Money Management (July 5, 2012) by Cirrus Media

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Planners still wary over market By Mike Taylor

Wealth Insights Financial Planner Sentiment Index

Wealth Insights’ Financial Planner Sentiment Index – June 2012 60

6,000

53 38

20 0 0

-9

-3

7 0

16 0

5,000

-2 -1

-20

-15

-36

4,500 4,000

-40

3,500

-60

3,000

Source: Wealth Insights

particularly in the short-term. However, the uncertainty being felt by planners and the cautious investment settings being recommended to clients were not serving to undermine the health of financial planning practices. McMahon said that while

sentiment remained at low levels, this did not necessarily reflect the underlying health of financial planning practices, with most planning businesses still performing well, particularly those with well-established client lists. “People may be cautious

Research houses: consolidation concerns By Andrew Tsanadis

THE consolidation within the financial planning dealer group space is a potential concern for research houses over the long-term, but at the moment it’s business as usual. According to the soon-to-be published Money Management Top 100 Dealer Groups survey, a number of dealer groups have switched research providers since 2010 after being acquired by one of the larger institutions. This includes the National Australia Bank-owned Apogee Financial Planning and Godfrey Pembroke, which changed from Three Sixty Research to Lonsec – NAB’s main external research provider for managed investments. In a similar fashion, as Commonwealth Financial Planning switched from Standard and Poor’s (S&P) to Morningstar, so too did the CBA-owned dealer group Financial Wisdom. Count Financial – which was acquired by CBA last year – had earlier changed its research provider from van Eyk to Lonsec. In targeting the remainder of the independent financial adviser market, van Eyk Research chief executive Mark Thomas said it was important to focus on dealer groups that have “multiple touch points” with the services van Eyk provides.

5,500

ASX All Ordinaries Index

FINANCIAL planner sentiment has shown little recovery so far in 2012, with planners remaining deeply cautious amid continuing bad news out of the Eurozone and continuing uncertainty about the Australian regulatory environment, according to the latest data released by Wealth Insights. The Wealth Insights Financial Planner Sentiment Index for June has recovered by barely a point since May, and is sitting at levels reminiscent of some of the darker days of the global financial crisis (GFC) – albeit much higher than the depths reached in February 2009. What is very clear from the Wealth Insights data is that sentiment has remained generally cautious since the first quarter of 2011.

Commenting on the data, Wealth Insights managing director Vanessa McMahon said both planners and their clients remained very nervous and worried about global events, particularly the Eurozone crisis and instability in Greece. “What this has translated into is a reluctance to advise clients to get back into the market,” she said. “A lot of money is still being directed towards term deposits. “Planners are saying there is simply no clear-cut evidence that it is time to be advising their clients to get back in the market,” McMahon said. Sh e s a i d h e r c o m p a n y ’s focus group exercises suggeste d p l a n n e r s w o u l d re m a i n cautious for some time to come, with few of them believing there was likely to be any significant improvement in the Eurozone,

Sentiment Index

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Mark Thomas “We’re not short of people to talk to, we just need to focus our energies in areas where we think there’s reciprocal value,” he said. “We sell them research, we do consulting with them and they may use a couple of investment funds in Blueprint, where there are gaps in their approved product lists,” Thomas said. For Zenith Investment Partners director David Wright, consolidation at the industry level is overplayed, and has only affected his business marginally. He added that Zenith will not change its sales and marketing strategy for the time being.

One of Zenith’s clients, Futuro Financial Services, recently sold a 10 per cent stake to AMP, but Wright said it has not affected their current research contract with them. Moving to the internal research capabilities of AMP may come into play over the long-term when Futuro move towards potential full acquisition, he added. According to Wright, this period of consolidation is part of a cyclical process whereby the current hold by the major institutions will once again ease, and the “better financial advisers” will once again break away and form their own independent businesses. “If you look at the industry more generally in terms of who are the potential clients for research houses, the number of clients is shrinking but the size of those clients is getting larger,” Morningstar co-head of funds research Tim Murphy said. Research houses that are able to win those large contracts will be in good stead going forward, he said. Wright added that the departure of S&P from the market has been helpful to the remaining players who have picked up some of their clients, Zenith included. “At the margin, subscribing clients are being acquired, but the flipside of that is larger institutions are subscribing for external research in order to satisfy the requirements of the businesses they acquire,” he said.

and investors may be subdued, but that is not translating into planners going out of business,” she said. “There does not appear to have been any significant reductions in numbers of clients or the level of funds under advice,” McMahon said.

AMP’s aggressive push for SMSF scale By Milana Pokrajac THE formation of the self-managed super fund (SMSF) business unit AMP SMSF and the pending acquisition of Cavendish Group are part of AMP’s broader strategy to further build on scale, according to the group’s director of integration and head of AMP SMSF, Paul Sainsbury. Widely regarded as the fifth pillar of Australia’s banking system, AMP retains the largest financial planning network in the country, with over 2,600 advisers working under its umbrella and around $80.2 billion in funds administered by its adviser network ( a c c o rd i n g t o f i g u re s i n t h e u p c o m i n g Money Management Top 100 Dealer Groups survey). Sainsbury said tapping further into the SMSF market was a natural next step for the insto, with the sector growing faster than any other in superannuation. “The research is showing that 40 per cent of new SMSFs have some sort of financial advice attached to them, and that compares to only 14 per cent of existing SMSFs that have had some sort of financial advice,” Sainsbury said. “So there is demand out there from our customers and it’s appropriate for AMP to respond to that.” 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.

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Adding another tier to the cake

n the end, the restricted licensing regime to be applied to accountants providing financial advice could have been announced around six months earlier. That was when the policy formula was first canvassed as a sensible and viable replacement for the so-called “accountants’ exemption”. And like so much of the Future of Financial Advice (FOFA) legislation, the efficacy of the Government’s approach will be determined in large part by the shape of the resulting regulations. Once again, the devil will be in the detail and the market will have to wait for those details to emerge. But notwithstanding the general industry welcome offered to the limited licensing approach for accountants, it is already obvious that the Government has created a multi-tiered regime where the provision of financial advice is concerned with different segments being inhabited by different players. The accountants, of course, will have their limited license and, in the words of the minister, be "able to advise on self-managed superannuation funds and superannuation generally" and "give 'class of product advice' on basic deposit products, general and life insurance, securities, and simple managed investment schemes".

“

While the limited licensing regime for accountants is a better answer than the old accountants’ exemption, it may prove to be no less problematic in practice.

”

Superannuation funds and some of the larger institutional planning players will inhabit the scaled advice arena – the operating details of which are still being worked through by the Australian Securities and Investments Commission (ASIC), while fully-licensed financial planners will, as usual, have scope to deliver a total advice package. There are enough Certified Practicing Accountants who are also Certified Financial Planners to know that the lines of demarcation between the accounting and financial planning arenas are necessarily blurred. Thus, while the limited licensing regime for accountants is a better answer than the old accountants’ exemption, it may prove to be no less

problematic in practice. Then, too, there is the issue of scaled advice and the varying approaches of the superannuation funds and major institutions in terms of its delivery over the long haul. One of the central objectives of the FOFA changes was to make advice both more widely available and more affordable, but in circumstances where the legislation was born out of the collapse of Storm Financial, it cannot be seen to be failing in terms of either its necessary lines of demarcation or consumer protection. If the comments lodged by financial planners on the Money Management website are to be taken as a measure, there exists a strong belief that some accountants will find it difficult to remain within the confines of their limited licensing arrangements. Beyond ensuring an appropriate regulatory regime to oversee the multi-tiered arrangements put in place by the Government, ASIC may be well-advised to subject the limited licensing regime applied to accountants to the same shadow-shopping scrutiny it has seen fit to apply to financial planners. - Mike Taylor

