in FirstChoice Wholesale Personal Super offered through the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557. Avanteos Investments Limited ABN 20 096 259 979, AFSL 245531 (Avanteos) is the issuer of interests in FirstWrap Plus and FirstWrap offered through the Avanteos Superannuation Trust ABN 38 876 896 681. This is general information only and does not take into account any individual objectives, financial situation or needs. Investors should consider the PDS available from Colonial First State before making an investment decision. Colonial First State and Avanteos are owned ultimately by Commonwealth Bank of Australia ABN 48 123 123 124 through the Colonial First State group of companies. Commonwealth Bank of Australia and its subsidiaries do not guarantee performance or the repayment of capital of Colonial First State or Avanteos. CFS2001/STRIP 26 — Money Management May 12, 2011 www.moneymanagement.com.au

Appointments

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

AQR Australia has appointed former van Eyk head of distribution, Michael Angwin, to the role of national distribution manager.

Angwin will be based in Sydney and his appointment represented an important milestone in AQR’s strategy to introduce institutional-grade alternative strategies directly to Australian financial advisers and their clients, AQR Capital Management stated.

AQR Australia head of wholesale Simon Wills said Angwin would lead in AQR’s effort to develop strong relationships with a select number of financial advisory groups, initially utilising the AQR Wholesale DELTA Fund as its flagship offering with the intention of gradually introducing other alternative strategies, such as the AQR Wholesale Managed Futures Fund.

MORTGAGE aggregator Vow Financial has announced that it has made two key appointments as part of its growth strategy.

Justin Dale will head Vow’s new financial planning divis i o n , Vow We a l t h Ma n a g e ment, while Leighton King has been appointed as business

development manager.

Dale has previously worked for Macquarie Bank, Citibank and Westpac and stated that he looked forward to working with Vow brokers as they expanded their offerings into financial planning.

King previously held roles at Aussie, South Western Financial Services, GE Finance and Westpac.

IOOF Holdings (IOOF) has found a replacement for its national head of sales, following the resignation of Alexandra Tullio in February.

IOOF has appointed former Macquarie Specialist Investments head of sales Geoff Kellett, who will be responsible for developing and executing the sales strategy of IOOF’s administration and investment offerings through the independent financial adviser market, the group stated.

IOOF general manager, distribution, Renato Mota added that Kellett would also help drive IOOF’s organic growth strategy.

FORMER Morningstar researcher Zac Wallis has joined the Zurich

Move of the week THE Federal Government has recommended Greg Medcraft be appointed the new chairman of the Australian Securities and Investments Commission (ASIC).

Medcraft joined ASIC as a commissioner in February 2009, with responsibility for investment banking, investment managers, super funds and financial advisers.

Treasurer Wayne Swan said Medcraft was widely respected among financial markets, regulators and governments around the world after almost 30 years experience at global investment bank Société Genéralé.

If approved by the Gover nor-General, Medcraft will be appointed for a term of five years.

He will take over the position from the incumbent Tony D’Aloisio, who was appointed ASIC chairman for a four-year term in 2007.

Medcraft said in his new role, he would be

key accounts team as a research relationship manager.

Wallis specialised in global equities and exchange-traded funds research at Morningstar.

The appointment means Zurich’s key account team is now fully resourced, according to Zurich Investments executive general manager Matthew Drennan.

“Zac is a wonderful addition to Zurich Investments’ team,

Opportunities BUSINESS DEVELOPMENT EXECUTIVE Location: Melbourne Company: Kaizen Recruitment Description: Our client has created a new role for a business development executive.

A varied and multi-functional role focused on maintaining business growth, you will be working closely with the managing director in a role designed for success.

Working across multiple financial products you will be working with equities, derivatives as well as FX and alternative investment products.

You will work with an adviser group to implement initiatives (based on client feedback), engage in the longer term and you will build a business development team to facilitate this function.

The right person for this job will have a strong understanding and experience working in financial markets, ideally in a sales or business development role. Additionally you must possess excellent communication skills, business acumen and a passion for building a long and successful career in private wealth.

