Money Management (April 5, 2012) by Cirrus Media

Print Post Approved PP255003/00299

Vol.26 No.12 | April 5, 2012 | $6.95 INC GST

The publication for the personal investment professional

www.moneymanagement.com.au

FOFA DEBATE: Page 12 | FIXED INCOME ROUNDTABLE: Page 15

Many FPA members disengaged Satisfaction with the FPA

By Mike Taylor

Table Satisfaction with the FPA Dissatisfied

13%

12%

Do not deal with the FPA enough to comment

Not 28% Member 42%

FPA Member 58%

23% Satisfied

Source: Wealth Insights

Do not deal with

22% the FPA enough to comment

THE Financial Planning Association (FPA) appears to be suffering a problem with member engagement, according to new research released by Wealth Insights. The research, the result of surveys and focus groups conducted by Wealth Insights over recent weeks, indicated that while 22 per cent of those surveyed were FPA members and were satisfied with the organisation, an almost equal number of planners who are members do not deal enough with their association to have a view. The Wealth Insights data also revealed that 13 per cent of the

Lingering uncertainty on scaled advice SCALED advice remains an area of considerable uncertainty despite the Future of Financial Advice bills having passed the House of Representatives. That was the bottom line of a Money Management roundtable held in the immediate aftermath of the legislation passing the lower house, involving Financial Planning Association (FPA) chief executive Mark Rantall, Association of Financial Advisers (AFA) chief executive Richard Klipin, Mercer’s JoAnne Bloch, and Premium Wealth Advisers general manager Paul Harding-Davis. Rantall told the roundtable that where scaled advice was concerned there was still considerable uncertainty about how it could be provided under the new best interests test. He said that as a result of matters not being clarified prior to the legislation being debated in the Parliament, it was believed that the Government

would provide greater clarity in an explanatory memorandum. Rantall said that while Treasury officials had indicated they believed the provision of scaled advice would not require a full fact-find on the part of financial planners, the FPA believed it required more comfort on the issue. “We need more comfort than that, and we believe that comfort is going to be housed in the explanatory memorandum,” he said. Rantall said the FPA and the broader industry would need to work with both Treasury and the Australian Securities and Investments Commission (ASIC) to ensure appropriate regulatory guidance was received to enable scaled advice to happen. Mercer’s Bloch said, however, that reassurances had been received from both ASIC and Treasury behind the Continued on page 3

planners surveyed who said they were members of the FPA were dissatisfied. The release of the Wealth Insights data on satisfaction levels of the members of FPA follows on from a week during which the organisation was subject to some intense criticism over its handling of negotiations around the Government’s Future of Financial Advice bills – particularly the perceived influence of the Industry Super Network. Wealth Insights invited the planners it surveyed to give their reasons for dissatisfaction with the organisation, with many comments from members referring to the costs involved in maintaining status

under the FPA’s Certified Financial Planner (CFP) designation. A number of respondents suggested they had maintained their FPA membership to ensure they could continue to use the CFP designation. Few of the respondents appeared to entirely recognise that the FPA had changed its member structure, and even amongst those who did recognise the change, a number suggested the organisation was still unduly influenced by the major institutions. Among non-members, the major issue appeared to be a belief that the FPA had not been strong enough in resisting the ISN or the Government’s FOFA changes.

Avoca gathers momentum By Chris Kennedy ALMOST a year after starting up boutique fund manager Avoca Asset Management, former UBS small caps analysts John Campbell and Jeremy Bendeich are starting to significantly build their funds under management (FUM), due mostly to an influx of institutional money. Avoca officially commenced operations on 1 May last year under the Bennelong Funds Management umbrella, with fund inception at 1 July last year. It has grown its FUM from around $10 million at 1 January this year to around $63 million currently, primarily due to interest from institutional investors. As at 28 March Avoca had slightly outperformed its benchmark, returning 1.6 per cent against 1.1 per cent for the S&P ASX Small Ordinaries Index over the same time period. Managing director and portfolio manager John Campbell said Avoca was beginning to build a rapport with larger asset consultants, and the fact they had earned meetings with several institutional investors was a positive sign. The fund has so far been rated three stars by Standard & Poor’s and recommended by Zenith. Attracting a higher rating from the retail ratings houses would be a necessary step in attracting

John Campbell significant retail money and gaining a foothold on platforms, but that would take time, Campbell said. He hoped the fund would attract a further $150 million to $200 million by the end of the year, which should be possible if two or three institutional mandates were awarded in that time. Bennelong chief executive Jarrod Brown said he’d been warmly encouraged by the response so far from the asset consultant community, but a four star or recommended or equivalent rating Continued on page 3

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: Zeina Khodr Tel: (02) 9422 2198 zeina.khodr@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: Milana Pokrajac Tel: (02) 9422 2080 milana.pokrajac@reedbusiness.com.au Journalist: Tim Stewart Tel: (02) 9422 2210 Journalist: Andrew Tsanadis Tel: (02) 9422 2815 Journalist: Bela Moore Tel: (02) 9422 2897 Melbourne Correspondent: Benjamin Levy Tel: (03) 9527 7392 ADVERTISING Senior Account Manager: Suma Donnelly Tel: (02) 9422 8796 Mob: 0416 815 429 suma.donnelly@reedbusiness.com.au Senior Account Manager: Jimmy Gupta Tel: (02) 9422 2239 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 Graphic Designer/Production Co-ordinator – Print: Andrew Lim Tel: (02) 9422 2816 andrew.lim@reedbusiness.com.au Sub-Editor: Marija Fletcher Sub-Editor: Daniel Winter 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. All Money Management material is copyright. Reproduction in whole or in part is not allowed without written permission from the Editor. © 2012. Supplied images © 2012 Shutterstock. Opinions expressed in Money Management are not necessarily those of Money Management or Reed Business Information.

Average Net Distribution Period ending March '11 10,207

ABN 80 132 719 861 ACN 000 146 921

mike.taylor@reedbusiness.com.au

Keeping your friends close

f the comments section on the Money Management website is to be taken as a guide, then the Financial Planning Association (FPA) continues to weather strong criticism over the manner in which it secured changes to the Government's Future of Financial Advice (FOFA) bills. It is therefore little wonder that FPA chairman Matthew Rowe and chief executive Mark Rantall were last week selling the message that the industry ought to put aside the machinations which led to the FOFA changes, enabling it to unite to take advantage of what was achieved. Looked at objectively, the attitude adopted by Rowe and Rantall seems reasonable enough. The FOFA bills which emerged from the House of Representatives just over a fortnight ago are nowhere near as objectionable as they might have been. The delivery of class order relief with respect to opt-in represented a particular achievement. However it says something about the events which surrounded the final hours of negotiations around FOFA that the FPA insists it remains firmly opposed to opt-in, and that it will welcome its removal from the Act in the event that the Coalition gains

2 — Money Management April 5, 2012 www.moneymanagement.com.au

“

The best interests of the industry will be served by uniting to ensure the legislation delivers the best possible outcome.

”

government at the next Federal Election. It is also in the nature of such things, that the FPA might have endured less criticism if it had negotiated the legislative changes a month earlier and without the apparent involvement of the Industry Super Network (ISN). If the FPA had negotiated the changes directly with the Minister for Financial Services, Bill Shorten, it is arguable it would have faced significantly less criticism. But Rowe and Rantall are right. While many people will continue to harbour some animosity over the manner in which the FOFA changes were achieved, the

interests of the broader financial services industry will not be served by continuing public argument and division. The best interests of the industry will be served by uniting to ensure the legislation delivers the best possible outcome. Further, if the Industry Super Network hopes to hold itself out as an honest broker, then its involvement in shaping the final content of the FOFA bills ought to preclude it from undertaking any further funding of advertising which in any way diminishes the role of financial planners or the value of advice. Having apparently played a role in brokering an accommodation around optin and other elements of the FOFA bills, the ISN has effectively locked itself into the outcome. It can hardly justify expending members' funds disparaging an environment it has helped create. In weighing up the true impact of the accommodations and deals struck around the FOFA bills last month, planners should recognise that political reality suggests the immediate post-FOFA environment will likely last little more than six months past the next Federal Election. – By Mike Taylor

News

Lingering uncertainty on scaled advice Continued from page 1

scenes that scaled advice would be allowed to work and blossom. “What is important is that the licensee has flexibility so that the underpin is there to allow it (scaled advice) to occur,” she said. “And Mercer, for example, will never provide transition to retirement advice on the phone, but some other licensees may choose to do that.” Bloch said it needed to be understood that the question of what was included in the context of intra-fund and scaled advice was never going to be in black and white, and it might fall to the licensee to choose how they wished to comply, and therefore what services they were prepared to offer. However, Premium Wealth’s Paul Harding-Davis said that as attractive as the provision of scaled advice might be, many of Premium’s members would not have the scale to deliver such an offering. “In all honesty I think we are sitting in the camp where scaled advice is just not going to be commercial for us and isn’t going to suit

Mark Rantall our client base,” he said. What is more, HardingDavis said he had seen nothing in the legislation thus far which would convince him that Premium’s advisers should not do a full, holistic fact-find. However, he said the main impediment for Premium with respect to scaled advice was not technical, but commercial. The AFA’s Richard Klipin agreed that the commercial factors mitigate against many advisers providing scaled advice, particularly specialist corporate superannuation fund advisers. “They are going to have to find a commercial way to deliver scaled advice in the services and education piece they do,” he said.

WHK revamps risk APL By Chris Kennedy WHK has overhauled its risk approved product list (APL), removing CommInsure and MLC while adding BT Life and Asteron to the existing stable of TAL, Zurich and Macquarie Life. The three-year APL partnership with the newly approved providers began on 1 March following a tender process that sought commitment from insurers for adviser education and support in gaining efficiencies through technology, WHK stated. Products also had to address the needs of particular occupational groups within the WHK client base such as rural and mining, medical professionals, qualified tradespeople and self-managed super fund (SMSF) clients requiring insurance, said WHK Group head of

financial services John Cowan. He said the group seeks to remain up-to-date on regular changes in the marketplace, then does a “deep dive” once every three years. “We also wanted key partners that could provide WHK’s distribution network with adviser education support, high levels of service and dedicated sales campaign involvement,” Cowan added. He said that having a smaller number of providers on the APL allowed the group to build a relationship with those providers. “It allows them to invest more in us because they know we’re not going to the wider market as whole,” he said. The condensed APL also makes it easier for advisers to thoroughly know those products, Cowan added.

He said it was increasingly important to have technological integration, and the group sought a commitment to greater efficiency through data feeds into COIN software. The tender process was managed by WHK’s Maurice Thaung, working with tender manager Life Risk Partners, and was an in-depth process lasting several months. Life Risk Partners managing director Stephen Dingjan said the process was flexible enough to accommodate a high level of customisation. “For example, we assisted WHK to determine which companies could best address key needs of the business to provide quality product and sales skills training, and the ability to provide downloads of existing policy data in a consistent and coherent manner,” he said.

AMP Capital can help you put

– By Mike Taylor

Avoca gathers momentum Continued from page 1 would be required from retail ratings houses to really be in line for retail opportunities. “It follows that our expectations of growth in the shortto medium-term are likely to be skewed to wholesale investments,” he said. Brown said that now the fund had been fully operational for a number of Jarrod Brown months, it was encouraging that some of the investors monitoring the fund were starting to step up to the plate and invest. Zenith senior investment analyst Steven Tang said Zenith had seen the positive way Bennelong had worked with other fund managers previously and was confident it would do the same with Avoca. The fact the portfolio managers were employing the same processes as they did at UBS also contributed to the early recommended rating for the fund, he said.

For more exclusive content, download the Money Management iPad® app.

in its place.

Volatility. It’s a dangerous beast. You never know how it will act or what it will do next. But AMP Capital have created a fund that can manage volatility. The AMP Capital Multi-Asset Fund. Its dynamic nature carefully negotiates the worst of volatility but seeks the best of it. It’s a fund that’s responsive and responsible. It’s a fund for today’s challenges. It’s a fund that lets you plan for a better tomorrow. To find out more speak to your Key Account Manager, call us on 1300 139 267 or visit ampcapital.com.au/multiassetfund

Important Note: AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232 497) (AMP Capital) is the responsible entity of the AMP Capital Multi-Asset Fund (the Fund) and the issuer of the units in the Fund. To invest in the Fund, investors will need to obtain the current Product Disclosure Statement (PDS) from AMP Capital. The PDS contains important information about investing in the Fund and it is important that investors read the PDS before making a decision about whether to acquire, or continue to hold or dispose of units in the Fund. Neither AMP Capital, nor any company in the AMP Group guarantees the repayment of capital or the performance of any product or any particular rate of return referred to in this document. While every care has been taken in the preparation of this material, AMP Capital makes no representation or warranty as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document and seek professional advice, having regard to the investor’s objectives, financial situation and needs. ACI0037/MM/JUN/R

www.moneymanagement.com.au April 5, 2012 Money Management — 3

News

One third of clients not on track to achieve comfortable retirement By Milana Pokrajac

Recep Peker

PLANNERS have estimated a third of their clients were not on track to achieving a comfortable retirement, according to a survey released by Investment Trends. According to the December 2011 Retirement Planner Report, financial planners anticipate 33 per cent of their clients aged under 75 will be dependent on

the age pension for more than half of their income when they retire. By the time they reach the ages between 84 and 95, age pension would make up 54 per cent of their income, said Investm e n t Tre n d s s e n i o r a n a l y s t Recep Peker. “In light of this, it is not surprising that in 2011 planners advised 69 per cent of their pre-retiree

clients to contribute more to their super, 26 per cent to retire later and 13 per cent to downsize their home,” Peker said. “Most planners are not shy of recommending the tough strategies required to help their clients get closer to their retirement goals,” he added. However, Australians who use a planner are more likely to feel on track to achieving their

retirement goals. “The proportion of those who don’t feel on track is 19 percentage points higher at 42 per cent among those who don’t use a planner,” Peker said. The Investment Trends report, which was based on a survey of 1,027 financial planners, also found that they are now providing more advice on retirementspecific needs.