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News

Adviser survey counters FSC on churn By Mike Taylor ELEMENTS of the Financial Services Council’s (FSC) antichurn approach appear to have run into strong opposition from financial advisers, with a new survey revealing a significant majority of planners do not agree with the proposed approach. The survey, conducted by Guardian Advice among its authorised representatives, was aimed at gaining their views on the FSC’s proposed m e a s u re s o n s o - c a l l e d “re p l a c e m e n t b u s i n e s s” within the life industry. According to the survey, 71 per cent of Guardian

advisers did not agree with t h e F S C ’s d e f i n i t i o n o f replacement business, 88 per cent did not agree with five years being the right timeframe for replacement business, and 78 per cent did not a g re e w i t h t h e p r o p o s e d re m u n e ra t i o n l e v e l o n replacement business. Just as importantly, 65 per cent of the survey respondents wanted takeover terms t o b e re m ov e d f r o m a n y standard on replacement business. Co m m e n t i n g o n t h e s u r v e y re s u l t s, Gu a rd i a n Advice head Simon Harris said the group recognised t h e re a s o n s t h e F S C h a d

pursued its anti-churn a p p ro a c h , n o t l e a s t t h e Government’s agenda with re s p e c t t o i t s Fu t u re o f Financial Advice legislation. Howe v e r, h e s a i d t h e company believed only a small proportion of advisers arbitrarily churned business. On the key question of remuneration levels, Harris said the survey clearly indicated the concerns held by many advisers, including t h a t t h e re m ov a l o f h i g h upfront commissions would discourage new entrants into independently-owned advice businesses. However, the survey respondents also indicated that there

AMP’s aggressive push for SMSF scale

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Continued from page 1 AMP last week announced it would acquire Cavendish Group, which will be part of the new SMSF business unit. The move will better place AMP to “build scale and drive good revenue” as a wealth manager, Sainsbury said. AMP SMSF will initially focus on administration and advice, and will comprise Multiport and Cavendish Group. The combined admin businesses of Multiport and Cavendish Group have over $7 billion in funds under administration and around 7,000 plans being administ e re d , a c c o rd i n g t o Sainsbury, who added there was no particular strategy for its advice team to start picking up SMSF clients. “It sort of depends on the individual need of the planner and their customer base,” he said. “Increasingly, our planners are actually seeking to respond to customer demand for SMSFs, and we h a v e a ra n g e o f accreditation processes

needed to be an appropriate difference between “upfront” and “ongoing” commission in order to reward advisers for their initial work while also encouraging clients to b e re v i e w e d by t h e s a m e adviser. The Guardian survey also traversed a number of other areas of concern for advisers, including time-frames for replacement business and trigger events such as marriage or the birth of a child. Harris said the findings of the survey had been submitted to the FSC as part of Guardian’s response to the FSC’s consultation paper.

Features:

Paul Sainsbury

to help them successfully enter that advice market,” he said. The new unit will use the technology of Super IQ (of which AMP owns 49 per cent), with a pending launch of a branded version of the service in July. “ We think this is an opportunity for AMP to m ov e i n t o w h a t h a s historically been quite a fragmented market, and we want to quickly take the lead in SMSF services,” Sainsbury said.

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News

Accountants relish providing advice By Mike Taylor

Bill Shorten

TWO key accounting bodies, CPA Australia and the Institute of Chartered Accountants in Australia, have interpreted the Government’s conditional licensing regime as a means for nine million Australians to access financial advice. In a joint media release issued immediately after the announcement of the new regime by the

Minister for Financial Services, Bill Shorten, the two organisations said the new conditional licence represented a significant win for accounting clients. “Millions of Australian consumers and businesses will, for the first time, have access to non-product strategic financial advice from their professional accountants on a broad range of investment classes,” they said. The statement said the new policy

framework would allow professional accountants to have a comprehensive financial strategy discussion with their clients under the Australian Financial Services Licence framework. CPA Australia chief executive Alex Malley said that for many Australians, their professional accountant was their only source of trusted financial advice. “The objective of the Future of

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Financial Advice (FOFA) reforms was to make financial advice more accessible and affordable for the Australian public,” he said. “This final element of the FOFA reforms reflects the prominent role professional accountants play in the provision of financial advice and will go a long way towards achieving the objectives of broadening access to financial advice across the community.”

Confusion reigns on remuneration grandfathering THERE is a danger corporate superannuation trustees will face an administration minefield if the Government does not move to clarify remuneration grandfathering arrangements, according to the Corporate Super Specialist Alliance (CSSA). The organisation has called on the Government to provide greater clarity around the arrangements to enable fund managers to design remuneration models and to allow planners to appropriately structure their businesses. Commenting on the current confusion, CSSA president Douglas Latto said there was a lack of clarity around how the grandfathering arrangements would work and whether, as was being indicated by the Federal Treasury, it would apply to current remuneration models for members prior to July 2013. “Our understanding is that this will include commission, asset-based fees and member fees,” Latto said. “Post-July 2013, these options will not be available for new members, and the only way for a collective fee to be payable is via the intrafund advice fee.” He said indications were that the fee would be dollar-based and consistent across all MySuper members in a fund, regardless of the workplace variables. “The result will be an administration minefield, with trustees potentially dealing with commission, member fees, asset-based fees, intrafund advice fees – possibly different for MySuper and Choice members – plus insurance cover with commission or without,” Latto said. He claimed this potential complexity was driving the focus back to the fund providers who were currently looking at ways to simplify the burden but had yet to find any definitive answers.

News

AMP to acquire Cavendish Group By Milana Pokrajac

AMP has announced plans to acquire Cavendish Group and set up a new selfmanaged super fund (SMSF) business unit to be led by Paul Sainsbury. The AMP SMSF unit would initially focus on administration and advice, and would comprise Multiport, Ascend and Cavendish – once the acquisition is completed in July. AMP SMSF would also work closely with SuperIQ, of which AMP owns 49 per cent.

Chris Freeman

BT Wrap retains SFG Australia

The Cavendish Group is a privately owned company consisting of three entities – SMSF administration, investment portfolio administration and actuarial services. AMP plans to acquire two of these entities – SMSF and investment portfolio administration. Tapping into the SMSF market was a key strategic priority for the company and would position it well for future growth, said AMP chief executive Craig Dunn. “We will develop customer-friendly and

good value SMSF offers, leverage our existing distribution channels through our aligned adviser networks and also increasingly through accountants, stockbrokers, external financial advisers and customers direct as we increase our scale in this sector,” Dunn said. Sainsbury will report directly to Dunn, but will retain his position as AMP director of integration, the company has announced. The new SMSF unit will have joint managing directors Andrew Row and Andrew Hamilton,

who will report to Sainsbury. He said AMP hoped the acquisition of Cavendish would make it the most significant player in the SMSF professional administration market. “It also puts us in a strong position to take advantage of the increasing move by SMSFs to seek advice from financial planners,” Sainsbury added. “While only 14 per cent of existing SMSFs use a financial planner, 42 per cent of SMSFs are being established by financial advisers for their clients.”

Some measure their performance by relative returns.

By Mike Taylor BT Financial Group has retained SFG Australia – the result of the merger between Shadforths and Snowball – on its BT Wrap platform. The company has confirmed retention of the big planning group, with BT Financial Group general manager of adviser distribution Chris Freeman saying it reflected the strength of the company’s longstanding relationship with both Shadforths and Snowball. “We are delighted the merged company sees merit in continuing to utilise the services of BT Wrap,” he said. Freeman said both Shadforths and Snowball had enjoyed 13-year relationships with Asgard and that the arrangements would continue under the agreement. SFG Australia managing director Tony Fenning said the agreement reflected the group’s strategy of sourcing best of breed advice implementation solutions.