For more details and to apply, contact Davidmay@kaizenrecruitment.com.au or visit www.moneymanagement.com.au/jobs

FINANCIAL PLANNING Location: Melbourne Company: AMP Description: Financial planners have an

Greg Medcraft concentrating on disclosure to consumers, creating an efficient and fair marketplace, and ensuring an efficient and cost-effective licensing system.

balancing out our knowledge base and skill sets to ensure we continue to successfully distribute and communicate our best of breed products to the marketplace,” he said.

ANZ Wealth managing director John Van Der Wielen has joined the Financial Services Council (FSC) board as a director.

FSC chairman Peter Maher said Van Der Wielen’s appointment would be a valuable contribution to the board.

Van Der Wielen has over 25 years experience in financial services including senior positions in wealth management, insurance and banking in both Australia and Europe.

He is also a member of the A N Z Au s t r a l i a l e a d e r s h i p team.

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

opportunity to join AMP’s fully serviced and customer-oriented centre with on-site marketing, administrative and technological support. This ensures that financial planners have more time to focus on advising their clients and growing their business.

To be considered for this fantastic opportunity, you need to have a Diploma of Financial Services (Financial Planning) or the equivalent RG146 compliance. You will also have a minimum of two years of client-facing, financial planning experience.

Desire to run your own business is essential.

AMP will be holding an information evening on 24 May, 2011.

For more information, contact morgan_foster@amp.com.au or visit www.moneymanagement.com/jobs

ASSOCIATE ADVISER Location: Melbourne Company: WHK Description: An opportunity has arisen for an associate adviser to join the wealth management team on a full-time permanent basis. The successful candidate will be supporting two dynamic advisers.

In this role you will be responsible for project managing the client review process on behalf of the advisers, including preparing agendas, portfolio updates and performance reports using COIN software. You will also

prepare advice documents on behalf of advisers, including delegating the preparation of advice to a centralised advice team.

A tertiary qualification is preferable, but not essential. Successful candidates will be working towards or will have completed a financial planner qualification. You will also have worked in a financial planning environment, with experience in client service, administration and basic advice preparation.

For further information or a confidential discussion please contact Graeme Quinlan or Josh Pennell or visit www.moneymanagement.com.au/jobs

PARAPLANNER Location: Melbourne Company: WHK Description: As a paraplanner you will join our advice team, playing a key role in providing technical support to principals and advisers within our wealth management division.

Specifically, you will be responsible for constructing complex advice documents and assisting with professional and operational support through research and modelling to support the provision of advice to clients.

You will have at least two years experience with high net worth clients across a broad spectrum of advice, including SMSFs, wealth accumulation, retirement planning and estate planning. Successful candidates will possess

RG146 qualifications and ideally will be on their way to completing a Certificate of Financial Planning (CFP).

For more information and to apply, visit www.moneymanagement.com.au/jobs

CLIENT REPORTING – ASSET MANAGEMENT Location: Melbourne Company: Kaizen Recruitment Description: Our client is a leading asset management firm that currently has an exciting opportunity in its middle office team.

The successful candidate will be responsible for the oversight of daily, monthly and quarterly client performance, attribution and investment reports in a timely and accurate manner. It is essential that you possesSs exceptional organisational management skills to manage reporting deadlines for multiple clients. The ideal candidate will have over five years funds management experience, ideally from a client reporting background, and will be comfortable engaging with front office portfolio managers.

The additional focus of the team is expanding across the APAC region, which will lead to long-term career development opportunities.

If you are interested in learning more about this position please contact Matt McGilton at Kaizen Recruitment on 03 9095 7157 or visit www.moneymanagement.com.au/jobs

www.moneymanagement.com.au May 12, 2011 Money Management — 27

Outsider

“

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

Ivy league OUTSIDER doesn’t particularly mind the winter season.

True, clothing garments are chunkier and the wind appears to chafe one’s lips instead of lifting skirts around the city, but Outsider is content as long as there is no rain to ruin his weekends on the golf course.

However, yours truly made an interesting discovery the other day, when he found out why three of Perpetual’s senior managers despise the cold season and wish for the sun to hang about just a little bit longer.

While he was wined and dined by the Perpetual execs on the twelfth floor of their

Angel Place premises, Outsider realised that those fellows had a pretty good view from up there.