ASIC ups property scheme disclosure By Tim Stewart

Some see investment as an abstract game of numbers.

We see it as your clients do; it’s real money and it’s theirs. At Aberdeen, we have always felt uneasy about complex ﬁnancial engineering – our investment approach is simple and grounded in the real world. We search for quality companies, buy into the ones that tick all the right boxes and hold on to them for as long as it makes sense. Nothing too obscure or elaborate, just straightforward investing.

In line with our old-fashioned values, we treat money with a great deal of care, especially when it’s not ours. Your clients should particularly like our equity funds’ long-term returns and strong performance in turbulent times. If you’d like to ﬁnd out more about Aberdeen’s Australian, Asian and Global Equities funds‚ call us on 1800 636 888 or visit our website.

www.aberdeenasset.com.au Issued by Aberdeen Asset Management Ltd ABN 59 002 123 364 AFSL 240263. You should carefully consider the relevant Product Disclosure Statement and seek advice which takes into account your own circumstances, objectives and ﬁnancial situation in deciding to invest, or continue to hold an investment. 3CAB1MM_2

4 — Money Management April 5, 2012 www.moneymanagement.com.au

UNLISTED property schemes will be required to adhere to six new disclosure benchmarks from 1 November 2012. Australian Securities and Investments Commission (ASIC) Regulatory Guide 46 has been updated to include benchmarks relating to the unlisted property scheme’s gearing policy, interest cover policy, interest capitalisation, valuation policy, related party transactions and distribution practices. The scheme must disclose whether each benchmark is ‘met’ or ‘not met’, on an ‘if not, why not’ basis, according to RG 46. The regulatory guide expresses ASIC’s concern that unlisted property schemes often appeal to retail investors “who may believe that the investment offers capital stability and consistent ongoing returns that are not likely to vary significantly”. ASIC commissioner Greg Tanzer warned that while “many Australians like to invest in real estate”, unlisted property schemes “carry risks as well as opportunities”. “It’s necessary to ensure investors have the information they need to make informed investment decisions, as inadequate disclosure can contribute to investors not understanding the risks,” Tanzer said. Responsible entities must also ensure that the advertising of unlisted property schemes is consistent with the disclosure of the new benchmarks in the Product Disclosure Statement (PDS). Responsible entities must disclose the benchmarks and the new principles to investors by 1 November 2012, and new PDSs after 1 November 2012 must include “prominent and clear disclosure” of the benchmarks.

News

SPAA aims to exempt members from opt-in By Chris Kennedy T H E S e l f - M a n a g e d Su p e r Fund Professionals’ Association of Australia (SPAA) has announced it will reform its internal member code of c o n d u c t s o t h a t S PA A m e m b e r s a re e x e m p t f r o m o p t - i n re q u i re m e n t s w h e n Future of Financial Advice (FOFA) reforms take effect.

Minister for Financial Services and Superannuation Bill Shorten recently announced that although opt-in requirements would remain a part of the FOFA reforms, advisers could obviate the need for optin if they were part of a professional organisation governed by an acceptable code of conduct, as determined by the Australian Securities and Investments

Commission (ASIC). SPAA chief executive Andrea Slattery said the group would work closely with ASIC to e n s u re i t s c o d e o f c o n d u c t meets the required standard to exempt members from opt-in. “ T h e F O FA re f o r m s w i l l result in the raising of standards across the financial planning profession, which is a positive step to boosting

consumer confidence in advisors,” Slattery said. According to SPAA, a statutorily imposed opt-in regime is u n n e c e s s a r y, b e c a u s e t h e introduction of the best intere s t d u t y, t h e b a n n i n g o f commissions, and the use of fee for service will assist in building trusted relationships with clients based on agreed terms.

Andrea Slattery

AMP Capital funds placed “on hold” By Mike Taylor

RATINGS house Standard & Poor’s has placed AMP Capital’s property and li s te d i n f r a s t r u c t u r e funds “on hold” followi n g t h e c o mp a ny ’ s announcement it will be ending its joint venture with Brookfield Investment Management. The AMP Core Prope r t y Fu n d r a t i n g h a d also been placed “on h o l d ” fo l l ow i n g t h e c h a n g e s d u e to a n investment of about 25 per cent of funds under management in the global listed proper ty securities strategy. The ratings house described the changes as “a significant development – one which a f fe c t s a n u m b e r o f AMP Capital-distributed and AMP Capital Brookfield managed funds”. It said that it had placed ratings of the affected funds on hold until it could meet with AMP Capital. AMP Capital announced this week it would bring the management of its listed property and listed infrastructure capabilities in-house – something that would have significant implications for the investment teams.

You see smaller companies We see hidden gems At Ausbil, smaller companies represent new territory with rich pickings for surefooted investors. With the new Ausbil MicroCap Fund, we’ve pinpointed Australian small companies we expect to outperform, creating a high-growth portfolio that lets your clients proﬁt from small in a big way. Of course, we’ve applied the same precision, conviction and rigour as ever, giving us the conﬁdence to take a strong investment position. To learn more about the approach that earned us a Lonsec recommendation, visit www.ausbil.com.au

Money does not perform. People do.

*The Lonsec Limited (“Lonsec”) ABN 56 061 751 102 rating (assigned February 2011) presented in this document is limited to “General Advice” and based solely on consideration of the investment merits of the financial product(s). It is not a recommendation to purchase, sell or hold the relevant product(s), and you should seek independent financial advice before investing in this product(s). The rating is subject to change without notice and Lonsec assumes no obligation to update this document following publication. Lonsec receives a fee from the Fund Manager for rating the product(s) using comprehensive and objective criteria. Ausbil Dexia Limited (ABN 26 076 316 473) (AFSL 229722) offers financial products. This advertisement does not provide advice on investment and should not be relied on as such. The information contained in the advertisement does not take account of your investment objectives, personal needs or financial situation. You should consider the Product Disclosure Statement available from us and assess whether this product fits your investment objectives, personal needs or financial situation. Neither Ausbil Dexia or any member of Ausbil Dexia Limited guarantee the return of capital, distribution of income, or the performance of any of the Ausbil Dexia funds. Investments in Ausbil Dexia funds are subject to investment risk including possible delays in repayment and loss of income and principal invested. AUSD0011-MM01

www.moneymanagement.com.au April 5, 2012 Money Management — 5

News

BOQ announces $91m loss; $450m equity raising By Chris Kennedy

BANK of Queensland (BOQ) has announced a $450 million equity raising to strengthen the bank’s Tier 1 capital position in response to an expected loss of $91 million for the six months to 29 February 2012. The loss was contributed to by a downturn in Queensland tourism and in the commercial and residential property market, partly due to recent natural disasters in the state, BOQ chief executive Stuart Grimshaw said.

The $450 million equity raising would consist of an institutional placement to raise approximately $150 million, an institutional entitlement offer to raise approximately $135 million, and a retail entitlement offer to raise approximately $165 million, the bank announced. The equity raising would strengthen the bank’s Tier 1 capital ratio from 6.4 per cent to 8.6 per cent, fund organic growth opportunities and fund the redemption of the remaining $105 million Tier 2 convertible notes.

“This equity raising will strengthen our balance sheet and provide Bank of Queensland with the capacity for continued growth,” Grimshaw said. “The proceeds will be used to ensure Bank of Queensland is one of the best protected banks in Australia, with one of the highest Core Tier 1 capital ratios, while also allowing us to strengthen provisioning of our current loan book,” he said. The bank also announced a sightly increased underlying profit before tax of $222 million for the half year, as well as a

Be your own success story

Creating financial independence since 1846 Find out who at ioof.com.au

6 — Money Management April 5, 2012 www.moneymanagement.com.au

significantly increased impairment expense of $328 million, up from $134 million in the prior corresponding period. Grimshaw said he expected conditions in Queensland to remain challenging over the next few years and a continuation of higher competition in the banking market. The bank would continue to focus on small-to-medium businesses, agribusinesses and its core retail customers as it looked to grow “above system” over the long-term while maintaining costs at or below the inflation rate, he said.

Bond ETFs shouldn’t replace term deposits By Tim Stewart BOND exchange-traded funds (ETFs) shouldn’t replace term deposits in portfolios – rather, they should be used strategically to achieve investor goals, says Russell Investments director of ETFs Amanda Skelly. While bond ETFs have low volatility compared to hybrids, term deposits have zero volatility on their capital – which is very important to investors, Skelly said. Following the launch of three bond ETFs on the Australian Securities Exchange earlier this month, Russell has seen the biggest take-up from retail investors, said Skelly. “We’re not seeing a lot of interest from institutions. And the reason is they can access bonds themselves … at very low cost. Right now it’s primarily more of a retail proposition,” Skelly said. But advisers need to educate their clients about bond ETFs and the way they can be used to complement cash and hybrids, added Skelly. “We recognise that there are risks with putting these tools in investors’ hands and saying ‘on your way’. We’ll be giving tilting advice quarterly and providing advice on what to do,” she said. It was also up to planners to educate their clients about the risks of hybrids, she added. “There’s been a huge takeup of hybrids of late. We are a little concerned about the rush to hybrids, because we feel that people don’t really understand how they can act in difficult market environments,” Skelly said. In fact, there have been recent examples of hybrid issuers being required to stop their coupon payments, she added. “The common phrase is: When you want hybrids to act like bonds, they act more like equities,” Skelly said.

IT’S A NEW WORLD. RETURNS ARE LOW. MARKETS ARE VOLATILE. UNCERTAINTY IS EVERYWHERE. One question is on everyone’s mind:

“So what do I do with my money?” You hear it from your clients every day—and it affects the answers to so many of their other questions: When will I be able to retire? Will I be able to pay for my children’s education? Will I outlive my savings?

Your professional advice has never been more important. In this age of low returns and erratic growth, the efforts you’ve been making to help your clients build more dynamic, diverse portfolios take on new importance. That’s why BlackRock is championing five key ideas to inspire even more robust conversations—and help you give investors the confidence to act.

FIVE PRACTICAL ACTIONS FOR A MORE DYNAMIC, DIVERSE PORTFOLIO 1 2 3 4 5

Rethink the Cost of Cash Seek Income in Different Places Open Your Eyes to Alternatives Be Active About Passive Use Your Longevity

BLACKROCK WAS BUILT FOR THESE TIMES. In a world that is shifting and changing faster than ever before, we have embraced a new standard of analytical rigor. In vast oceans of data, we seek the insights that can change outcomes. And to help you provide your clients with the breadth and depth these times require, we bring together capabilities and expertise across asset classes, geographies and active and passive strategies. To access information about these strategies that you can use with your clients, go to blackrock.com/newworld or call 1800 222 331 to contact a BlackRock representative.

Issued in Australia by BlackRock Investment Management (Australia) Limited ABN 13 006 165 975 AFSL 230523 (BlackRock). This document contains general information only, is subject to change and does not take into account an individual’s objectives, financial situation or needs and consideration should be given to talking to a financial or other professional adviser before making an investment decision. BlackRock believes that the information in this document is correct at the time of publication however no warranty of accuracy or reliability is given. Investing involves risk including loss of principal. No guarantee as to the capital value of investments nor future returns is made by BlackRock or any company in the BlackRock group. Past performance is not a reliable indicator of future performance. A Product Disclosure Statement (PDS) for any managed fund referred to in this document is available from BlackRock. You should consider the PDS in deciding whether to acquire, or to continue to hold, the product. Please visit our website www.blackrock.com/au to obtain a copy of the PDS for the relevant managed fund. An iShares exchange traded fund (iShares ETF) is not sponsored, endorsed, issued, sold or promoted by the provider of the index which a particular iShares ETF seeks to track. No index provider makes any representation regarding the advisability of investing in an iShares ETF. The applicable prospectus or PDS for an iShares ETF is available at iShares.com.au. You should consider the applicable prospectus or PDS in deciding whether to acquire, or to continue to hold an iShares ETF. © 2012 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, iSHARES, LIFEPATH, SO WHAT DO I DO WITH MY MONEY, INVESTING FOR A NEW WORLD, and BUILT FOR THESE TIMES are registered and unregistered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners. OMHKO00274_I_MM1

News

ISN urged to stop anti-planner advertising post-FOFA By Mike Taylor THE Industry Super Network (ISN) has no justification for running its ‘compare the pair’ advertising campaign in the wake of the Future of Financial Advice (FOFA) bills which passed the House of Representatives last month. That was the bottom line for both the Financial Planning Association (FPA) and the Association of Financial Advisers (AFA) during a Money Management roundtable held in the immediate aftermath of the passing of the FOFA bills. FPA chief executive Mark Rantall noted that the ISN had stopped running the ‘compare the pair’ commercial recently and added, “I

would hope never to see them again”. Rantall said that the withdrawal of the ISN advertising would be “a great indication of an olive branch enabling the industry to come together”. “I think everyone around this table agrees that we’ve got a once-in-a-lifetime opportunity to evolve into a profession,” he said. “Let’s take it seriously, let’s come together, let’s stop the bickering and let’s make it happen.” AFA chief executive Richard Klipin made a strong call for the ISN to stop its anti-planner advertising, noting the degree of politicisation that had entered the debate. “The ISN have driven this debate and they have absolutely won out of this debate,” Klipin said. “If you look at it in political terms, they

have done a fabulous job of wedging the industry.” However, he said the industry players now needed to put down their swords and come together to talk about the things they had in common. “In our view the pendulum swung too far over, but we’ve just come out of a weekend where the politics in Queensland has manifestly changed the Queensland landscape and perhaps the national landscape,” Klipin said. He said that what was undesirable was that every time a particular political party gained power there was a sense of retribution “and on that basis I put the call to the ISN to actually join in and join the entire marketplace rather than playing wedge politics”.