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

News

New accountants’ advice regime still months away By Mike Taylor The Minister for Financial Services and Superannuation, Bill Shorten, has given a broad outline of the new limited Australian Financial Services Licence (AFSL) regime covering accountants, but it is unlikely to be in place before the middle of next year. Announcing the changes, intended to replace the so-called “accountants’ exemption”, Shorten said there would be public consultation on draft regulations around the new regime, with the intention of giving effect to the measures in the second half of the year. Any advice provided under the new limited licensing arrangements will

need to measure up to the FOFA best interests duty. Announcing the move, the Minister also said there would be a streamlined transition per iod for accountants between 1 July 2013 and 1 July 2016 to make it easier for accountants to transition to the AFSL regime in recognition of their existing professional qualifications. “This replacement of the current accountants’ licensing exemption is a major step forward and will help facilitate a significant expansion in the provision of financial advice to Australians,” Shorten said. He said the new licensing arrangements for accountants were expected to see up to 10,000 accountants become

licensed and able to provide a much broader range of financial advice than was currently the case. The Minister said that in addition to being able to advise on self-managed

Social media a ‘stab in the dark’ for financial advisers By Andrew Tsanadis

WHILE institutionally-aligned financial services providers are increasing their budgets for online marketing activities, most financial planners are struggling to adequately track the use of social media by their clients. The Humble Investor director Colin Williams said while the majority of social media users do generate new sales and increased brand awareness, planners need tools to adequately equate the use of online communication with a tangible sale at the business end. According to Marc Fabris, national manager, sales strategies and research life risk for Zurich Financial Services, there are client relationship management (CRM) systems that allow advisers to identify new sales as a direct result of social media, but most of them are used by larger financial services providers.

Colin Williams “There are advisers who have had good success through Twitter presence where they can actually show where they’ve added business to the books, but that’s generally slightly larger business that are taking a more consistent approach,” he said. Williams said web services like Google Analytics can easily track new website visits made via a search engine

enquiry or a link on Facebook, Twitter or LinkedIn. “This shows whether the business is getting some cut through from their web and social media activities,” he said. “They can measure direct contacts made via the web and social media and determine how those contacts progress to a sale using CRM software – mostly all done for free.” Despite this, Fabris and Williams both said they doubt there are many advisers that maintain a database of their social media use. Williams said that it was impor tant to set goals for brand awareness by increasing visits to a business’s website or growing the number social media contacts. “A lot social media tracking tools are coming to market piecemeal to a degree but it doesn’t mean it’s an excuse to hold back,” Fabris said.

superannuation funds and superannuation generally, licence holders would be able to give “class product advice” on basic deposit products, general and life i n s u ra n c e, s e c u r i t i e s a n d s i m p l e managed investment schemes. “This new licence will extend the consumer protection provisions of the Corporations Act, such as the best interests duty in the recently passed Future of Financial Advice reforms to financial advice provided by accountants,” he said. Shorten said that, importantly, the new licence would not allow accountants to make specific product recommendations, but would allow them to provide more strategy and low-cost forms of advice.

Liquidation windfall results in free planner software FINANCIAL services software industr y veteran Ar thur Naoumidis has announced he is set to deliver financial planners free online financial planning software on the back of having acquired assets as part of a liquidation sale. Naoumidis, the founder of the publicly-listed Praemium, said the package was DomaCom GPS which stands for Guided Planning System, and that it would be familiar to many advisers because it was acquired from CARM Pty Ltd last year. He said the software would be delivered free of charge to financial planners by relying on internet advertising, with relevant advertisements being displayed on a portion of the screens as they are used by planners. Naoumidis said he regarded it as a small price to pay for a professional financial planning system. He acknowledged his company’s luck in being able to acquire the software from the

Arthur Naoumidis liquidator in circumstances where millions of dollars and over eight years had been spent on the software’s development. “As we did not have to spend the capital in developing the product, we are in a position to use our capital to deploy it with a very different funding model than that available in other financial planning software,” Naoumidis said.

Slimmed down Perpetual targets wealthy professionals By Tim Stewart THE announcement of further cost reduction strategies by Perpetual chief executive Geoff Lloyd signals a renewed focus on funds securitisation and wealth management for the company. The sale of Perpetual Lenders Mortgage Services (PLMS) reflects Lloyd’s desire to move out of the substantial administration offering Perpetual has built up over the last three to five years. “I want to exit or shut down those administration services. We previously

sold a registr y business, and we’re proceeding to sell PLMS,” Lloyd said. “It’s not reflective of market conditions, it’s reflective of who we want to be,” he said. Part of Perpetual’s new direction is a focus on financial advice through the Perpetual Private arm, he said. Perpetual Private’s offering is segmented to target three groups of clients: business owners, the ‘established wealthy’, and professionals. The company’s segmented approach is supported by the financial planning

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

firm Fordham (which services small business owners) and Grosvenor (which services medical, legal and dental professionals). Both practices were purchased in late 2009. “ We’ve been able to increase our advice fees by 36 per cent,” said Lloyd. “We’re charging clients more for plans. There’s never been a better time to provide high quality advice. “We’ve broadened our offer … We’ve doubled our plan fee and we’ve written twice the amount of plans in the last 12 months,” he said.

Geoff Lloyd

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News

Lifecycle cannot replace advice: Quadrant By Bela Moore LIFECYCLE options cannot overcome the difficulty of designing a “one-size-fits-all” MySuper product, according to Quadrant chief executive Wayne Davy. Davy said lifecycle products would not get around the challenge of managing a pool of disengaged members’ money because the transition to retirement was an individual scenario better served by affordable scaled advice. “It all becomes pretty arbitrary as to when you transfer someone, and the global financial crisis has been the most classic example of all time. If you move someone just before or just after a massive meltdown in the markets, how do you explain that to members?” Davy said. He said MySuper focused on low-cost product which might come at the expense of getting the best investment outcome, which required offering affordable scaled advice to members. Davy said low financial literacy levels meant members were unaware of a “never-ending” list of wealth creation strategies. Holistic advice did not make sense to all members, but scaled advice was an attempt to make the industry meet members’ expectations, he said. “At the end of the day, the individual has got to take carriage of it because it’s their money. It’s up to

Chris Cuffe bolsters Fitzpatricks’ management team By Andrew Tsanadis

them what they want to do but we certainly encourage them to get involved,” he said. He said funds advice services needed to be affordable, “easy to deal with” and gain members’ trust so that members could seek advice on their own terms, believing the fund would act in their best interests. Education was key, according to Davy, and one of the things industry funds had “brought to the table by way of value proposition”. “They’re not just there to make money for shareholders, they’re there to help the members. You have got to get beside the member, that’s really what it’s all about,” he said. Davy said he expected future advice models to become more specialised to meet members’ needs.

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

AHEAD of its plans to expand the group’s presence in the high net worth (HNW) client space, Fitzpatricks Private Wealth has appointed Chris Cuffe and John McMurdo to the board. Taking on the position of non-executive director, Cuffe is a 20-year veteran in developing the wealth management businesses of Colonial First State Investments and Challenger Financial Services. He currently chairs the board of Uni-Super as well as not-for-profit organisation Australian Philanthropic Services. McMurdo – who was previously chief executive of Centric Wealth and managing director of Hillross Financial Services – has been appointed group managing director. He is also a member of the Financial Planning Associa-

Chris Cuffe tion’s professionalism and policy committee. Fitzpatricks has plans to expand its services beyond its strong presence in Brisbane and Sydney by utilising the professional networks of Cuffe and McMurdo, the company stated.