The view was fantastic, not because one can see all the high-rises at once, but because their meeting room window looks down on the outdoor pool of Sydney’s prestigious Ivy night club.

Needless to say, the club’s frequent daytime pool parties are attended by women who Outsider is reliably informed are rather easy on the eye. In fact, it may just be hearsay but it was suggested to Outsider that the club hires some of its staff for the sole purpose of improving the aesthetics of

i-what?

Out of context

“My previous boss said to me ‘Harvey, someone just called in and said you should be fired, so you’ve done very well’.”

Equity Trustees head of funds

this pool area.

Regardless, Outsider would not blame the gents from Perpetual if they felt a sudden urge to conduct an emergency meeting on level 12 on a sunny afternoon.

However, he would suggest the lads resist the urge to get an up-close look at the native fauna – he’s not sure the Ivy is ready for a troop of fund managers in their budgie smugglers.

your boss at a Deloitte funds management breakfast in Melbourne.

“I have a problem with my humour – I try to explain it beforehand.”

FINANCIAL planners are unlikely to pick up on technological advancements as quickly as some other industries. After all, there remains a shortage of um, shall we say younger types with more hair on top and less sprouting obscurely from various orifices. However, Rice Warner Actuaries client feedback has revealed that some financial planners are actually quite with it, and it’s the regional planners no less!

Rice Warner aren’t just actuaries and researchers – they do some interesting stuff too, and Outsider has it on good authority that they have even developed an app that will enable financial planners and wealth management sales people to travel into the lost realms of space and time.

Rice Warner recently launched a suite of superannuation apps and claims there has been an increase in queries from financial planning and wealth management groups regarding branded apps for their advisers to use on iPads

when consulting with their clients, or even for their sales staff working in remote locations “where internet access cannot be guaranteed”. So, not only is the financial planning industry coming out of the dark ages, but Rice Warner is even helping them reach back in time where the Internet does not exist, where people actually speak to one another in person and where wealth is still cash.

Maybe they can also develop an app that provides access to the future, where hopefully the Internet no longer exists, where people have finally put away their iWhatsits and talk to one another in person, and where wealth is measured by a fine single malt Scotch and a soft place to sit at the end of the working day.

The measure of a man OUTSIDER likes to believe that if he is not a man’s man, then he is certainly a chap’s chap. Mrs O informs him that he is certainly not a ‘lady’s man’.

Be that as it may, Outsider wants to confess that he is a follower of the ‘lipstick index’.

What is the lipstick index, you ask? Well according to IBISWorld, it is a measure of the confidence of consumers such as Mrs O: a guide to “consumers’ substitution of big ticket items – such as designer clothing, in the face of tough economic times, for more affordable luxuries – such as lipstick”.

management Harvey Kalman gives

tips on how to ingratiate yourself with

According to IBISWorld, the lipstick index had real meaning through the global financial crisis and, apparently, the latest Australian Bureau of Statistics retail sales data suggests that it might yet need to be reinstituted.

Of course, working as a journalist covering the financial services industry, Outsider believes that (with the exception of a few people he knows at Westpac and Colonial First State) the lipstick index might not be appropriate.

Thus, Outsider has come up with the Toorak/Audi Index – a measure of those financial services types

28 — Money Management May 12, 2011 www.moneymanagement.com.au

exiting properties and motor vehicle leases in Melbourne’s posh suburbs because their annual bonus won’t cover the cost of their interest-only mortgages – not to mention the private school fees.

If, or when, the financial services industry experiences the longfeared ‘double dip’, Outsider will be cruising the streets of Toorak counting real estate ‘for sale’ signs while driving the hardly-used Audi A4 he picked up at the automotive disposal auctions.

No need to panic just yet, though – when Outsider last checked the index, it was still in healthy territory.

Kalman again, trying to explain why his punch-lines don’t always work.

“My fixed income jokes never yield many laughs.”

After his joke about fixed income failed at a Perpetual lunch, portfolio manager Michael Blayney responded with this sentence, which was a joke in itself; except that journalists, understandably, took two minutes to start laughing.