Richard Klipin

FPA says ASIC should not baulk at asset-based fees

Jo-Anne Bloch

FINANCIAL Planning Association (FPA) chief executive Mark Rantall has made clear he does not believe asset-based fees should become an issue in the Australian Securities and Investments Commission’s (ASIC) consideration of class order relief from opt-in. Participating in a Money Management roundtable in the direct aftermath of the passage of the Future of Financial Advice (FOFA) bills, Rantall said the FPA would argue very strongly that an assetbased fee should not have anything to do with class order relief from opt-in.

“The intent of opt-in was to ensure consumers were not paying for advice they weren’t receiving,” he said. “The discussion we’ve had with Government and regulators so far is that there is a requirement that if you’re paying for advice you’re receiving advice, and that is as far as you have to go to obviate opt-in. “We won’t be countenancing the removal of asset-based fees,” Rantall said. “Asset-based fees are a charging mechanism and the product of a negotiation between the client and their professional financial planner.”

Association of Financial Advisers chief executive Richard Klipin agreed with Rantall that assetbased fees ought to no longer be a part of the discussion around opt-in, but rather a part of the discussion between clients and their advisers. “There are a range of ways that advisers and principals will run their business models, the main thing is disclosure,” he said. Mercer’s Jo-Anne Bloch told the roundtable that she did not believe the Australian Securities and Investments Commission (ASIC) would make an issue about asset-based

fees, and that if the regulator had intended to do so it would have “forced the issue” before now. Bloch said Mercer’s clients had a choice: they could pay a fixed fee for an on-going service or pay an asset-based fee. “I have to tell you that nine out of 10 choose an asset-based fee, and the difference is that an assetbased fee is disclosed, it is in their statement every year, it is in their annual review, whereas a commission never was, it was built into the management expense ratio, it was netted out of returns and it wasn’t very transparent,” she said.

Blended families need new approaches to SMSF super death benefits By Bela Moore A SELF-MANAGED super fund (SMSF) Will is better than relying on “off-theshelf” binding nominations for super death benefits in the case of blended families, according to two specialist advisers from the Self-Managed Superannuation Fund Professionals’ Association of Australia (SPAA). Addressing Money Management’s SMSF Essentials 2012 forum, Glenister and Co.’s Ian Glenister and Hill Legal’s Chris Hill agreed binding nominations for super death benefits often failed in the case of blended families, and many advisers were unaware of clients’ SMSF rules governing nominations. They concurred that an SMSF Will, which refers to an ancillary deed outlining terms and conditions for how death benefits are paid upon the members’ death, could overcome conflicts that arise between the surviving spouse and their stepchildren. “An SMSF Will specifically can make provision for the payment of specific items or specific assets out of the fund to specific players,” Glenister said. He said he applied the SMSF Will to

his and clients’ SMSFs and it complied with superannuation legislation, tax regulations and trust law - but he thought the “legislator has forgotten about blended families” “We certainly think it’s a very viable strategy that will pass and tick all the legal and superannuation boxes, but there needs to be certain safety nets in place to make sure it works,” he said. Hill said most of his clients came from blended families and needed a strategy to overcome conflicts and protect assets from depletion through division and taxes. They said they saw no reason why a sub-trust could not be created stipulating that a conditional pension be paid to a surviving spouse from within the SMSF, as long as it complied with SIS rules. “I think most clients…want to look

8 — Money Management April 5, 2012 www.moneymanagement.com.au

after their spouse, that’s the key priority, but they also have a conflicting interest to look after the children,” Hill said. “This way, it provides a solution to that dilemma and it keeps key assets in the fund in this concessionary tax environment for as long as possible.” They said financial planners would be faced with an increasing number of blended families. There were risks in doing nothing despite the need for other safety nets, such as mutual Wills and the appointment of a ‘gatekeeper’ replacement trustee, to ensure the wishes of the member are upheld. Hill said the Future of Financial Advice reforms would open a “can of worms” regarding duty of care, and financial planners would be expected to partner with specialist advisers to give specialist estate planning to blended families. “It’s another way of adding value to your clients as part of your service offering,” Hill said. “Rather than sit back and be frightened to do something, let’s have a crack at this and see if it works and see if it works properly,” Glenister said.

Sean Preece

AMP withdraws from Ironstone acquisition AMP Limited has withdrawn from its bid to acquire a share of specialist residential property funds management group Ironstone. Ironstone principal Sean Preece confirmed to Money Management last week that negotiations with AMP Limited which began in mid-February had been discontinued. Preece said the company was now reviewing its options. AMP is understood to have entered into the negotiations with Ironstone as part of a broader strategy to drive further into the self-managed superannuation funds advisory market, allied to its recent acquisitions of both the Super IQ and Multiport businesses.

A long-term partnership will help you reach your goal. At AIA Australia, we know that providing quality life insurance solutions is not an overnight proposition. That’s why, when we partner with you, it’s for the long term. Working together, we can help you provide the best possible care and support for your clients. Which in turn helps you take your business to the next level. To ¿nd out how we can help take your business to the next level please visit AIA.COM.AU/Right Life Partner

Life’s better with the right partner™

AIA.COM.AU

AIA Australia Limited (ABN 79 004 837 861 AFSL 230043)

03/12_ADV1089MM

News ANZ rethinks relationship strategies FPA urges forward-looking as open market shrinks approach to FOFA outcome By Bela Moore

By Mike Taylor

DEALER groups need to rethink relationship-building strategies as consolidation forces the open market to shrink, according to ANZ general manager advice and distribution Paul Barrett. Consolidation is driving a rethinking of relationships in what is now a “contestable and competitive market,” Barrett said. “All the major players are in the same boat … we built our businesses on the open market and the open market is now closing,” he said. Barrett said independent financial planners and large groups were consolidating and aligning with institutions, and as boutique dealer groups spring up in opposition, it is important that ANZ reconsider the company’s relationship with them. “You’re seeing smaller boutiques start up who don’t want to be part of this institutional consolidation and that, I think, is a good thing because it actually fosters competition,” Barrett said. “As a product provider you have to have a strategy for dealing with those boutique groups as they start up, and the strategy has to be a bit different and it’s pretty competitive,” he said. “We need to do some different things for that market.”

Paul Barrett Barrett said part of ANZ’s restrategising involved considering dealershipto-dealership services and whether ANZ would provide third party support, but the company would not “try to be all things to all people”. “We need to be very specific about what our value proposition is across the wealth value chain and certainly insurance and superannuation is at the core of that,” he said. Barrett said ANZ was also focused on relationships with their financial planning business – approximately 8000 independent financial planners and aligned dealer groups – and was working to provide everything they would need to “survive a FOFA world”.

THE Financial Planning Association (FPA) has written to its members giving them an audit of outcomes from the Future of Financial Advice (FOFA) bills and declaring that “we should celebrate the outcomes the FPA has managed on your behalf thus far”. The e-mail letter, signed off by FPA chairman Matthew Rowe, lists the achievements “including the major concessions made to the controversial opt-in proposal and the specific recognition of your professional difference”. “The heavy lifting on achieving these concessions was achieved not by bickering from the sidelines, but by dogged persistence and absolute passion for achieving the right outcome,” Rowe’s message to members says. Rowe pointed to the final House of Representatives vote on the legislation, saying the 64-59 outcome “means that the Bill would always have been carried”. “This margin clearly demonstrates that in our negotiations with the Independents and Government we gained the best ground we could for our

members, the community and our profession,” he said. “You may have heard contrarian, disparaging comments or read public statements in the media from others who have had nothing else to offer through much of the debate,” Rowe said. “I urge you to dismiss these doubters and recalcitrants for what they are. “Your FPA representatives should be congratulated for their persistence and passion in all of their dealings with FOFA stakeholders - including Government and the cross-benches.” He said it was easy to sit on the sidelines and criticise, and much harder to stay in the fight and persistently demonstrate credibility and offer real challenges to the government of the day. Commenting on the outcome of events last week, FPA chief executive Mark Rantall told Money Management he believed it was time for the industry to put aside any bitterness from recent events and to move ahead together. He said the FPA remained opposed to opt-in, but believed the class order relief and the early lodgment of the FPA’s code of

Matthew Rowe conduct with the Australian Securities and Investments Commission might obviate this problem for members. In his letter, Rowe pointed out that, subject to detail, ‘optin’ notices would now only be required for new clients from 1 July 2013. “As a member of the FPA – a body already recognised by the Courts and FOS [Financial Ombudsman Service] as the premier professional standards body – we will work hard to negotiate class order relief so that ‘optin’ will not apply to you as a recognised professional,” it said.

Overall satisfaction among bank customers falls in February – Roy Morgan By Andrew Tsanadis OVERALL satisfaction levels among bank customers fell to 79.3 per cent in February – down from 79.6 per cent in January, showing the first monthly decline since March 2011, according to the latest report from Roy Morgan Research. The ‘Customer Satisfaction – Consumer Banking in Australia Monthly Report’ stated that the results were spurred on by “out-ofcycle” mortgage rises in February following the Reserve Bank of Australia’s decision to keep the cash rate unchanged. ANZ – which was the first major institution to increase their home loan rates last

month – copped the brunt of the negative publicity fallout and subsequently showed the largest drop in satisfaction among home loan customers of the four major banks, the report revealed. Roy Morgan stated that Westpac – which was the next to announce a rate rise – also showed a drop in the satisfaction levels of their home loan customers. The largest overall decrease in satisfaction among the major four institutions went to the National Australia Bank (NAB) (-0.8 percentage points) which was due mainly to a decline in satisfaction among their non home loan customers, the research house stated.

10 — Money Management April 5, 2012 www.moneymanagement.com.au

According to the report, “over the last 12 months NAB has been the biggest improver among the big four (+6.5 percentage points) and currently leads with 78.7 per cent customer satisfaction, followed by the ANZ on 77.9 per cent (an increase of only 2.8 per cent over the period)”. Taking third position in overall satisfaction, Commonwealth Bank of Australia posted an increase of 4.8 per cent over the year to 77.3 per cent and showed the biggest increase in home loan customer satisfaction among the major four banks over the past 12 months (up 9.2 percentage points), the report stated. As Roy Morgan’s previous report revealed,

the smaller banks still lead the major institutions with Heritage Bank scoring a 91.9 per cent rating, followed by ING Direct on 90 per cent and Bendigo Bank on 89.8 per cent. The survey also revealed that the satisfaction levels of business customers of all major banks scored 66.3 per cent in February 2012 compared to 79.3 per cent for personal customers. The big disparity between the two consumer segments is “likely to attract increasing attention by banks as customers are likely to feel more predisposed to switching banks if they feel they are not getting a good deal”.

News

Mortgage trusts slowly finding favour again By Andrew Tsanadis

MORTGAGE trusts are beginning to be accepted by investors as a longer-term income-generating asset and not simply a short-term cash-like proposition, according to SQM Researchâ&#x20AC;&#x2122;s Mortgage Trust Sector Review. The freeze on mortgage trusts in late 2008 weakened investor confidence, with many mortgage trusts unable to survive after re-opening, the report stated. According to SQM, the sector has since generally addressed such issues as the traditionally low yields offered by such trusts. It has moved from a policy of daily redemptions to less frequent withdrawal periods of monthly, quarterly or yearly redemptions. A number of new mortgage funds have also chosen to move away from the traditional performance benchmark (the USB Australia Bank Bill Index) by either utilising a different benchmark or adding a premium over the benchmark, the review stated. SQM added that it did not find the current benchmark for the mortgage industry appropriate. Despite the review finding that between December 2002 and

December 2011 mortgage funds reported positive returns, it said they have also experienced a gradual decrease in funds under management (FUM) since December 2007. According to the review, FUM fell 18.9 per cent for the year to December 2011, in contrast to the 24.3 per cent fall for the year to December 2010. As part of its review, SQM increased its overall rating of La Trobe Australian Mortgage Fund â&#x20AC;&#x201C; Pooled Mortgage Option from 3.75 stars to 4 stars, giving the fund the highest rating. Coming in second, Provident Capital Monthly Income Fund was also upgraded, going from a 3.5 to a 3.75 star rating. The Australian Unity Wholesale Mortgage Income Trust remained unchanged at 3.75, while two newlyreviewed funds â&#x20AC;&#x201C; the Perpetual Private Capital Income Fund and the Balmain Mezzanine Income Trust â&#x20AC;&#x201C; both received a rating of 3.5, according to the report. SQM stated that in the current market environment, mortgage funds are providing investors with an attractive option, capital stability and regular income streams.