News

AFA identifies FOFA best interests gap By Mike Taylor THE transition between the existing ‘know your client’ rules and the new Future of Financial Advice (FOFA)-based ‘best interests obligation’ risks leaving clients without legal protection, according to the Association of Financial Advisers (AFA). The organisation says it has legal advice which suggests the problem arises because of the delayed implementation date of the FOFA changes. AFA chief executive Richard Klipin said his organisation had received advice which suggests that on a literal interpretation of the law there would be a period during which neither the current ‘know your client’ obligation of the Corporations Act nor the

‘best interests’ obligation would apply to a licensee or advisers when giving personal advice to clients. He said this was because while the old ‘know your client’ obligation would be repealed from 1 July this year, the ‘best interests’ obligation would only become effective when a licensee opted into the new regime or on 1 July next year. “Given this uncertainty, we are genuinely concerned that consumers may be left unprotected for up to a year,” Klipin said. On this basis, he said the AFA was seeking government action to resolve the issue. “Given the state of the legislation, regulations and lack of regulatory guides, the AFA believes that all of FOFA should have a start date of 1 July, 2013,” he said.

Hedging for when the Licensing can boost accountants’ revenue guru dies By Tim Stewart

M A N Y o f t h e key p e o p l e r u n n i n g hedge funds are ageing and investors are looking to insure against the possibility of untimely death by making the hedge funds take out key man risk insurance covering their most senior investment gurus, according to new data emerging from the US. Major US insurance and risk management advisor y firm SKCG estimates insurance companies wrote 10 per cent more key man policies last year compared to 2008. It said the existence of such insurance cover had become one more item on the institutional investors’ check-list. According to SKCG employee benefits division president David Parker, i nve s to r s a r e n ’ t t r y i n g to i n s u r e against the loss of the manager so much as they are seeking to protect their investment by promoting an orderly transition or dissolution of the fund. “They worry about the time it takes to unwind illiquid investments while other demands on the funds’ cash continue, such as paying rent and vendors. Cash from key man insurance can go a long way towards alleviating those concerns,” he claimed. The SKCG analysis suggested that top-level hedge fund executives were also driving the demand for cover. It said such people had often left secure jobs for positions at hedge funds where year-end bonuses were important contributors to their compensation. “If something happens to the fund manager, they may not get them,” Parker said. “Hedge fund employees are realising this aspect of risk and they’re looking for more security,” he said. “They know that if a key man insurance policy is in place to provide liquidity for the firm, they are going to be in a better position as they seek new opportunities.”

BY becoming licensed to provide financial advice, accountants will be able to charge clients for advice they are currently “giving away for free”, says head of SMSF Advice Kath Bowler. “For years because of the way in which the [accountants’] exemptions have been structured, accountants have largely been giving away advice for free,” she said. Existing regulation prevents accountants from charging for services that are provided under the exemptions, Bowler said. “With licensing they won’t have to stop at a point too soon. And the licensing will mean they can now charge appropriately for advice,” Bowler said. “Certainly there’s going to be a cost to moving into licensing, but the opportunities will be far greater in terms of servicing and revenue,” she said.

Bowler is the head of the AXA/AMP licensee SMSF Advice, which offers accountants three different levels of financial services licensing. The ‘basic’ level is for accountants “who want to continue to recommend selfmanaged superannuation funds (SMSFs) when the accountant’s exemption gets removed, as well as provide some basic contributions advice”, said Bowler. The ‘strategic’ level is for accountants who want to provide advice without

having to get involved in product selection and portfolio management, she said. Finally, the ‘comprehensive’ solution is aimed at accountants and SMSF professionals who want to deliver comprehensive financial advice, Bowler said. “The basic option starts at $5,500, the strategy option is $13,500 and the comprehensive option is $18,500. This is the price for the first adviser. There is a considerable reduction in price for the second and subsequent advisers within the

Richard Klipin

same practice,” she said. The strategic and comprehensive options are receiving the most interest, since accountants have been “holding back” on the basic option in anticipation of the Government’s decision about the replacement to the accountant’s exemption, she said. “The limitations of the existing exemptions, and the need for alternative licensing options such as ours, have been reinforced by the announcement of the limited licence for accountants, allowing accountants to obtain a licence so they can provide advice in relation to SMSFs and non-product strategic advice,” said Bowler. “[There is an] increasing number of accountants looking at this space. It’s about a full range of licensing solutions, not just a solution to address the removal of the accountant’s exemption. It’s a much wider strategic position,” Bowler said.

Super industry at odds over SuperStream costs By Bela Moore

Andrea Slattery

THE SMSF Professionals’ Association of Australia (SPAA) has hit back at calls for selfmanaged super fund (SMSF) members to pay more towards the SuperStream levy, saying they already pay enough. The Association of Superannuation Funds of Australia (ASFA) has called on the Australian Securities and Investments Commission (ASIC) to include SMSFs in the levy, saying that if they were not included superannuation funds would be at a disadvantage. SPAA chief executive Andrea Slattery said if SMSFs were to pay an extra $38,000 in levies to help cover the cost of SuperStream, each member would be paying $40 on average towards the cost of the initiative. She said superannuation funds would pay

less than $5 per member, while the SMSF levy was recently raised by $20 per SMSF, collecting $9.4 million, which SPAA assumed was to cover the cost of SuperStream. “The figures clearly suggest SMSF members are, on average, already contributing more towards the cost of SuperStream than members of APRA-regulated funds,” she said. ASFA said ASIC’s estimate of the cost per superannuation member as a result of the levy at $4 was grossly under-estimated. But Slattery said it was illogical for SMSF members to pay more because they have a higher balance when they would not incur more costs for the Australian Taxation Office. “In fact the opposite might well be the case, as APRA funds are more likely to have higher volumes of contributions and other transactions,” she said.

www.moneymanagement.com.au July 5, 2012 Money Management — 9

News

Planners look to licensee support in ‘unprecedented’ time: BT

Shrinking APLs deterring financial advisers By Andrew Tsanadis

By Chris Kennedy IN a time of unprecedented regulatory change and market upheaval facing financial advisers, financial services licensees are going to have to adapt along with advisers to help them through, according to BT Financial Group’s general manager of advice Mark Spiers. The new environment could also see an increased focus on succession planning as many plan their exit strategy, specifically via ‘earn-out’ sales where the successor buys into the business in stages as part of a handover, he said. The four key areas in which planners are looking for help from their licensees are: help to create more client-facing time; help to grow their businesses; help to manage their businesses more effectively; and help to realise the value in their business and to make sure they eventually receive that value, Spiers said. Essentially, there is a mind shift going on among advisers where the focus is moving from running a financial planning practice to running a business, and they are looking for help with the changes that go along with that, Spiers said. In succession planning terms, it is hard to know what cost impacts the Government’s Future of Financial Advice reforms will have until a few years down the track when the results can be observed, but one outcome will be a significant increase in the earn-out sales of practices, Spiers said. Earn-out will be a big factor, because it is a model in which everyone benefits – the buyer can buy in tranches and the seller can continue to see upside

Mark Spiers in the business as they phase out their ownership, he said. However, it is reliant on the principal’s people management skills, which have not always been a strong point of financial planning practice owners, Spiers said. “How do you identify, recruit and retain future partners as a business owner? Some people do it well, and when it’s done well they get a higher value for their business because the internal successors can unlock the intrinsic value in a practice. They know what truly sits in and underneath the practice and get that true value,” he said. However, for now the majority of practice sales remain “on the block”, Spiers said.

