Print Post Approved PP255003/00299
Vol.26 No.10 | April 19, 2012 | $6.95 INC GST
The publication for the personal investment professional
www.moneymanagement.com.au
INFOCUS: Page 10 | LIFE INSURANCE: Page 21
SMSFs hold off on direct property By Tim Stewart ENQUIRIES about direct property are on the rise, but the subdued residential property market appears to be preventing selfmanaged superannuation fund (SMSF) clients from pulling the trigger. Dixon Advisory’s SMSF clients have maintained a steady 6-7 per cent exposure to direct property over the past 12 months, according to Dixon Advisory associate director Tim Coates. “We’re getting a large number of enquiries from people about buying real property in their super funds, but the conversion rate hasn’t been as high as we’ve anticipated,” said Coates. He put the “fairly flat” take-up over the past 12 months down to the lacklustre property market and the 50 per cent auction clearance rate. “When the wider economy gains its confidence, [direct property] will certainly be a growing sector,” he added. Yellow Brick Road chief executive Matt
Matt Lawler Lawler has also seen a spike in enquiries about direct property investment, but he agreed the take-up had been reasonably flat over the last year. One reason enquiries are up is that people have accumulated sizable assets in their
superannuation over the past 15-to-20 years and are wondering what to do with them, said Lawler. There is a love affair with property in Australia, said Lawler, and “people come to us with very strong ideas about what they should be doing”. Coates played down fears of a housing bubble in Australia, saying Dixon Advisory is “very comfortable with current prices”. “We think the underlying supply and demand dynamics support the prices at their current levels – particularly in the capital cities,” Coates said. But not everyone is keen about the idea of SMSF clients investing their retirement savings in the residential property market. BBN Asset Management managing director Tony Jovevski reckons the property market is “fully priced” by most measures. “Multiples of household rents to prices and household incomes to prices are trading at unprecedented levels, and I would expect those levels to correct,” Jovevski said. “Investors should be very wary of putting
money into property. The returns are not that good, and there won’t be capital gains for a long, long time,” he added. Jovevski recently went to market with a product aimed at retail investors who are concerned about a potential housing bubble, which takes a short position on the Commonwealth Bank and Westpac. “If house prices fall, that is likely to impact on bank share prices,” he said. However, he said his talks with SMSF managers around the country were very disappointing. Advisers told him that it “goes against the grain” to invest in something that makes money if the market falls. “I was dismayed by the attitude of people sitting at the top of thousands of SMSFs. Most of those were beholden to an Approved Product List of the same old, same old; products that usually make in a rising market but always lose in a falling market. Those people talk about diversification, but all they’re doing is diversifying the losses,” Jovevski said.
Addressing the cause, FOFA unknowns not the symptoms still a concern POLICY REVIEW
By Andrew Tsanadis and Bela Moore
INDUSTRY discussion in relation to what constitutes ‘churning’ in life insurance needs to be replaced with a debate on a sustainable remuneration model for switching policy providers, according to TAL chief executive for retail life Brett Clark. The insurance industry should “embrace the fact that a financial adviser may switch policy providers based on customer needs, as it is a core part of the adviser’s value proposition”, Clark said. According to the latest DEXX&R research, the average industry annual attrition rate of life insurance policies has risen to 15.4 per cent as at December 2011, a slight increase from 14.3 per cent the previous year. The study found Aviva (National Australia Bank) had the highest attrition rate with 17.9 per cent, followed by CommInsure (17.1 per cent) and TAL (16.6 per cent). The attrition rates include all discontinued policies as a percentage of in-force premiums. Clark said customers move between products all the time and he does not necessarily believe introducing a policy enforcing level commissions on life
insurance products was the answer. “It is a question about what is the most sustainable and appropriate remuneration structure for our industry and that’s the conversation we need to be having,” he said. According to DEXX&R managing director Mark Kachor, upfront adviser commissions and the 12-to-18 month responsibility period of most policy holders is still “a structural issue within the industry”. Although Kachor conceded that there was a clear financial advantage to rewriting business after the responsibility period had expired, he said discontinuance rates had a tendency to increase during recession-like periods – and this might be one reason for the increase in attrition figures. Synchron director Don Trapnell said insurance companies should be asking if replacement policies were in the best interest of the client, and he did not agree that attrition rates were a good measure of churning in the industry. Regarding the Financial Services Council’s (FSC’s) proposed policy on curbing churning, Trapnell said that it
Continued on page 3
By Chris Kennedy THE Future of Financial Advice (FOFA) reforms may have passed through the House of Representatives but there is plenty of unknown detail causing concern to the major associations – detail which will need to be worked through in conjunction with Treasury and the Australian Securities and Investments Commission (ASIC). ANZ general manager advice and distribution Paul Barrett said that as the industry moved from a law-making process to an execution stage, all eyes would be on ASIC as to how the regulator would interpret those laws, and how they would be enforced. He said this would bring with it a whole new level of uncertainty. Financial Services Council (FSC) chief executive John Brogden said that although the legislation was effectively through Parliament, the FSC now needed to work closely with Treasury and ASIC to try to improve the legislation. Brogden said the FSC was unhappy with clause G in the FOFA exposure draft pertaining to best interests duty. The clause requires an adviser either to conduct “a reasonable investigation into the financial products that might achieve the objectives and meet the needs of the client of which the provider is aware and [assess] the information gathered in the investigation”, or to use the information resulting from a previous and similar investigation. Continued on page 3