Cross-ownership a barrier to good advice: ASIC By Milana Pokrajac THE ownership of financial planners by product manufacturers creates one of the main barriers to improving the quality of advice in Australia, according to the Australian Securities and Investments Commission (ASIC). In the final report on its shadow shopping exercise, ASIC identified a number of barriers to improving the quality of financial advice in Australia. The regulator first pointed to its 2009 submission to the Parliamentary Joint Committee, which stated that approximately 85 per cent of financial advisers were associated with a product manufacturer, â&#x20AC;&#x153;so that many advisers effectively act as a product pipelineâ&#x20AC;?. These conflicts of interest were also present in the financial advice ASIC reviewed in the shadow shopping research study, the regulator said. More than two thirds of the advice examples involved the

recommendation of in-house products or products associated with the advice group. Of these, 11 of the 13 advice interactions with advisers from the big four banks (or their financial planning divisions) resulted in an in-house product recommendation, ASIC said. â&#x20AC;&#x153;While in some cases, the products recommended may have been equivalent to or better than the clientâ&#x20AC;&#x2122;s existing product, there were also cases where the in-house products recommended were relatively more expensive, or other reasons meant that the product switch was not adequately justified,â&#x20AC;? ASIC

stated in its report. Other potential barriers to improving the quality of advice as identified by ASIC were: the role of financial products, remuneration structures and the quality of adviser training. The list of these barriers was published in ASICâ&#x20AC;&#x2122;s Report 279: shadow shopping study of retirement advice, which found the majority (58 per cent) of advice examples it reviewed were adequate. Around 40 per cent of the examples were rated by the regulator as â&#x20AC;&#x153;poorâ&#x20AC;? and two advice examples were deemed good quality advice (3 per cent). These findings resemble those presented by ASIC to the Parliamentary Joint Committee during discussions on the Future of Financial Advice reforms several weeks ago. The regulator said the barriers that currently prevented the quality of advice from improving were not the same as those that discourage people from accessing financial advice.

Rafael Calhau Bike Mechanic

What can we learn from a bike mechanic about life insurance? More options provide more ďŹ&#x201A;exibility. A bike might simply be a frame and two wheels, but if you talk to a bike mechanic, theyâ&#x20AC;&#x2122;ll tell you there are countless ways of customising it to suit the rider. BT Protection Plans offer fully featured, marketâ&#x20AC;&#x201C;leading insurance products you can tailor to meet your clientsâ&#x20AC;&#x2122; exact and unique requirements.

To ďŹ nd out more about BT Protection Plans visit bt.com.au/lifelessons

;OL 0UZ\YLY VM ); 7YV[LJ[PVU 7SHUZ PZ >LZ[WHJ 3PML 0UZ\YHUJL :LY]PJLZ 3PTP[LK ()5 )LMVYL THRPUN H KLJPZPVU HIV\[ ); 7YV[LJ[PVU 7SHUZ `V\ ZOV\SK JVUZPKLY [OL ); 7YV[LJ[PVU 7SHUZ 7YVK\J[ +PZJSVZ\YL :[H[LTLU[ HUK 7VSPJ` +VJ\TLU[ ^OPJO HYL H]HPSHISL MYVT SPMLJLU[YHS JVT H\ @V\ ZOV\SK JVUZPKLY ^OL[OLY ); 7YV[LJ[PVU 7SHUZ HYL HWWYVWYPH[L MVY `V\ ( SJ

www.moneymanagement.com.au April 5, 2012 Money Management â&#x20AC;&#x201D; 11

InFocus BONUS PAY

SNAPSHOT

Australian financial professionals who experienced an increase in 2011 bonus pay compared to 2010.

33%

Decreased

20%

Unchanged

12%

‘Very satisfied’ with their bonus

33%

‘Somewhat satisfied’

24%

‘Very dissatisfied’

Source: eFinancialCareers 2011 APAC Bonus Survey.

WHAT’S ON Leveraging Technology in Finance: Strategy and Innovation 11 April Sofitel Melbourne www.finsia/com/Events ACFS Funds Management: Fees and Performance Panel 13 April RACV Club, Melbourne www.australiancentre.com.au 2012 Money Management Fund Manager of the Year Awards 10 May Four Seasons Hotel, Sydney www.moneymanagement.com.au /events SMSF, ETFs and Direct Investing 15 May Dockside, Cockle Bay Wharf www.moneymanagement.com.au /events 2012 Annual Stockbrokers Conference 31 May Crown Promenade, Melbourne www.moneymanagement.com.au /events

Lay down your swords – everyone Some of the players might not approve of the way in which the FOFA bills will ultimately be shaped but, as Mike Taylor reports, a Money Management roundtable has concluded the best interests of the industry will be served by presenting a united front.

espite lingering misgivings about the manner in which some workable changes were achieved to the Government’s Future of Financial Advice bills, the financial planning industry will unite sufficiently to ensure their appropriate implementation. That was the bottom line of a Money Management roundtable held on March 26 Monday in the immediate aftermath of the House of Representatives’ passing of the FOFA bills, as the dust settled on the minor furore which accompanied the leaking of documents suggesting the Financial Planning Association (FPA) had reached an accommodation with the Industry Super Network (ISN). That roundtable involved FPA chief executive Mark Rantall, Association of Financial Advisers (AFA) chief executive Richard Klipin, Premium Wealth Advisers managing director Paul Harding-Davis and Mercer’s Jo-Anne Bloch. The mood of the industry seemed to be indicated by Klipin, who described the evolution of FOFA and the events of the prior week as having “played out like a soap opera”. “Last week was a pretty huge week and from Monday to Thursday the way it played out was in many ways a bit of a soap opera, and it looked like in certain components the Government had listened to the industry and then it chopped and changed,” he said. “But in hindsight with respect to last week, we’re done and dusted and after three long years FOFA is now a reality, and good advisers who have adapted will be well placed to take advantage of it,” Klipin said. However, the AFA said there was a sense of disappointment within the AFA community because the Government had been found wanting with respect to both the outcome of the legislation and the processes themselves. The FPA’s Mark Rantall was making no bones about the fact he believed the industry had achieved some wins in the FOFA process, while there remained things about which it was still not happy. However he claimed that while the FPA had never supported opt-in, he believed a point had been reached which made it more acceptable. “We don’t support opt-in, we never supported opt-in, but where we got to on opt-in, as it rests in the legislation, is that through the signing up to the professional code of conduct that is approved by the Australian Securities and Investments Commission (ASIC), members of that code should not have to comply with the optin legislation as it stands – they will have relief from ASIC,” Rantall said. “We would have much rather opt-in had been removed, that would have been cleaner, but where it stands at the moment we may be

12 — Money Management April 5, 2012 www.moneymanagement.com.au

in the position where no FPA member has to sign an opt-in certificate. That is a reasonable win,” he said. However Rantall said that when the opt-in arrangement was taken together with the Government’s undertaking to legislatively enshrine the term “financial planner” or “adviser”, it represented “enormous advancement for the profession”. “We’ve got a chance now to take financial planning, which is in the national interest, into a respected profession, and that has always been our objective,” he said. Reflecting the pragmatic view of many in the industry, Mercer’s Jo-Anne Bloch said her overwhelming plea to the industry was to come together to support the FOFA changes.

Watch the highlights of the roundtable on the Money Management iPad® app.

“Anyone who thought such a significant piece of reform was going to go through with their particular interest in mind, without significant change, was really on the wrong page,” she said. Bloch said that while not everything in the legislation was perfect, the main tenets with respect to best interests duty and the ban on conflicted remuneration deserved the support of all the major stakeholders. Premium Wealth Advisers managing director Paul Harding-Davis echoed Bloch’s sentiments, saying the reality was that the industry needed to recognise what had happened and to get on with the job of looking after clients. However, he warned that much needed to be clarified in a regulatory sense around fee disclosure and other matters. “The sooner that comes out, the sooner we

can get on with it,” he said. What also became very clear from the roundtable was an expectation that ASIC would get on with the task at hand, rather than raising issues such as the appropriateness of asset-based fees, with all roundtable participants agreeing that the type of fees charged were a matter between planners and their clients. As well, there was general agreement that with the FOFA changes having been thrashed out and with the apparent involvement of the Industry Super Network, it would be inappropriate for the ISN to continue any of its advertising undermining the role financial planners or the value of advice. Klipin said he believed the ISN advertising campaign had ultimately proved damaging to the entire financial services industry, but acknowledged that on many of the debate issues surrounding FOFA the ISN had proved a winner. “The ISN have absolutely driven this debate and they’ve absolutely won out of this debate, and if you look at it in political terms they’ve come out and succeeded in wedging the industry, which is unfortunate,” he said. Klipin said it was now time for ISN and the other parties to put down the swords and for the industry to come together to talk about the things it has in common. “In our view the pendulum has swung too far over and we’ve just come out of a weekend where the politics has manifestly changed the Queensland landscape and perhaps the national landscape,” he said. “But what you don’t want to have is that every time a governing party changes there is a sense of retribution.” Klipin said it was on this basis he wanted to call on the ISN to join the entire marketplace rather than playing wedge politics, and that included getting their own backyard in order – “clear, transparent and unbundled”. Rantall said it was time for all participants to lift the debate and to act as an entire industry. “It is critical for all participants to sponsor the industry,” he said, “...there is no room in that to have divisive advertising or strategies at all”.

SMSF Weekly APRA paper flags more consolidation By Mike Taylor

New OneVue platform Australian LICs warned on aggressive caters to SMSF investors hedge funds By Tim Stewart

NEW research released by the Australian Prudential Regulation Authority (APRA) last week has pointed to the benefits of further consolidation within the superannuation industry. The research, contained in a paper developed by Dr James Cummings titled â&#x20AC;&#x2DC;Effect of fund size on the performance of Australian superannuation fundsâ&#x20AC;&#x2122;, found that larger funds, both in the not-for-profit and retail sectors, had significantly lower operational expense ratios to net assets. It said this finding suggested that larger funds were able to spread fixed costs associated with administration and IT infrastructure over a larger asset base. â&#x20AC;&#x153;Furthermore, not-for-profit funds with larger account balances per member have significantly lower operational expense ratios,â&#x20AC;? the paper said. It said this suggested that not-for-profit funds with larger member balances were also able to reduce variable costs, such as those associated with member interface and insurance claims management. The paper said that while they benefited from spreading fixed costs over a larger asset base, retail funds did not realise any reduction in variable costs from administering larger member balances. â&#x20AC;&#x153;In sum, this paper provides strong evidence that the performance of not-for-profit superannuation funds improves with fund size,â&#x20AC;? it said. â&#x20AC;&#x153;Based on this evidence, fund members are likely to benefit from further industry consolidation in the not-for-profit sector.â&#x20AC;?

THE significant undervaluation of many Australian listed investment companies (LICs) and trusts will make them targets for hedge funds, according to a UK expert. Pottinger senior adviser Nicholas Gold said he believed dozens of LICs and listed trusts had share prices more than 50 per cent below the net asset value of their investments, and were attractive targets for hedge funds prepared to force restructuring or even gain control and sell off their investments. â&#x20AC;&#x153;International hedge funds including Laxey, Carrousel and Weiss, as well as domestic active investors such as Dixon Advisory and Nick Bolton, have attacked a range of Australian LICs and trusts in recent years,â&#x20AC;? he said. Gold said Australian LICs should be prepared for further aggressive action by â&#x20AC;&#x153;these predatorsâ&#x20AC;? as their activity in Australia was still relatively low compared to Europe and North America. Pottinger joint chief executive Nigel Lake said many boards were not well prepared to respond to an aggressor and all too often the range of response options became very narrow once a hedge fund had gained a significant stake.

ONEVUE has announced the launch of a consumer platform designed for members of the financial services group MAP that caters to self-directed investors. MAP chief executive Jenni Erbel said OneVue would provide MAPâ&#x20AC;&#x2122;s members, who are predominantly medical professionals, with an â&#x20AC;&#x153;end-toend solutionâ&#x20AC;? for self-managed superannuation funds (SMSFs). â&#x20AC;&#x153;With more of our members engaging in self-directed investing and establishing SMSFs, we want to ensure we move with the times, stay relevant and have a platform offering that can cater to those who want that extra independence,â&#x20AC;? said Erbel. OneVue is looking to extend its distribution through intermediaries such as MAP, said OneVue chief executive Connie McKeage. â&#x20AC;&#x153;We also recognise that there

is a growing market for limited advice and self-directed investors who want to do it themselves and seek advice only when necessary,â&#x20AC;? Mckeage said. Erbel added that the OneVue platform would also cater for â&#x20AC;&#x153;term deposit functions and daily research regarding shares and managed fundsâ&#x20AC;?. â&#x20AC;&#x153;Other features of the platform will include access to real-time broking, consolidated reporting across all assets and liabilities via a private label website, and free access to a web-based budgeting and planning tool called WealthVue,â&#x20AC;? Erbel said.

Gary Burns Harbour Pilot

What can we learn from a harbour pilot about life insurance? The best support comes with knowledge and expertise. When a large ship pulls in to an unfamiliar port youâ&#x20AC;&#x2122;ll ďŹ nd a harbour pilot at the bridge guiding the ship in to dock. Thatâ&#x20AC;&#x2122;s exactly how we run BT Protection Plansâ&#x20AC;&#x2122; award-winning claims service â&#x20AC;&#x201C; weâ&#x20AC;&#x2122;re there to help guide your clients through the difďŹ cult times.