MOST financial advisers want access to a broad approved product list (APL) before they make the decision to join a licensee. That's according to Pinnacle Practice director Anne Fuchs, who said advisers do not want to be told by their dealer groups how to run their businesses, and many are willing to pay more in fees in order to have that choice. "They have always felt this way, but given the additional pressures they face with the Future of Financial Advice [reforms] and difficult market conditions, this sentiment is more emotionally charged than ever before," she said. Young advisers, in particular, are less intent on making money from the sale of products and want their value offering to be based on delivering the most appropriate advice for clients, she added. As a result of the best interests duty, Fuchs said some non-institutional licensees are following the lead of institutional financial services providers in reducing the number of platforms on their APLs. "While advisers who work outside a vertically integrated model can pay more in fees and receive less in terms of support than those who work within one, it is a price many are prepared to pay," she said. According to Fuchs, there has been a trend towards smaller groups of advisers forming cooperative licensee businesses, allowing members to run a non-institutional business model with a range of products to choose from.

Foreign investors buying up the farm: AAG By Tim Stewart THE “serious money” being funnelled into Australian agribusiness is coming from overseas, according to Australian Agribusiness Group (AAG) managing director Marcus Elgin. “Our superannuation funds industry is absolutely blinkered to the option of investing in farmland. And I understand why that is, because the performance of most of the other people working in this sector has been less than attractive for them,” Elgin said. AAG directly invests client money in

“genuine farmland” including dairy, meat and some horticultural crops, he said. “We’re buying real farms, improving their performance and running them – either on an active or a passive basis,” Elgin said. While AAG may have more Australian investors by absolute number, the “serious money” is coming from overseas, he said. And despite the “noise” generated in the media, the reality is that Chinese investors don’t dominate the sector, Elgin added. “In terms of large-scale investment in

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

Australia, the biggest investors in farmland are Americans, Europeans, South Koreans and Qataris,” he said. Institutional and individual investors overseas do not see farmland as “the alternative of alternatives, way out there on a limb with stamp collecting and art”, Elgin said. “I’ve been knocking on the door of superannuation funds in Australia for eight years, and in all of that time they’ve been telling me how shocking it is to invest in agriculture,” he said. While the average return of APRAregulated funds in the past eight years

has been 3.4 per cent, AAG has returned 9.4 per cent to investors in the same period, Elgin said.

SMSF Weekly

ASIC to develop test for SMSF auditors By Mike Taylor THE Government has spelled out the underlying requirements for self-managed superannuation fund (SMSF) auditors as part of the general announcement around SMSF auditor registration. The Minister for Financial Services, Bill

Shorten, said that to be registered as an SMSF auditor, applicants would need to: • Hold a tertiary accounting qualification that includes an audit component, or have successfully completed study in audit as part of a professional accounting body program; • Meet a fit and proper test;

• Hold professional indemnity insurance; • Have 300 hours of SMSF audit experience in the three years prior to registration, subject to transitional arrangements; and • Pass a competency exam, subject to transitional arrangements. Shorten said auditors would be able to apply for registration from 31 January next

Borrowing within SMSFs continues to grow AROUND seven per cent of all self-managed superannuation fund (SMSF) assets representing $26 billion are now held in unlisted property, according to Melbourne-based firm La Trobe Financial. Discussing the benefits and deficits of borrowing within super, La Trobe’s vice-president, lending, Iain Pepper said borrowing within SMSFs had been on the increase since key changes to the Superannuation Industry Supervision Act in 2007. “Up until 2007, if you wanted to invest in property, generally you had to fund the entire p u rc h a s e w i t h yo u r ava i l a b l e s u p e r f u n d assets,” he said. Changes made in 2007 to the

SIS Act clarified the rules around borrowing, and allowed super funds to borrow under what is called a limited recourse borrowing arrangement (LRBA). “Borrowing under an LRBA means that the other super fund assets are protected and can’t be accessed by the lender should the property be repossessed, and subsequently sold at a loss, if the Fund Trustee stopped making payments,” Pepper said. He said that, therefore, lenders would likely seek personal guarantees from the SMSF beneficiaries. “So, since 2007, borrowing by super funds has been on the increase,” Pepper said.

ICAA welcomes auditor registration regime INSTITUTE of Chartered Accountants in Australia (ICAA) superannuation specialist Liz Westove r h a s we l c o m e d t h e Government’s announcement of a self-managed superannuation funds (SMSFs) auditor registration process. She said a registration process would allow accountants to clearly identify SMSF a u d i to r s , e n a b l i n g t h e m to better communicate with them and provide tailored education and training. “Targeted communication and education is one of the best drivers of audit quality and it will help ensure that the quality of SMSF audits will be consistently high across the board,” Westover said. However, referring to the introduction of a competency test for

new and less experienced SMSF auditors, Westover said she remained to be convinced it would be an adequate driver of audit quality. “But at least it will not be imposed on experienced SMSF auditors who have audited 20 or more funds within the previous 12 months,” she said. Westover said that although the new regime appeared to be reasonably straightforward for SMSF auditors, the ICAA was keen to work closely with the Australian Securities and Investments Commission to ensure appropriate implementation. “The other good news is that costs associated with registration are minimal: $100 for registration, $50 for renewal of regist r a t i o n a n d $ 10 0 to s i t t h e competency test,” she said.

Liz Westover “It was always going to be important that SMSF trustees did not ultimately bear the cost of this new regime and with these costs, it is not likely that they will,” Westover said.

year, and that all auditors would need to be registered with the Australian Securities and Investments Commission (ASIC) by 1 July 2013 to conduct SMSF audits thereafter. The Minister said the competency exam for auditors would be developed by ASIC in consultation with the industry.

Average SMSF balance now exceeds $1 million By Damon Taylor THE annual Vanguard / Investment Trends Self Managed Super Fund (SMSF) Report has revealed the sector’s continued growth, both in terms of the number of fund establishments and funds under management. Commenting on the report, Eric Blewitt, chief operating officer for Investment Trends, said the average SMSF balance was now above $1 million. “Strong growth in this sector continues, with the establishment of new funds running well above the five-year trend,” he said. “This report shows the main driver for this growth is the desire for investors to gain control of their portfolio, coupled with an effort to save money on fees,” he said. The report also found that SMSF investors continue to be wary of current market volatility. According to Investment Trends, cash allocations currently represent 28 per cent of total average holdings at $130 billion, of which $49 billion is described as “excess cash” that would otherwise have been invested into other asset types. Of similar note was SMSF trustees’ concern over fees. This, coupled with a continued desire for control, was cited as the main factors in a 9 per cent decline in the use of financial

Eric Blewitt advisers within SMSFs. Robin Bowerman, head of corporate affairs and market development for Vanguard, said that SMSF investors had simply become far more attuned to the fees they were paying. “They are also more engaged in the makeup of their portfolios since the global financial crisis,” he said. “Higher volatility and lower returns have focused investors on the things they can control within their investment portfolio. “We see opportunities for advisers in adapting to the way this sector tends to value advice, which is to use advisers as a sounding-board for decisions and in a coaching role, rather than the traditional role of setting the product choices for the whole portfolio,” he said.

www.moneymanagement.com.au July 5, 2012 Money Management — 11

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Creating dangerous perceptions Mike Taylor writes that the existence of large payments and the perception that a sales culture continues to exist in the financial planning space represents a dangerous recipe for the industry.

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constant undertone has attached to some recent financial planner bans, enforceable undertakings and legal action pursued by the Australian Securities and Investments Commission (ASIC): that the planners involved may have erred because they were seeking to meet commercial/sales targets imposed by their institutional masters. It is now five years since the onset of the events which led to the global financial crisis (GFC) and it is nearly four years since the GFC reached its depth in terms of both the market as measured by the ASX 200 and planner sentiment, but while some may suggest the GFC is over, the fact remains that markets are still volatile and investor and therefore planner sentiment remains subdued. Perhaps it is this environment which gave rise to a recent incident reported to Money Management – that of an independent financial adviser (IFA) who was visited by a business development manager (BDM) from a major banking institution and invited to “identify some sales targets for particular insurance products”. It seems the IFA had acquired a liking for this particular institution’s insurance products and had recommended their use to suitable clients. In consequence, he had written a reasonable amount of business, giving rise to an incorrect assumption on the part of the BDM that he was somehow tied to the institution. When the BDM consequently suggested that they agree some sales targets, he was left in no doubt that the planner was independent, intended to remain independent and had no intention of wedding himself to sales targets of any kind. The incident may have been isolated but it appears to give substance to the argument that a “sales” culture remains deeply embedded in the financial planning industry and that the Future of Financial Advice (FOFA) changes may achieve little in terms of diluting that culture. This continuing sales culture must also be seen against the background of the manner in which the FOFA changes have forced the vertical integration of the financial planning industry and allowed the major institutions, particularly the banks and AMP Limited, to reassert their dominance in the space. It must also be viewed in the context of the current distribution turf war between the likes of BT and the Commonwealth Bank, which has, according to some accounts, seen financial planners receiving up to $1 million in either “retention payments” or “transition fees”. There seems to be no argument between the major players that they have their eyes clearly focused on the profitability of their platforms, and that both maintaining and increasing distribution channels is a necessary part of that equation. However, the question now being asked in the industry is how the major players intend to extract an appropriate return from their investment in the payment of either “retention payments” or “transition fees”.

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

Some such as Paragem managing director Ian Knox have even suggested that planners who have received “retention” or “transition” payments from major players should be obligated to declare those payments to their clients, and explain how it might influence the recommendations they make. Knox may have a point, in circumstances where surveys undertaken by Roy Morgan Research have consistently indicated that while consumers seem to have a reasonable understanding that if they deal with a Commonwealth Bank financial planner they are likely to be receiving a Commonwealth Bank product, they are far less aware of the linkages where groups such as Financial Wisdom and now Count Financial are concerned. His claims also seem to grow in validity when the number of dealer groups formerly regarded as “independent” but which now owe allegiance to an institution are taken into account – something which is made very obvious in the upcoming Money ManagementTop 100 Dealer Groups data to be released later this month.

Not only has Count Financial moved under the umbrella of the Commonwealth Bank, but Matrix Planning Solutions remains on the market and a number of other groups have clearly signaled their willingness to be acquired if the terms are right. To date, neither ASIC nor any of the industry representative bodies have seen fit to discuss either the consequences of continuing vertical integration or the implications of large “retention” and “transition” payments. Indeed, somewhat surprisingly, no one has seen fit to discuss those payments in the context of remuneration and other payments impacted by the FOFA regime. It remains to be seen how the regulator and lawyers might view such payments if, at some time in the future, investors incur significant losses as a result of either a corporate collapse or a product failure. Recent history suggests financial planners who receive large payments from product manufacturers receive little sympathy when things go awry.

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Boutique fund managers

Survival of the fittest With less money going around, boutique fund managers are facing a dangerous period. Those with unsustainable business structures will be driven out of the market, writes Chris Kennedy.

he post global financial crisis (GFC) investment market has proved a challenge for investors, advisers and money managers alike. If anything, the changing environment has emphasised both the pros and cons of operating in the boutique funds management environment: those boutiques with skilled managers and sound processes with a solid base and sustainable levels of funds under management (FUM) have largely continued to outperform their respective indices. However, boutiques without sufficiently sustainable business models will be found out in the current environment of stagnant markets and high volatility – which could spell danger for standalone boutiques in particular. It could also mean the end – at least in the short-term – of further innovation in the sector, with new start-ups unlikely to be able to attract significant enough flows to make new ventures worthwhile.

The value proposition The value proposition of boutique fund managers is compelling: portfolio managers, often with high profiles and strong track records – their personal equity pooled with that of investors guaranteeing an alignment of interests – manage money with the autonomy to make whatever decisions they feel are best for the investments. Freed from having to report regularly to shareholders, they are able to take a genuine long-term view. Freed from funds-undermanagement targets and often with strict capacity limits, they retain the nimbleness to take concentrated positions in their highconviction stock bets, move quickly in and out of the market when required and, theoretically, stay ahead of the trends. In the multi-boutique structure, for the price of an equity stake they are also freed from the responsibilities of running a dayto-day business and all the headaches that entails: marketing the product to advisers, dealer groups and investors; distribution; back office administration, compliance and other support services. This allows portfo-

Key points z

A flight to cash from retail investors and flight to safety from institutional investors has meant less money on the move, making it harder for new boutiques to attract funds under management. Stagnant and volatile investment markets have proven a challenge for boutiques and institutions alike. The current environment will also drive out those businesses that are based on less sustainable models. A heavy emphasis on individual talent can be both a strength and a weakness for boutiques. Key person risk is likely to place more emphasis on succession planning as the sector matures.

lio managers to concentrate on what they’re best at – making money.

The risks The boutique model also brings its share of risk. In fact, one of its greatest strengths can also be a double-edged sword in the shape of key person risk – as was seen in the 2010 closure of Peter Morgan’s 452 Capital due to health reasons. Even larger organisations aren’t immune, as witnessed by the profit falls and fund outflows at Perpetual following John Sevior’s departure last year. As such, succession planning could present a key challenge as the Australian boutique funds management sector continues to mature and the over-reliance on individuals becomes a liability as some of those individuals begin to move on. Those boutiques choosing to stride out without the backing of an institution or incubator also take on an element of capital risk, and are betting on being able to hit critical mass in terms of attracting enough FUM to become self-sufficient before the management and administrative costs start to bite.

14 — Money Management July 5, 2012 www.moneymanagement.com.au

The fact that boutiques do often take a more concentrated position on their investments creates inherent investment risk, such that they are more susceptible to fluctuations – although it is this strategy that allows the best managers to consistently outperform the index over a long period.

A numbers game Morningstar research manager Tom Whitelaw, Lonsec research manager Paul Pavlidis, and the head of ratings at van Eyk Research, Matthew Olsen, all say that in general there is no long-term observable difference in performance between institutional and boutique managers. Rather, it is contingent on the individual investment teams and comes down to a caseby-case basis. “In general terms, boutiques tend to be a little bit higher risk, with a little bit higher potential for returns and a little bit more expensive, whereas institutional managers tend to be a little bit less volatile and a little bit cheaper,” says Whitelaw. “In both buckets, there are very good managers in each side and average managers in each side. Our four highest rated gold managers in large caps – two come from the institutional side and two from boutiques. You can’t just think ‘a boutique will be good’ – you have to do the legwork.” In broad terms the difference is marginal, he says – one is always going to slightly outperform the other, but there is no certainty which it will be. Looking at the performance of large cap Australian share funds within managers on the Morningstar database over the 12 months to April 2012, there is a wider dispersion of returns in the boutique managers than in the institutional managers, highlighting the potential for greater short-term volatility. In the institutional space, the best performer over one year is Lazard Select Australian Equities with 8.38 per cent, while at the bottom over the same period

is the SMI ME Australian Share Fund with -11.45 per cent. By contrast, the best of the large cap boutiques was Pengana’s Australian Equities which returned 9.3 per cent for the year, and at the lower end the Naos Long Short Equity fund lost 22.43 per cent. Because boutiques tend to less closely follow the index, these short-term fluctuations are to be expected, but as Table 1 and 2 show, on a three-year basis those fluctuations tend to balance out – with institutional managers actually having a wider range of returns (although from a much larger sample size of 328 funds compared to 150 boutique funds). van Eyk data (based on a sample of 44 Australian equity core managers in its

Boutique fund managers

database, of which 18 were deemed to be boutiques) does seem to show a slight but significant outperformance of boutiques over the past three years – with fractionally lower volatility. One year rolling returns (Table 3) show boutiques consistently outperforming institutional managers by between 1 and 3 per cent from June 2009 to May 2012. Both tended to slightly outperform the S&P/ASX 300 index over the same period, although both underperformed the index over the first half of 2011 on a one-year rolling return basis. Lonsec’s Australian equities large cap league table, when separated out by genuine boutiques, institutionally-backed boutiques and institutions (Table 4), shows

a noticeable outperformance by genuine boutiques over one, three and five years, but not over seven years where the three converge, and institutionally-backed boutiques are slightly ahead of institutions, with the genuine boutiques fractionally behind them.