To ďŹ nd out more about BT Protection Plans visit bt.com.au/lifelessons

www.moneymanagement.com.au April 5, 2012 Money Management â&#x20AC;&#x201D; 13

Roundtable

Fix finded i ing nco its p me la : ce

PRESENT: – chairman – senior investment manager, AberdeenAsset Management Michael Korber – head of fixed income, Perpetual Andrew Gordon – director of fixed income, FIIG Securities Mark Beardow – head of fixed income, AMP Capital Brett Lewthwaite – head of fixed income, Macquarie Brendan Irwin – senior executive, research, Count Financial

Mike Taylor Stuart Dear

In Money Management’s panel discussion on the latest trends in the fixed income space, industry experts discuss the role fixed income should play in a client’s portfolio. MT: I think probably in the minds of Money Management’s readers, the question is where fixed income actually sits in the greater scheme of things at the moment, and how you feel it should be positioned in the minds of planners giving advice to their clients. I am agnostic as to who we kick off with, but maybe let’s kick off with Aberdeen. SD: Okay. Where does it sit in the greater scheme of things? Probably, for most people here, as fixed income portfolio managers, we feel it is probably underrepresented within the allocation of assets across Aussie super. Comparing our superannuation allocations to other countries it is a well known story: in 2008, Aussie super portfolios were under-performing relative to OECD [Organisation for Economic Cooperation and Development] peers because of the high equity weighting, and again, you saw that last year.

Now, obviously the Aussie equity market itself under-performed relative to global equities, so there is a bit of homecoming advice there as well. But the bigger picture is, we’re underweighting to bonds versus other countries for different reasons. Nonetheless, there is a structural bias there which is a longer-term public finance risk, if you like, in the event that that future retirement plans fail to provide adequately for a large number of people and they fall back on government pensions to fill that job. I guess that is probably the opening gambit for me. BC: I think it is interesting because if you go back to when superannuation went from defined benefit to defined contribution, you’re back about 20 to 25 years ago. And you think about the environment that we had from that point to now, and you look at the allocation of what you’d call a basic portfolio. It was pretty

“

At the moment the prospective terms of fixed income are really quite attractive. – Michael Korber

”

balanced and was probably appropriate. But over time, when you’ve taken the decision-making away from someone who is running a defined benefit scheme for a company and you give it to a mum and dad and say ‘Here’s your pension’, it made a lot of sense for 20 years while we had this great leverage trick in play that people gravitated or attracted high returns of equity - so now you have this imbalance. We think it is actually a very structural change that is going on, that fixed income will increasingly become the core part of a person’s portfolio, and so the decline in interest in fixed income, which has essentially been happening for 20 to 25 years, should turn around. You’ll see people having the core of their portfolio, whether it be in floating rate or in bond format, a huge allocation to that income. So it is a shift away from growth investing to income investing, and as such, I think it Continued on page 16

www.moneymanagement.com.au April 5, 2012 Money Management — 15

Roundtable

Fix e find d in ing com its p e la : ce

Mike Taylor Stuart Dear

Now, obviously the Aussie equity market itself under-performed relative to global equities, so there is a bit of homecoming advice there as well. But the bigger picture is, we’re underweighting to bonds versus other countries for different reasons. Nonetheless, there is a structural bias there which is a longer-term public finance risk, if you like, in the event that that future retirement plans fail to provide adequately for a large number of people and they fall back on government pensions to fill that job. I guess that is probably the opening gambit for me. BL: I think it is interesting because if you go back to when superannuation went from defined benefit to defined contribution, you’re back about 20 to 25 years ago. And you think about the environment that we had from that point to now, and you look at the allocation of what you’d call a basic portfolio. It was pretty

“

At the moment the prospective terms of fixed income are really quite attractive. – Michael Korber

”

www.moneymanagement.com.au April 5, 2012 Money Management — 15

Roundtable Continued from page 15 is only in the early stages of that shift. Bonds will be increasingly important to people as we move forward – that’s the way I think about the environment. MK: Yes. I think obviously those sentiments are a good basis, and I guess we’re talking our own book to a degree, but the question we’re trying to solve, and there’s no right answer to this, is: for people’s long-term return, what is their optimal balance of risk and reward? And if you look at the dynamics of the equities markets, they can have period of very good performance and periods of very bad performance and much volatility. Bond markets typically are much less volatile and much more consistent, therefore they really dampen the level of volatility in people’s portfolio. So if they don’t deliver anything else, they are delivering a cleaner run for people’s return over time. The scenario at the moment is one where you’ve got decent interest rates in this country, you’ve got great credit spreads, and the rewards are actually quite strong. I think if you look at longter m per for mance, the cost of the damping of returns by holding a decent chunk of fixed income is very, very low. Over the long term it works very well for your total performance, and in the analysis we’ve done it takes off a few basis points but halves the level of volatility. So I think that in itself is a good thing. At the moment the prospective terms of fixed income are really quite attractive. Also you’ve got an ageing population. I think people’s attitude to risk does change during their life cycle, and as people start to draw down as opposed to accumulate, lack of volatility becomes quite valuable. So I think it [fixed income] is under-represented, and there are a number of reasons why that should gradually change, and change structurally, as we said. AG: Yeah, look, I would agree with all those sentiments, but I think one of the things that we’re seeing is a huge interest in fixed income being a known outcome. People can really tailor, as they are into retirement or heading into retirement, tailor what they actually want in terms of returns. So that forward-looking nature of bonds and fixed income as a whole is very important for people making those decisions in terms of ‘how do I fund my retirement, and how do I fund the next 10, 15 years of what I do?’ And again, then you can get into the detail of fixed versus floating versus inflation-linked, et cetera. But when you present clients with forward-looking instruments versus taking a punt on equities and you’re not quite sure where they’ll be, there is a huge amount of interest in that. MB: I’d agree with that on SMSFs, but there is no such thing as an average retail client. I think if we’re thinking about how clients’ attitude to fixed income is going to change, it is not going to be the 30 or 40-year olds that have got little interest in super. They are probably correctly asset-

Andrew Gordon

seems like there is a “bigItspectrum for focussing on outcomes using fixed income assets and that is going to require some product development. – Mark Beardow

”

allocated. They are probably feeling the pain, but they are probably correctly asset-allocated. What we’re really more interested in is those ones who are approaching retirement, or in retirement and have had too many growth assets in their portfolio. The question is: how might a planner and their client use fixed income? Traditionally in Australia it has been used just really as an anchor. Its role as an income provider has been subservient to its role as a diversifier. With such big equity ratings in the portfolio you really needed to allow fixed income to be the diversifier, whereas I think that has undersold its benefits. It has particularly undersold its benefits to those in retirement and needing an income stream. So I think that is the opportunity, not as a diversifier but as an income stream, and then there is a range of things for which more developed fixed income markets have shown they can use the asset class.

16 — Money Management April 5, 2012 www.moneymanagement.com.au

The post-retirement phase MT: The theme seems to be around the table that really we’re talking as much about post-retirement and de-accumulation as we are in the accumulation phase. So I am just wondering whether, looking at the whole post-retirement phase, enough has been said about fixed income and bonds and where they sit in that part. But there are a lot of companies at the moment trying to find products to bring to market for that phase, so I’m just wondering where you think where these products stand in the mix in terms of post-retirement. MB: On post-retirement to us there seems a pretty big gap between bond funds that have been designed as part of a diversified portfolio. Principally in Australia a lot of those have been designed for that purpose. There are others. And then at the other end of the spectrum there are annuities, term

deposits somewhere in there. It seems like there is a big spectrum for focussing on outcomes using fixed income assets and that is going to require some product development, and that is going to require thinking through the asset class a little differently. Because if you do have investors who have got a 10 or 15-year horizon, then it might be worthwhile structuring funds around that, or around a five-year rise or a 10year rise rather than having a product which is a one-size-fits-all. What we know in SMSF-land is that is not what investors are looking for. They are looking for things that are tailored to their needs. A G : I think I would also add that investors are getting more educated on fixed income. Historically they haven’t focussed on that and I think what we find, specifically at our firm, is that they Continued on page 18

Roundtable

Mark Beardow

Brendan Irwin

Continued from page 16 really want to understand a little bit more and understand the risks that they’ve got on a relative value basis. What is the risk of this versus the risk of that, and am I getting compensated enough? Once they start making those decisions, then the spectrum will be the bookends of risk, being cash at one end and equities at the other end. That will open up the way for an investor to say, ‘well, I’m prepared to take some risks down here in equity’ or ‘I’m not and I want to be closer to the cash end’. But as they’re getting educated in that process, their risk-for-return analysis, they are making that themselves. But again, regarding ongoing education and people wanting to understand what fixed income does, we are seeing a lot of that, primarily from the pre- to -post generation. SD: Typically I think what we’re getting to in the last few threads of discussion here is that, absolute return-style fixed income funds are becoming popular, and why? Well there is obviously the cyclical element. But more structurally there is that focus on the objectives, such as that it is an objective-based form of investing that tries to wrap up, if you like, the alpha and beta decision with relation to at least the bond asset class, and perhaps more asset classes, depending on the scope of the absolute return fund. And it takes that structural allocation decision away, if you like, from the superannuation allocator and it puts it in the hands of the manager, to be long-duration or be right

I think the whole bonds sector is becoming a much more “interesting and innovative type of vehicle. ”

– Brendan Irwin

back at cash-like duration, or even have negative interest rate exposure. So that is like if you segregate the cyclical and structural components of that when you think about the structure of the funds, that is a shift that we seem to be making in the funds management industr y or the consulting/funds management industry. The crossover is sort of blurring, if you like.

A segue back into equities? MT: Moving along a little bit, and this is probably moving away from the core of what you guys do, but there seems to me, as a journalist, to be a confusion in the minds of investors about how long they should remain cautiously set in the current market, and when they should start to take up that exposure - I guess on the basis of a lot of planners telling them that if you miss the upswing, well, you’ve missed it really. You can maybe pick it up a little bit somewhere, but you’ve missed it. So I guess looking at the overall state of the market, and this is sort of the $1,000 question really isn’t it, is what you guys specialising in the segue to the markets

18 — Money Management April 5, 2012 www.moneymanagement.com.au

are picking up: we’re never going to get the bull run we had? Is this really a segue to moving back into equities? MB: I don’t see it like that because, again, I would come back to the retail investors being quite different. So taking a 55-yearold in 2007 - maybe being over their skis in terms of growth assets - coming in 2011 to have a conversation with their planner: should they be increasing their weights to equities? I think depending on par ticular circumstances, they probably need to be getting those weights down. They probably need to be thinking about income. They’ve come into retirement. They might be five years away. They have probably more than halved the amount of income they’re going to receive from their job in that time frame pre-65. I think the question is: there are some investors for whom it is appropriate to go back to equities and fixed income. Probably it isn’t the natural segue necessarily. I don’t view it as a mutual fund product, as a natural segue, but for those investors who begin in cash, then

certainly - fixed income. I sort of come back to a point that Michael made, which is when you really start to focus on income, there are some benefits in bond products over floating rate products. That is, you are much more certain actually on the coupon flow, so you can plan much more effectively on the coupon flow. Capital becomes less important if you’re living off monthly distributions and you know that they’re going to vary not significantly over, say, a two- to three year timeframe. I just sort of contrast that with what we know. When interest rates fluctuate, perhaps you will hear pensioners relay in the media about how difficult it is to live off reduced deposit rates, and I think that is something that fixed income can address. BL: I think it is interesting that quite often it is sort of tagged as a steppingstone to a different place or a better place, but ultimately I think in terms of the environment that we’re in, we’ve gone from an environment where it was a good idea to have a lot of growth assets. It was a good idea to borrow a lot of money because those assets that people were buying, whether it be property or shares, continued to go up. I think we are past that tipping point now, and deleveraging is a completely different mindset. So is it a stepping-stone to another place? Well, not necessarily. I think we’re going to have an environment where there are good trading ranges in what we call, I guess, risk assets, so if you’re a trader you’re probably going to have a good time. Continued on page 20

Roundtable go to the second one. They’ve breached that now. They’ve just approved a payroll tax extension with no cuts on the other side. There was another one in election year, and we’re heading towards sixteen and a half trillion dollars of bond issuance. So you talk about quantitative easing but it’s 8 per cent to 10 per cent fiscal stimulus that that economy is getting each year as well and that is not sustainable either. Developed economies are suffering from indebtedness and they’ve got their foot to the floor. Their sail is full up, so if risk assets aren’t doing well here then potentially the outlook is quite a challenging one. So it does change that thinking about how do I make a positive re t u r n o n a c o n s i s t e n t b a s i s, s o potentially our time in the sun goes on and on. MK: I think it is funny because the only time fixed income markets ever have their time in the sun is when everyone else is buried in a storm cloud. MT: I didn’t want to say that.

Stuart Dear

I think we’ll see “continued growth and diversity of cash, and the sorts of issues we see and the sorts of paper that we see. – Michael Korber

”

Brett Lewthwaite Continued from page 18 But most people aren’t traders, and if you’re not it could be a bumpy ride to nowhere, the same place you are now or maybe worse. So I think it is really about saying if you want more than cash, potentially you increase your allocation to fixed income to get that moderately higher than cash, but it is a core situation. It is something that you base most of your portfolio around, a steady incomereliable return. There is still nothing wrong with having allocations to all these other asset classes, but there is a much heavier weight in that reliable, positive return situation. So I don’t necessarily see it as a stepping-stone. It is more a change of thinking. BI: I thought of bonds 20 or 30 years ago. I came into the business and bond funds were pretty simple. They were duration and they were put in a portfolio as a diversifier and an uncorrelated asset. You look at the fixed interest market today after inflation having dropped for 20-odd years and 30 years of fabulous bond returns, and I think the dynamics are a lot different today. You can see that in the type of products that are now coming to market. We never had credit products, or the different types of products that we see today.

I think the whole bonds sector is becoming a much more interesting and innovative type of vehicle, and there will be some products that people will be looking for in ter ms of getting the income. Some will be looking for it as a diversifier, if you like. With the demographics and the demand in the Australian and global markets for a steady income stream, I think the bond market will continue to innovate.

Fixed income - is now its time in the sun? MT: Another one of those questions which plays on everyone’s mind: How long do you think the market is going to play to this strength, in the sense that we continue to have Europe as an unknown, and the US is kind of recovering, notwithstanding this quantitative easing, which seems to be another phrase for printing money? Underlying all of that, Australia remains fairly strong in terms of the global economy, and China is doing all their things. So I guess putting all that together, the times have suited you guys in terms of a product set coming back to the fore. How long do you see your time in the sun, I guess, if indeed it is a time in the sun? I can see a whimsical smile over here.

20 — Money Management April 5, 2012 www.moneymanagement.com.au

I think you have seen many times in the sun come and go, Brett. BL: I think the fixed income universe has a lot smaller voice. If this is our time in the sun, it has been a time that has constantly been argued by equities that there is a bond bubble, et cetera. There are all sorts of reasons why we shouldn’t be where we are. It is amazing actually. I think the infrastructure around the fixed income universe is a lot smaller, so I think it is interesting to look at hybrids that are sold through equity channels, and they are very successful. It is access. How do we create greater access to these sorts of products as well is I think part of it. From an economic point of view it is a very challenging environment. It doesn’t mean that different asset classes can’t have good performance periods. I think most people would have gone into the end of last year surprised that equities have performed as well as they have so far in 2012, but it is an interesting environment. If you go back to the big issue around t h e U S a n d i t s d ow n g ra d e i n July/August, they got debts and an increase there. It took three months to hit the first one. They default and they

MK: So you’re already asking how long do we think the rest of the asset sectors will be doomed, and it could be for some time. But I think you’ve also got to look a bit beyond that and think, in Australia in particular, that we are a big importer of capital. Interest rates here are structurally higher than in many other places and therefore, in a relative sense, fixed income here is going to be a relatively attractive asset. The one thing that kills it more than anything else is the tax regime here, which really heavily favours equities ahead of fixed income, but that is less of a factor than the superannuation and pension environment. So I think structurally we have seen the fixed income market under-represented because the equities market has been so strong. And I think structurally if that strength in equities tapers off, and obviously it has and it may well continue to do so, the domestic fixed income dynamics are fantastic and good interest rates, low-credit risk, it is to that degree nirvana. It is higher predictable returns, and I think once people lose the stars in their eyes about equities, the ongoing dynamics of fixed income will continue to improve. I think we’ll see continued growth and diversity of cash, and the sorts of issues we see and the sorts of paper that we see. And liquidity begets liquidity. Those things will encourage ongoing growth, so I think you’d have to be fairly optimistic that it is not just a flash in the pan or a brief break in the clouds. I think it is a structural sort of asset that will continue to do well, continue to develop quite well. BI: Unfortunately the demographic demand for a stable income stream, as opposed to relying on growth, will I think just mean that there will be a lot more products that will be designed to come to market to feed that requirement. MT: Thank you very much gentlemen. Those questions probably didn’t suit everyone, so thank you very much for your time. MM

OpinionCash Can’t help ourselves, old habits Having clients believe that placing money in bank deposits constitutes investing will have a detrimental effect on both the financial advice industry and the end consumer, according to Phil Galagher.

hen the financial services sector was developing as a major force a couple of decades ago and changing the face of wealth accumulation and management for Australians, it was very successful in convincing Australians that saving was not investing. Financial planners and fund managers alike did a good job in persuading Australians that leaving money in bank accounts was not a good long-term wealth building strategy.

It was a convincing argument, and largely turned Australians from a nation of savers to a nation of investors. However, in recent months the distinction between ‘investing’ and ‘saving’ has become blurred, which must be to the detriment of those looking to create longterm wealth. At the moment, Australians are being led to believe that leaving money in bank deposits is the same as investing. This change in attitude started in the wake of the global financial crisis (GFC) and

was reinforced with the American and European debt crises that followed. The ‘double whammy’ of these events resulted in investors throughout the world, including Australia, losing their appetite for risk. As a result of the general mood of riskavoidance, there was a significant move by investors into cash such as term deposits. This attitude was reinforced at the time in Australia by the bank guarantee. Today, we are even seeing expert commentators talking about “investing in cash”. This should concern financial planners who are looking to encourage clients to adopt long-term investment strategies to build wealth and trying to get them to understand the difference between saving and investing for growth. Clearly, wealth left in interest-bearing bank accounts is not investing, it is saving – or, putting the best light possible on it, preserving capital. We need another round of persuasive arguments from the financial services sector that explains investing means taking on some risk (albeit risk that is managed) to grow wealth and increase capital. Leaving money in cash will not achieve this. In the current circumstances of falling interest rates, where inflation continues to erode capital value, investors need to understand the impact on their wealth – and on their long-term plans – that leaving their assets in cash has. If nothing else, investors need to be encouraged to understand the impact of inflation, so that when they calculate their returns from cash deposits, they reduce them by the inflation rate to give a true return. With the current sea of negativity swamping us all, and the ever more demanding regulatory requirements, it is understandable that financial planners are feeling very constrained in their ability to encourage clients to look at growth assets. The outlook for Australia is still impacted by major concerns about the European, US and Chinese economies, all of which have a major influence on local markets. It is also perfectly understandable that many investors remain very concerned

about the risk to capital of investing in growth assets in the current market environment. However, we still need to convince long-term wealth accumulators that they should not become paralysed or self-deceiving because of short-term concerns. Investors must be encouraged to keep a sense of proportion and balance, as well as have an appreciation of alternative approaches, including long-term risk management, so that this balance is taken into account in their approach to wealth accumulation. They must appreciate that term deposits will not lead to wealth accumulation and that, at best, such approaches only preserve capital at existing levels. A balanced portfolio that includes growth assets must still be considered by long-term investors. Perhaps the present yield situation can be used to further this point of view. In the current circumstances there is a powerful argument for investors to consider highyielding blue chip stocks to add some growth to their investment portfolio and manage risk, as well as providing taxenhanced yields that are more attractive than the returns achieved by leaving cash in a bank. This approach exposes investors to fairly low-risk equity investments in long-term assets, in keeping with a conservative wealth accumulation strategy. Apart from anything else, I firmly believe that in five years time investors who are not now in the market will look back at equity prices today with regret. Even investors who still want no part of equity markets at the moment need to understand that there are alternatives to term deposits that they could consider. In looking at diversifying the cash component of portfolios, there are a variety of bond approaches that will give better yields over time than cash – including recently available corporate bonds. Again, these offer very low risk to investors who hold the bond for their full term. Another investment that has been unfairly tarnished since the GFC, and introduction of the Australian bank guarantee, is mortgage funds. There are alternatives to leaving investor cash in a bank and investors must be encouraged to understand that short-term fear should not freeze long-term growth strategies, that saving is not investing and that preserving capital is not wealth accumulation. Phil Galagher is head of wealth management and marketing at Equity Trustees Limited.

www.moneymanagement.com.au April 5, 2012 Money Management — 21

OpinionRisk Let’s get the party started Col Fullagar lists six conversation topics about risk insurance which could no doubt create passionate discussion.

t is the great social dread, being at a party or social function and suddenly realising you have nothing of value or interest to add to the conversation. Life flashes before you as you desperately try to think of something to say. For those in the ‘at risk’ group, this article may provide some hope, as the use of one or two of the questions posed in a conversation lull will no doubt create an impression. The impact will be striking and immediate, and there is the added advantage that the subsequent discussion may prove of value – not only in a social sense, but a business one as well.

Question 1 If a client had an income protection insurance policy with a benefit period to age 65 and the client became permanently disabled, for how long would benefits be paid? Those responding with the obvious answer of “to age 65” could be smiled at knowingly and advised “maybe, but not necessarily”. This no doubt would generate deeper thought from others who might venture “to the earlier of age 65 and the death of the life insured”. Again – a charitable smile and the same “maybe, but not necessarily.” Having now captured everyone’s attention, an explanation can proceed. Notwithstanding the popular vernacular might be “benefit period to age 65”, benefit payments will only continue up to the policy expiry date, which may be age 65 or it may be the policy anniversary prior to or after age 65. Case study Jim was born on 1 January 1950 and will turn 65 on 1 January 2015. His adviser recommends he takes out income protection insurance, pointing out that if he is disabled, benefits will be payable “to age 65”. Jim accepts the recommendation and the policy starts on 1 February 2010. A year later, Jim is permanently totally disabled. His claim is accepted and benefit payments start. Jim rearranges his financial affairs on the basis that benefit payments will continue through to 1 January 2015. Unfortunately, Jim’s policy actually expires on the policy anniversary prior to age 65 – ie, on 1 February 2014 – a full 11 months before his 65th birthday (the maximum difference between a birthday and a policy anniversary can be up to 1 day short of a year). As a result, Jim receives $110,000 less in claim payments than he was expecting – ie, 11 x $10,000. Jim’s financial security is thrown into turmoil – as is Jim’s adviser’s financial secu-

rity – as Jim commences proceedings against him on the basis of misleading advice. Precision in advice is important if unpleasant surprises are to be avoided at the time of claim.

Question 2 Is it true that with an indemnity income protection insurance policy, the payment of one claim may render subsequent claims effectively null and void? The short answer is ‘yes’, and again, the issue is best illustrated with a case study. Betty is earning $80,000 and insures 75 per cent of this ($5,000 a month) under an indemnity income protection insurance policy. The definition of pre-disability earnings (PDE) is similar to most in the market – ie, the average earnings over the 12 months prior to disability. ‘Earnings’ are defined as those received due to the ‘personal exertion

of the life insured’. Several years after taking out the insurance, Betty suffers a sickness which renders her totally disabled. Betty’s claim is admitted, and she receives the lesser of the insured benefit amount ($5,000) and 75 per cent of PDE ($80,000 x 0.75/12) – ie, $5,000. A year later, Betty recovers and returns to work, but tragically, the next day she is involved in a serious motor vehicle accident and is permanently totally disabled. Betty submits a fresh claim fully expecting that benefit payments will recommence. The insurer, however, informs Betty that as this is a new claim the amount payable has to be recalculated – ie, the lesser of the insured benefit amount ($5,000) and 75 per cent of PDE. However, because Betty was on claim for 12 months prior to the motor vehicle accident, her “personal exertion earnings in the 12 months prior to the (new) claim” are nil. Thus, Betty is entitled to a benefit amount of nil. Betty is less than impressed, and like Jim, decides to issue proceedings against her adviser. In brief, the issue is that under an indemnity income protection insurance policy, if

22 — Money Management April 5, 2012 www.moneymanagement.com.au

the insured suffers a new disability within 12 months of returning to work from a previous disability, their benefit entitlement may be adversely affected. To overcome this situation the insurers would need to make an appropriate amendment to the definition of PDE.

Question 3 A client has income protection insurance with a benefit period of lifetime accident and to age 65 sickness. Is it better to retain this or replace it with accident and sickness to age 65 or 70? Without client specifics, this question can only be discussed on the basis of theory, and thus, the usual disclaimer regarding general advice must apply. Income protection insurance should protect the lifestyle of the insured and their family to the extent that this lifestyle is reliant

on the earned income of the insured. Generally, protection would be to the planned retirement age of the insured because after retiring, lifestyle protection falls to superannuation savings that have accumulated over the insured’s working years. In line with the above theory, a recommended benefit period to age 65 or 70 for both accident and sickness would appear more appropriate, bearing in mind that “over insurance” by way of “lifetime” benefits can be just as inappropriate as “under insurance”. An exception to the above logic is if, at the time of the advice, the insured’s superannuation savings were clearly deficient and would remain so, an argument could be made for lifetime benefits being an appropriate supplement to what savings did exist. If this recommendation was to be made, it would be important to provide precise details of the lifetime cover – for example, is it only providing total disability cover after age 65? Does the benefit amount scale down after age 60? If the insured is not disabled at age 65, does the policy expire anyway? The adviser might also point out that different benefit periods for accident and sickness can give rise to disagreements about the cause of the disability – ie, the insurer has a vested interest in the cause

being sickness, whilst the insured would prefer the cause to be deemed an accident. Disputes rarely reflect in a positive way on the insurer, the adviser or the industry. The correct answer is, of course, not that one option is better than another, but that one is more appropriate than another; and therein lies the skill set of adviser analysis. Once the analysis is completed the theory is an important part of providing the client with a basis for the recommendation.