Movement at the station Given the carnage in global markets that has been ongoing since 2008, there have been surprisingly few fund closures of late and a number of new partnerships announced – although there has also been a lack of genuinely new businesses commencing in the past 12 months. NAB’s multi-boutique platform nabInvest announced in March this year that it

would be closing Lodestar as of 30 June 2012 because “the business is not sustainable in the current environment”, despite its statement the fund had “outperformed the domestic share market by nearly 1 per cent per annum (net of fees) since inception”. Wilson HTM announced in October last year that it would be looking to offload some or all of its 80 per cent stake in boutique platform Pinnacle, which it had grown from one to seven boutiques, with close to $9 billion in FUM and annual revenue close to $40 million. As of 4 June this year, with FUM at $10.5 billion, those plans have been shelved due to a lack of appealing options and deteriorating market conditions, according to the

manager. Wilson HTM also cited a likely full financial year loss of $7 million to $8 million for the group. In May, Treasury Group bought 30 per cent of Melbourne-based absolute return manager Evergreen Capital Partners for $1.4 million plus a deferred performancebased payment, and Treasury Group chief executive Andrew McGill says the firm should have another boutique relationship to announce in the near-term. Also in May, Challenger’s boutique funds management arm, Fidante Partners, partnered with Asian equities specialist MIR Investment Management, which had around $1 billion in FUM in Asian equities. Continued on page 16

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

Boutique fund managers Continued from page 15 Fidante’s general manager Cathy Hales says the group remains open to investing in more opportunities as they arise, and is actively looking for more boutiques that fit its criteria. BT’s multi-boutique platform Ascalon partnered with Regal and launched the Regal long-short fund to the retail market just over a year ago (after the fund had opened to the institutional market in 2004). Ascalon has also recently partnered with alternatives firms in Asia. In December 2011, it partnered with Hong Kong-based alternative manager Athos Capital Limited, taking a 35 per cent equity stake, then in January this year took a 30 per cent stake in Singapore-based Canning Park Capital. Global manager GMO recently closed down its Australian equities division, which could be a pointer to more local boutiques closing their doors in the near future.

The strong will survive Ongoing market volatility has created an environment where the less sustainable and the less well-resourced business models will get found out, according to the chief executive of Boutique incubator Bennelong Funds Management, Jarrod Brown. “It will be harder for new boutiques postGFC,” he says. “It’s getting harder for asset consultants and research houses to tick all of the boxes [without being able to demonstrate significant backing or resources].”

Tom Whitelaw This comment is backed up by Pavlidis, who says most managers on Lonsec’s radar are the more established managers, and that Lonsec would be reluctant to have a look at managers that can’t demonstrate adequate resourcing. Each business strategy, irrespective of whether it is institutional, multi-boutique or independent boutique needs to resource its business and strategy appropriately, he says. “In the face of a negative growth environment, it’s placed all businesses under pressure.” Businesses that have based their models

on certain growth assumptions and have had to endure several years of negative territory may now be reviewing their commitment. “You can only go on so long burning cash,” Brown says. “When you talk about financial capacity, the question is how long can the business, independent of its structure, continue to sustain its cash commitments.” Australian Unity Investments (AUI) chief executive David Bryant says that where boutiques or boutique backers haven’t chosen their partners well, it will really show through during this period. “The last thing anyone wants after years of commitment is for their backer to no longer be interested in being the backer. It’s really important you’ve got an understanding around the time frame and the commitment to the businesses, and everyone proceeds with certainty,” he says. Cathy Hales, general manager of Challenger’s recently rebranded boutiques division Fidante Partners, says one of the most compelling reasons for a boutique to join with an institution like Fidante Partners is the provision of a corporate governance framework in which they can operate. “We provide a lot of support on the administration side as well as sales and distribution, which allows them to focus on managing money. When you’re in a testing environment like we’ve been in, being able to spend that marginal time being focused on the market and your portfolios is very important,” she says.

“An institutional partner that has a broad relationship, such as Fidante Partners has, can be there when a boutique may be going through a period of difficulty,” she says. “Whether it be a short-term cashflow issue or something of that nature, [we can] help them through any difficult period that they may be going through so the business succeeds long-term.” To succeed in this environment, a boutique needs to be very clear about what it is that they do that is distinctive and how they will deliver outperformance consistently, and ensure the proposition is a very strong one for the client, she says. Treasury Group’s McGill says that from a multi-boutique perspective the market difficulties can help weed out some of the less compelling opportunities, but he believes that successful managers will be successful in any market. For a portfolio manager ready to launch their own boutique, doing so in a difficult market is an inconvenience, but it won’t dissuade them from their medium to longterm agenda, he says.

Critical mass Pavlidis says that any small or boutique operation could find themselves under pressure when the market is not being conducive to fund flows, but it is the ones that are not yet profitable – ie, that have not yet built sufficient FUM to be selfsustainable – that will come under the most pressure.

SAVE YOUR SEAT

SMAs, ETFs, Direct Investing 2012 This CPD accredited one day workshop is an essential event for financial planners who are looking to broaden their skills and knowledge of Managed Accounts, ETFs and Direct Equities, by showing them how to build client portfolios using a direct investing strategy.

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The latest SMA and Direct Equities research and findings from Investment Trends.

Understanding the differences between physical and synthetic ETF structures, and how to use these structures to gain exposure to difficult to access asset classes.

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Direct Fixed Interest A look at the new breed of products appearing in the market and how they can be used in client portfolios.

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

Early Bird ends

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SILVER PARTNERSHIP

Boutique fund managers

“

One of the advantages of boutiques is that due to the ownership structure, you are not driving growth for growth’s sake. - Jarrod Brown

”

“It then comes down to the personal finances of the sponsoring portfolio manager,” he says. For boutiques in that situation they could either attempt to stick it out, or they may be tempted to give up a portion of their equity and partner with a boutique platform such as nabInvest or Challenger, he said. van Eyk’s Olsen agrees that those equities managers that have not yet achieved critical mass would be struggling to attract new flows at present, but adds that the sluggish flows are predominantly in the equities investment environment - so it is those managers that will feel the pinch the most. “In other asset classes this may not be the case, but equities broadly are struggling to attract inflows,” he says. AUI’s Bryant says it is definitely much harder to establish a boutique today because there is less money moving around and it is much harder to win a mandate now compared to five years ago. “This is where having the right partner is fundamentally important; continuing to

operate the business without pressure and paying bills is key,” he says. Boutiques can take as long as five years to be profitable, so for a backer it’s important not to sign up or participate in any business without a clear acceptance that that may be the amount of time needed to commit to it, Bryant says. “To be successful in winning mandates in this environment you’ve got to be perfect. That’s where it falls to us to make sure we have the top-notch support team; you have to relentlessly pursue the best people. Your ability to do the things you want to do with these businesses depends upon it.” Ascalon head of business development Jason Collins agrees that it can be hard to start a boutique without some sort of precommitment or a very solid network base, but says the same challenges apply whether it is within a boutique incubator environment or not. Hales says the majority of Fidante Partners’ boutique businesses have passed the critical mass point. “But boutiques that are in those early stages of growth, having that