Question 4 Do insurers have the right to promote their products direct to an adviser’s clients? This question was posed to a number of insurers who virtually all responded in line with the following: “Within our distribution agreement we state that we will not market to an adviser’s clients outside the policy contractual terms – ie, sending account and premium overdue notices, etc.” Whilst the response might be in part correct – in that it reflects current practice – it does not necessarily reflect what “rights” the insurer possesses. It is common for wording along the lines of the following to be included in the insurer’s Policy Disclosure Statement, usually, and somewhat ironically, in the section headed “Privacy Statement”: “Before providing us with personal information, you should know that … we may use personal information collected about you to notify you of other products and services we offer. If you do not want personal information to be used in this way, please contact us.” or “Group organisations will collect personal information for the purposes of letting you know about products or services from across the Group that might better serve your financial or lifestyle needs.” It may be the case that if an adviser does not want clients contacted direct by the insurer about alternative products and services, it will be necessary for the adviser to specifically instruct the insurer to this effect.

Question 5 An adviser has reasonable grounds to suspect that a client is committing a fraudulent act against an insurer. The adviser should: (a) Immediately advise the licensee; (b) Speak to the client and ascertain if in fact a fraud is being committed; (c) Say and do nothing because the adviser has a fiduciary duty to the client; (d) Say and do nothing because the adviser does not want to get involved; or (e) Immediately terminate the relationship with the client and make an appropriate file note.

The following comments which respond to the above scenario simply comprise one view and should not be taken as formal legal advice. Licensees should investigate and develop their own policy for this and similar situations, and these should be made available to the adviser so there is no uncertainty as to what action should be taken. Having said that … Under the adviser’s fiduciary duty to their client, the adviser is required to maintain confidentiality in regards to information obtained about their clients. This duty of confidence is, however, subject to a defence of disclosure for just cause or excuse, the clearest example of which is disclosure of a crime or a civil wrong. Disclosure in this situation is subject to the test of whether it is in the public interest to disclose. It would be difficult to imagine a situation of fraud or attempted fraud when disclosure would not be in the public interest. If the adviser knows or has reasonable grounds to suspect that a fraudulent act has occurred or is being considered, the adviser should immediately speak to the licensee. The licensee may direct the adviser to return to the client and recommend that the insurer should be advised of the correct position. If the client fails to do this, the adviser might subsequently notify the client of the possible consequences of their actions in regards to their contract of insurance and refuse to act further for the client. In more serious situations, the licensee may direct the adviser to have no further contact with the client. Depending on the circumstances, the licensee may in turn contact the professional indemnity insurer, the licensee’s legal representative and the insurer of the client’s policy. It may even be that the police are advised in an extreme situation. Failure to take appropriate action such as that above could result in the adviser and licensee being implicated in any fraudulent actions of the client. The correct answer is (a).

Question 6 In simple terms, why would a client consider both trauma and TPD insurance? Despite the perception held by some that trauma insurance renders TPD redundant, there is generally a need to consider both. True, there is a significant overlap of cover between the two products; however, there is also a material gap in cover if TPD is excluded in prefer-

ence to trauma insurance. Simply put, the gap appears in two areas: • There will be sicknesses and injuries that may render a client TPD that are not necessarily covered under trauma insurance; some musculoskeletal injuries, and mental and nervous disorders being two examples; and • There are some trauma insured events that may render a client TPD

at a level of severity lower than that necessary to generate a trauma payment – for example, severe burns to the hands of a surgeon may not satisfy the trauma definition, but could render the surgeon unable to ever again perform the duties of their own occupation. In risk insurance advice there are few absolutes, which again, is one of the imperatives for clients to have access to quality advice.

Well by this stage the party is likely well on its way, with attention firmly focused on “the person with all the interesting conversation”. However, even if the party does not provide an improved social outcome, the questions and subsequent discussion may well provide an improved business one. Col Fullagar is national manager for risk insurance at RI Advice Group.

www.moneymanagement.com.au April 5, 2012 Money Management — 23

OpinionTechnical Rounding up super for older workers Rachel Leong analyses the impact of proposed superannuation measures on older workers’ retirement savings and age pension entitlements.

he Government recently announced that a Superannuation Roundtable will be established to consider retirement options based on ideas raised at last year’s Tax Forum and the ‘Stronger, Fairer, Simpler’ package of tax reforms. Topics for discussion include the types of income streams offered through superannuation (such as annuities and deferred annuities), the concessional contribution limit for individuals aged 50 or older, the super guarantee (SG) age and rate, and the low income super rebate. According to the Australian Bureau of Statistics (ABS), 41 per cent of Australians aged 45 or older intend to transition to part-time work before they retire, however, 13 per cent of older workers intend to work for as long as they are able. Out of those people that do intend to retire, 36 per cent stated that financial security was the main factor that determined their retirement age. About 50 per cent of these people expect superannuation to be their main source of income at retirement, while 26 per cent expect the age pension to be theirs. These percent-

ages differ for individuals currently in retirement, with only 17 per cent relying on super and a large proportion (66 per cent) relying on the age pension as their main source of income.

Under the proposed “measures, retirement savings may increase overall. However, potential age pension entitlements may reduce.

”

The proposed changes Table 1 outlines the relevant super proposals and compares it to current law. Retirement savings for older workers may increase due to the SG age and rate

c h a n g e s. In a d d i t i o n , s o m e o l d e r workers may reduce work hours and salary, therefore becoming entitled to the low income super rebate and cocontribution. Other individuals who are continuing to work full-time may need to utilise the higher concessional contribution limit. Under the proposed measures, retirement savings may increase overall. However, potential age pension entitlements may reduce. This is in line with the Government’s general view that personal assets should be run down before income support is provided.

pension age (age 67), he will commence an account-based pension and draw the minimum pension each year. He will be entitled to receive the low income super rebate and some co-contribution. However, the co-contribution amount payable will differ under the current and proposed rules. Graph 1 and Graph 2 illustrate the effect of the proposed measures on Sebastian's retirement savings and age pension entitlements (today's dollars). Sebastian’s retirement savings will increase by more than $30,000 (today’s dollars) at retirement age (age 75) and $22,000 at life expectancy (age 85) under the proposed changes. This is due to a larger amount of mandatory e m p l oye r c o n t r i b u t i o n s a n d l ow income super rebate (although total cocontribution decreases). However, as retirement savings have increased, cumulative age pension benefits decrease by over $12,000 (from age 67 to 85), creating a net benefit of just over $10,000 (today’s dollars) at age 85. Therefore, under the proposed rules, Sebastian is slightly better off.

Case study 1 – low income older worker Sebastian, age 55, is a single homeowner with few assets. His super balance is $100,000 (invested in a balanced portfolio) and he contributes $500 of after-tax contributions per year. His only other assets are personal assets worth $20,000 and $30,000 in the bank. Sebastian works three days a week and his salary is $35,000 gross per annum. His intention is to work for as long as he can – he believes he can work until age 75. Upon attaining age

Graph 1: Retirement savings

Table 1: Measure

Proposed change

Current law

SG age

There will no longer be an upper age limit for SG payment obligations

SG is only mandatory for eligible employees under age 70

The mandatory percentage that employers must contribute for eligible employees will gradually rise from 9% to 12%

SG is only payable on 9% of salary for eligible employees

Proposed start date 1 July 2013

250,000 200,000 ($) 150,000 100,000

SG rate

1 July 2013 50,000 0 55 57 59 61

63 65

73 75 77

AGE

Low income super rebate

Co-contribution

Contributions tax of up to $500 pa is refunded (to the fund) for individuals with income of $37,000 pa or less

No low income super rebate, however higher co-contribution

The co-contribution matching rate will be reduced to 50%, with a maximum co-contribution of $500

The co-contribution matching rate is 100%, with a maximum co-contribution of $1,000

Individuals aged 50 or older with super balances under $500,000 will be able to contribute up to $50,000 concessional contributions without incurring excess contributions tax

Concessional contribution limit will revert to the lower limit (currently $25,000) from 1 July 2012 for all individuals, regardless of age

79 81 83

Proposed rules

1 July 2012

Current rules

Source: Suncorp

1 July 2012

Graph 2: Age pension entitlement (cumulative)* 300,000 250,000 200,000

Concessional contribution limit

1 July 2012

($)

150,000 100,000 50,000 0 67

!"#$ Proposed rules Current rules

Source: Suncorp *Assumptions: Maximum low income super rebate, lower threshold and maximum payment for the co-contribution are not indexed. Salary, after-tax contributions and concessional contribution limits are indexed at 3% per annum. Contributions, deduction of tax and pension drawdown occurs at the end of the year. Earnings are calculated after all contributions, deductions and pension drawdowns have occured. All contributions cease after age 75 (retirement age). Super is converted to an account-based pension at age pension age and every subsequent year. No commutations are taken from the pension. Normal minimum pension drawdowns occur (reduced minimum does not apply). Centrelink rates/thresholds are at 1 January 2012 (indexed). Centrelink assets and income test lower thresholds are indexed at 3% per annum. Super investment is in a balanced portfolio with a gross return of 7% per annum. Net rate of return on cash is 3%. Value of personal assets remains at $20,000. Life expectancy for projection purposes is age 85.

24 — Money Management April 5, 2012 www.moneymanagement.com.au

Graph 3: Retirement savings 900,000 800,000 700,000 600,000

($) 500,000 400,000 300,000 200,000 100,000 0 55

Age

Source: Suncorp

Graph 4: Age pension entitlement (cumulative)* 250,000

200,000

($)

150,000

100,000

Case study 2 â&#x20AC;&#x201C; mid-high income older worker Duncan, age 55, is a married homeowner who wishes to continue to work full-time until age 75. He has a salary of $80,000 per annum and $250,000 in super (invested in a balanced portfolio). He would like to salary sacrifice $40,000 pa into super, but only if he can do so without exceeding the concessional contribution limit. His aim is to maximise the amount of contributions he makes into super each year (within his budget), without incurring excess contributions tax. Duncan and his wife Penelope (age 55) have joint personal assets of $50,000 and $60,000 in the bank. Penelope has never worked and therefore does not have any super. Graph 3 and Graph 4 illustrate the effect of the proposed measures on Duncan and Penelope's retire-

ment savings and age pension entitlements (today's dollars). Under the proposed changes, Duncanâ&#x20AC;&#x2122;s retirement savings will increase by more than $82,000 (today's dollars) at retirement age and nearly $80,000 (today's dollars) at life expectancy. This is due to an increase in mandatory employer contributions and the ability to contribute larger amounts under the concessional contribution limit without incurring excess contributions tax. The increase in retirement savings is partially offset by a reduction in cumulative age pension entitlements (from age 67 to 85) of over $59,000, resulting in a net benefit of over $20,000 at life expectancy (today's dollars). Therefore, Duncan and Penelope are better off under the proposed rules. Note that Duncan has not commenced a transition to retire-

ment and salary sacrifice strategy. If he did, this may increase retirement savings even further. However, the purpose of this case study is to illustrate the impact of announced legislative changes.

Summary If all announced changes come into effect, some individuals may receive a higher net benefit even after decreases in age pension entitlements are taken into account. However, the superannuation landscape may change again as the current tax concessions within super will be reviewed by the Superannuation Roundtable. Therefore, any benefits under the proposed measures may be offset by additional changes to the current super concessions. Rachel Leong is the technical services manager, direct distribution at Suncorp Life.

50,000

*Assumptions: Super balance threshold for the higher concessional contribution limit remains at $500,000 (not indexed). Salary sacrifice after-tax contributions and concessional contribution limits are indexed at 3% per annum. Contributions, deduction of tax and pension drawdown occurs at the end of the year. Earnings are calculated after all contributions,

0 67

Age

age). Super is converted to an account-based pension at age pension age and every subsequent year. No commutations are taken from the pension. Normal minimum pension drawCurrent rules Proposed rules

Source: Suncorp

deductions and pension drawdowns have occurred. Refund of excess concessional contributions (up to $10,000) does not apply. All contributions cease after age 75 (retirement downs occur (reduced minimum does not apply). Centrelink rates/thresholds are as at 1 January 2012 (indexed). Centrelink assets and income test lower thresholds are indexed at 3% per annum. Super investment is in a balanced portfolio with a gross return of 7% per annum. Net rate of return on cash is 3%. Value of personal assets remain at $50,000. Life expectancy for projection purposes is age 85.

www.moneymanagement.com.au April 5, 2012 Money Management â&#x20AC;&#x201D; 25

Toolbox Making the most of the

transitional ETP rules MLC’s Mike Mitchell outlines the strategy implications that the ending of the transitional ETP rules could have for eligible individuals.

hanges to the treatment of employment termination payments (ETPs) came into effect on 1 July 2007. At the same time, ‘transitional’ rules were introduced that cease on 30 June this year. Eligible individuals who are thinking about resigning or retiring (or are faced with a redundancy) could benefit from receiving their ETP before the transitional rules expire. If they don’t, they could forgo the opportunity to have their ETP paid directly into super and or pay more tax on their ETP next financial year.

Who is eligible for the transitional rules? To qualify for the transitional rules, the individual’s employer must have had a workplace agreement or written employment contract in place on 9 May 2006 that specifies the terms of the payment. Also, the employment contract or workplace agreement must have remained unchanged since 9 May 2006.

Key implications Individuals wanting to get money into super Individuals who receive a transitional ETP before 30 June will be able to elect to have the money paid directly into super as a directed termination payment (DTP). By doing this: • A maximum tax rate of 15 per cent will be deducted from the DTP in the super fund; • DTPs up to $1 million will be deemed to be excluded concessional contributions, and therefore will not count towards

the individual’s concessional contribution (CC) cap; and • The entire DTP will not be subject to the Income Maintenance Period (IMP) that applies to certain social security benefits such as the Newstart Allowance and the Disability Support Pension (DSP). Conversely, if the individual was to take the money as cash and make a personal after-tax super contribution: • The tax rate payable on the ETP would be 31.5% or higher if they are under age 55, or aged 55 and over and the payment exceeds $165,000 • The personal super contribution would count towards the individual’s nonconcessional contribution (NCC) cap, and • The money would be counted towards the IMP, which could increase the time they need to wait to be eligible for Newstart or the DSP. Given the opportunity to direct the payment into super will not be available from 1 July 2012, some individuals may want to resign or retire before 30 June or negotiate with their employer to receive their redundancy payment before this date.

CPD Quiz This activity has been pre-accredited by the Financial Planning Association for 0.50 CPD credit, which may be used by financial planners as supporting evidence of ongoing professional development. Readers can submit their a n s w e r s o n l i n e a t w w w. moneymanagement.com.au.

• Elects to receive the payment as cash and uses the money to make a NCC.

Individuals with transitional ETPs wanting to receive cash Individuals who are entitled to a transitional ETP over $165,000 may want to receive the payment before 30 June to take advantage of the lower lump sum tax rates that would be payable.

Case study: DTP vs cash-out and NCC in 2011/12

Case study: Cash out ETP in 2011/12 vs 2012/13

John, aged 53, has been made redundant and is entitled to a transitional ETP of $80,000. He would like to invest the money in super to increase his retirement savings. The table below compares the net super contribution he could make if he: • Elects to direct the payment into super; and

Ross, aged 61, is made redundant in June this year and is entitled to a transitional ETP of $250,000. He wants to receive the benefit as cash. The table below shows the tax savings he could make by negotiating with his employer to receive the payment in 2011/12 rather than in 2012/13.

Other individuals

Table 1 Direct ETP into super

Cash ETP & make NCC

Gross payment

$80,000

Less 15% contributions tax

($12,000)

N/A

Less ETP lump sum tax of 31.5%1

N/A

($25,200)

Less Flood levy

(Nil)

($1502)

Net super investment

$68,000

$54,650

Additional super investment

$13,350

Table 2 Receive cash in 2011/12 (transitional rules apply)

Receive cash in 2012/13 (non-transitional rules apply)

Gross payment

$250,000

ETP cap

$165,000

$175,000

Less tax on ETP cap

($27,225)

($28,875)

Less tax on remaining ETP

($26,775)

($34,875)

Less Flood levy

($1,7502)

(Nil)

Net payment

$ 94,250

$186,250

Tax saving

$8,000

1. Includes a Medicare levey of 1.5%. 2. Ignores other sources of income.

26 — Money Management April 5, 2012 www.moneymanagement.com.au

Other individuals may want to defer receiving an ETP until the next financial year, where possible. This includes individuals who are eligible for transitional ETPs under $165,000 that they want to take as cash and those who are not eligible for the transitional rules. This is because: • Less tax may be paid on amounts that are taxable at marginal rates (such as accrued annual or long service leave) if income from other sources is lower next financial year; • New taxable income thresholds and marginal tax rates will come into effect on 1 July that particularly benefit lower income earners; • The ETP cap that applies to the taxable component when taken as a lump sum increases from $165,000 to $175,000; and • The Flood levy currently payable by people with incomes over $50,000 pa will no longer apply. Mike Mitchell is a Senior Technical Consultant with MLC Technical Services.

1. Individuals are eligible for the transitional rules if: a. Their employer had a workplace agreement or written employment contract in place on 9 May 2006. b. The terms of payment are specified and contained in the employment contract or workplace agreement. c. The employment contract or workplace agreement remains unchanged since 9 March 2006. d. All of the above. 2. Transitional ETPs up to $1 million directed into super will be deemed to be excluded concessional contributions and therefore will not count towards the individual’s concessional contribution cap? a. True b. False 3. Directing a transitional ETP into super could potentially reduce the Income Maintenance Period that applies to certain social security benefits such as the Newstart Allowance and the Disability Support Pension? a. True b. False

MONEY MANAGEMENT iPad® edition

Available in the Money Management ® iPad edition iPad is a trademark of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.

If you are experiencing technical problems, please call our customer service centre on 1300 360 126. For more information about the CPD Quiz, please contact Milana Pokrajac on (02) 9422 2080 or email milana.pokrajac@reedbusiness. com.au.

Appointments

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

CLEARVIEW Wealth has announced the appointment of Tony Smith as state manager of Queensland and Tony Schiavello as state manager of Victoria and Tasmania. According to ClearView, both Smith and Schiavello will be responsible for promoting ClearView's life advice and wealth product offerings launched in December 2011 to independent financial advisers. Smith and Schiavello both have extensive experience in growing adviser businesses and market share, having previously worked for CommInsure. Smith has around 20 years’ experience in the life insurance and wealth management industry, and will be based in Brisbane. Schiavello has been in the superannuation, investment and life insurance industry for more than 25 years. He will be based in Melbourne.

Bank of Queensland (BOQ) has announced the appointments of John Sutton as chief operating

officer and Peter Deans as chief risk officer. With extensive experience in risk strategy, Sutton most recently served as general manager of institutional banking risk management at the Commonwealth Bank of Australia (CBA). Having also previously served in the same position at CBA, BOQ stated that Deans would bring a renewed focus on asset quality and strengthen the bank's risk management processes and procedures.

Following the end of its joint venture AMP Capital Brookfield, AMP Capital has announced the appointment of several new portfolio managers/analysts to manage the investment manager's global portfolios in-house. Matthew Hoult has been appointed as AMP Capital head of global listed real estate and will be based in Sydney. AMP Capital has also announced that a team of listed real estate professionals based in Chicago have been appointed to

Move of the week GLOBAL asset manager AllianceBernstein has announced the appointment of Ross Kent as chief executive of AllianceBernstein Australia. Since December 2006, Kent oversaw marketing efforts across Australia and New Zealand as AllianceBernstein's senior managing director – institutional relationships. Prior to joining the asset manager in 2004, Kent served as managing director for AMP Financial Services in New Zealand. AllianceBernstein global head of client group Bob Keith said that Kent's appointment further demonstrates the company's commitment to Australia after AllianceBernstein acquired full ownership of its Australian operations when its joint venture with AXA Asia-Pacific Holdings dissolved last year.

monitor investment trends in the Americas. The team will be lead by AMP Capital senior portfolio manager Joseph Pavnica. With the further additions of Robert Thomas, Matthew Hodgkins and Dominic Cappellania as portfolio managers/analysts, the team now has 15 listed real estate professionals. Appointed to the role of AMP Capital head of global listed infrastructure, Tim Humphreys

will team up with existing portfolio managers Jonathan Reyes and Joseph Titmus, and newlyappointed portfolio managers/analysts Kevin Scutt and Giuseppe Corona.

Australian Unity Personal Financial Services has appointed Viki West as a financial adviser in the Brisbane area. Joining the dealer group from Aon Hewitt, West stated that

Australian Unity could provide the support she needed to achieve her practice's growth targets. Australian Unity Personal Financial Services stated that it was currently in the process of growing its Accountant Partnership Program. The program currently has relationships with around 188 accounting firms – most of whom refer their clients to Australian Unity advisers and mortgage brokers.

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

PLANNER'S ASSOCIATE-ESTATE PLANNING Location: Perth Company: Met Recruitment Description: A boutique financial services firm specialising in risk insurance, estate planning and business succession is seeking a planning associate to join its Subiaco office. The company takes a collaborative approach to resolving client needs, and outsources all non-core services to experienced financial planners and accountants. In this role, you will be required to participate in client meetings with the principal planner and prepare advice. To be considered, the candidate will have completed their ADFP and have at least 3 years’ experience in a related role within the financial planning industry. For more information and to apply, visit www.moneymanagement.com.au/jobs, or contact Mike at Met Recruitment – 0422 922 467, resumes@metrecruitment.com.au

PRACTICE MANAGER/ADVISER Location: Melbourne Company: Fortrend Securities Description: A boutique financial services firm is seeking a wealth management practice manager/adviser. The business is a specialist international investment banking firm, and in this role you will build on an existing business of medium high net worth clients.

You will also be comfortable dealing with C clients, professionals, executives, entrepreneurs and self-funded retirees. To be considered, you will have a minimum of 8-10 years’ experience as a financial adviser, and be DFP or Advanced DFP qualified and RG146 compliant. For more information and to apply, visit www.moneymanagement.com.au/jobs, or contact Fortrend Securities – (03) 9650 8400.

SENIOR AUDITOR - ASSURANCE Location: Adelaide Company: Terrington Consulting Description: A second tier accounting firm is currently looking for a senior assurance accountant. You duties will include developing audit planning strategies, conducting interim and year-end visits, facilitating the training and development of staff and preparing and conducting assurance of general and special purpose financial reports. To be successful, you will need over 3 years’ experience in accounting preferably in Australia - and will need to have previously held a position in a professional services accounting firm. Working directly with the firm’s partner, you will take ownership for your work and client base. To find out more and to apply, visit www.moneymanagement.com.au/jobs, or contact Jack at Terrington Consulting – 0412 690 268, jack@terringtonconsulting.com.au www.moneymanagement.com.au April 5, 2012 Money Management — 27

Outsider

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

Oh what a feeling – eight members! OUTSIDER loves to watch the ebb and flow of Australian politics, but even more does he savour the jokes that evolve from major events such as the rout of the Australian Labor Party which occurred in the Queensland State Election. As someone who actually remembers reporting on the last ALP disaster when the party was reduced to just a ‘cricket team’ in the Queensland Parliament led by the late Tom Burns, Outsider now notes that the party is reduced to barely a basketball team and, at time of writing,

doesn’t actually have a leader. He also notes that in the immediate aftermath of the passage of the Future of Financial Advice bills there were many in the financial planning community pointing to the harbinger of what lies ahead for the Gillard Government and therefore, possibly, the fate of opt-in. However, back to jokes and the latest effort to emerge from Brisbane. What is the difference between the Queensland Parliamentary ALP and a Toyota Tarago? A Toyota Tarago has more seats.

Pros opt out of Spanish fly OUTSIDER has long conformed to the belief that desperate times call for desperate measures. Although within the confines of Outsider’s high-octane lifestyle, desperate times generally equate to “there’s no Glenfiddich 12 year left and the shops are closed” and desperate measures are along the lines of “better just have a Jamesons then”. Not so in continental Europe, where times are tough indeed – so much so that all manner of professions are in uproar over the dire state of several major economies. One of those includes the oldest profession of all, according to several news outlets: ladies of the night in Madrid, Spain, are reportedly “on strike” when it comes to the nation’s bankers. Madrid’s high-end prostitutes are refusing

“

Out of context

to service bankers until they “fulfil their responsibility to society” and go back to providing loans to families and small businesses, according to reports. Outsider was impressed to hear that the ladies have their own trade association, and more impressed that said association seems to have a sense of humour. “We have been on strike for three days now and we don’t think they can withstand much more,” a spokesperson reportedly said. Outsider suspects this isn’t the first time in history that the fairer sex has withheld their, err… services… to get a point across. Lysistrata and her pals in Ancient Greece, for starters. But Outsider doesn’t want to say too much lest Mrs O starts getting ideas – Outsider does have a birthday coming up, after all.

“Minister Shorten could have been the White Knight of financial services reform … unfortunately, his legacy will be more like that of Lord Voldemort.” Association of Financial Advisers chief executive Richard Klipin on Minister for Financial Services and Superannuation Bill Shorten after the Future of Financial Advice reforms passed through Parliament.

28 — Money Management April 5, 2012 www.moneymanagement.com.au

Oh wheely? OUTSIDER was surprised to hear a number of financial services types say they aim to “give back to the community” by cycling in the 2012 Wheel Classic. Not because Outsider believes the charity event, which aims to help disadvantaged children, isn’t a good one. Nor does he disbelieve that our readers want to help disadvantaged young Australians. But he does question the community’s need to bear witness to their trusted financiers sweating it out from Sydney to Melbourne. The industry isn’t one often equated (with several notable exceptions) with the toned biceps and popping calf muscles of professional cyclists, and Outsider can’t fathom residents

“You did well – I’m impressed. Sorry, it’s a natural academic response.” University of Technology Sydney senior lecturer, accounting, Dr Robert Czernkowski gives delegates at the van Eyk 9th Annual Conference gold stars for getting a pop quiz on inflation correct.

rushing to watch a procession of spindly legs and swaying bellies zigzagging all over the Hume Highway (think of the children!). Whatever their shape, however, Outsider does believe all the hoo-ha regarding FOFA of late may propel the participants forward in attempts to escape their offices – or perhaps the absence of ties makes the notion o f s k i n - t i g h t Ly c ra a l l t h e m o re appealing. Unfortunately, Outsider’s work schedule will make it impossible for him to participate: indeed, the road rage dangers and physical exertion needed could threaten the future of our back page. So Outsider would like to wish all participants the best of luck – from the safe confines of his office.

“I’m not used to seeing this many people – at our academic conferences there’s usually about three people.” Dr Czernkowski again on the number of delegates at the van Eyk conference.