Table 1: Institutional Large Cap Name

support to get them on their feet and get them to a critical mass scale is really valuable,” she says. If there has been a trend of less institutional money moving around, then Hales says the clarity of purpose a boutique model brings to the institutional market and clear alignment of interest between portfolio managers and clients has meant boutiques in the Fidante stable have bucked that trend. “That’s enabled our boutiques to win a number of mandates,” she says. “It’s no surprise that in the retail market a large part of the cashflow has been going into cash and term deposits, but a number of our boutiques have received more positive flows in the conservative types of investments.” Tim Samway, managing director of Hyperion Asset Management which operates under Wilson HTM’s Pinnacle stable, says the real problem for start-ups is that the gatekeepers in the institutional market, such as the asset consultants and larger investors, are not interested in taking risk. “Even a star [manager], there are so many things that can go wrong in the early life of a fund manager, they don’t risk their clients’ money,” he says. Co-founder and executive director of standalone boutique Prime Value Asset Management, Y. Yong Quek, concedes the barriers to entry have been raised since Prime was conceived more than a decade ago, but believes with a good track record and the right stewardship a good manager can still attract money. Quek agrees balance sheet strength is important and says his business is lucky – that is, has family backing to fall back on, although the business has been self-sustainable over a long period. “It helps us to look beyond the current volatility and challenges,” he adds.

Capacity constrained Although managers without a long track record may be struggling to attract new flows, the reverse can be true for established

Matthew Olsen managers with enviable track records, which means they have to make a decision as to how much capacity they can build before it threatens to affect performance. It can also mean that investors are left clamouring for what capacity is left at the higher profile boutiques. “One of the advantages of boutiques is that due to the ownership structure, you are not driving growth for growth’s sake,” says Bennelong’s Brown. “There is a greater consciousness in regard to not getting too big as it directly compresses your performance towards the benchmark. Sizeable institutional models by product of size become less concentrated, less nimble and literally have less room to move from an investment perspective.” In a boutique capacity can be a challenge, but Bennelong will look to grow by adding capacity rather than encouraging the majority owners of our boutique businesses – the asset managers – to keep capacity open. “You’ve got to protect performance by Continued on page 18

Table 2: Boutique Large Cap Assets $Am

Fee %

1 Yr %

3 Yr %pa

Assets $Am

Fee %

1 Yr %

317.92

0.20

5.50

21.58

Clime Australian Value

17.90

1.03

6.60

19.46

3.95

2.25

4.38

20.55

Bennelong Concentrated Australian Eq

52.70

0.85

4.25

16.48

Perpetual W Share Plus L/S

111.54

0.99

0.75

14.25

Pengana Australian Equities

64.01

1.03

9.30

15.70

Perpetual Wholesale Aus Shr

1,520.74

0.20

-1.08

13.07

PM Capital Australian Opportunities

58.10

1.09

-5.71

14.54

Lazard Australian Equity I

86.61

0.67

4.02

13.05

Bennelong Australian Equities

57.10

0.95

1.36

14.40

Macquarie High Conviction Incentives

0.60

1.85

-6.63

13.04

Celeste Australian Equity

4.19

0.95

-7.57

13.30

Perpetual WFIA-Perpetual Share Plus L/S

1.07

1.95

-0.11

13.02

Antares Prof Dividend Builder

20.61

0.60

4.88

13.02

Lazard Australian Equity W

17.74

0.82

3.87

12.88

Investors Mutual WS Industrial Share

192.04

0.97

7.32

12.84

Lazard Select Australian Equity I Cl

6.27

0.92

8.38

12.87

Sandhurst IML Industrial Share

118.20

0.95

7.58

12.66

254.85

0.40

3.35

12.83

Investors Mutual Equity Income

67.64

0.97

7.14

12.62

-9.33

6.75

S&P/ASX300 Accumulation Index

-9.33

6.75 5.33

Perpetual Wholesale Ethical SRI Perpetual WFIA-Perpetual Ethical SRI

Vanguard Australian Shares High Yield S&P/ASX300 Accumulation Index

Name

3 Yr %pa

BT Ptnr Aus Shr Val 1 Retail

21.54

1.95

-7.99

5.18

Lincoln Retail Australian Share

17.42

1.68

-7.54

Perpetual WFIA-Advance Imputation

0.93

1.95

-5.65

5.10

Bellwether Partners Australian Share

12.38

0.75

-9.85

5.29

OnePath OA IP-OP Blue Chip Imput EF

41.82

1.80

-7.80

4.63

Ankura Capital Australian Equity Trust

31.09

0.48

-10.12

5.28

ANZ OA IP-OP Blue Chip Imputation

83.13

1.80

-8.53

4.43

CFS FC WS Inv-Integrity W Aus Shr-No.2

101.66

1.00

-9.07

5.17

OnePath OA IP-OP Blue Chip Imput NE

83.43

2.65

-8.58

3.77

Plato Australian Shares Market Neutral

1.01

1.00

6.18

4.85

Mercer Australian Shares

337.70

0.90

-6.44

3.25

CFS FC Inv-Integrity Aus Shr No.2

66.98

1.85

-9.80

4.39

ANZ OA IP-OP Select Leaders EF

12.17

1.80

0.39

-4.01

SCM WS Absolute Australian Equities

25.58

1.48

-4.20

2.79

ANZ OA IP-OP Sustainable Inv Aus NE

1.08

2.65

-2.06

-7.77

Naos Long Short Equity

3.88

1.18

-22.43

1.23

ANZ OA IP-OP Australian Shares NE

9.12

2.65

-0.26

-9.72

EQT SGH Wholesale Absolute Return Trust

22.35

1.64

-11.58

-5.32

ANZ OA IP-OP Blue Chip Imputation NE

60.97

2.65

-3.27

-11.22

EQT SGH Absolute Return Trust

2.28

2.06

-11.94

-5.77

Source: Morningstar

www.moneymanagement.com.au July 5, 2012 Money Management — 17

Boutique fund managers Figure 3 1 year rolling returns

Continued from page 17

People power One of the key advantages of the boutique model is the extra autonomy and profile afforded to portfolio managers, which in turn has the potential to attract the most skilled and experienced managers. Due to this it continues to be extremely difficult for an institutional model to retain the best talent, according to Brown. “It’s not just about the financial factors, it is also about the stage of career, a competitive nature and spirit, and the desire to control their own destiny,” he says. “This is about the asset managers being in charge of their own businesses and not being driven by a range of other stakeholders.” Talent is also impor tant on the marketing and distribution side, which requires people that understand how to navigate the respective value chains and how to articulate an investment process on behalf of the asset management team, which Brown says is critical to the multiboutique proposition. Quek says that the focus on getting the right people in place meant building the business was a slow and steady process, but it had resulted in a settled team. Most of the Prime investment team have now

60 50 40 30 20

Bou ques

Ins tu onal

S&P/ASX 300 TR

-10

1/03/12

01/05/12

1/12/11

1/09/11

1/06/11

1/03/11

1/12/10

1/09/10

1/06/10

1/03/10

1/12/09

-30

1/09/09

-20 1/06/09

constraining capacity, and we are aligned in that regard,” he says. Samway says it creates a problem for institutional investors looking to allocate money to established managers. “There is a larger group of boutiques who have reached capacity, and there are lots of clients competing for that available capacity,” he says. “The clients are weighing up the pros and cons of an established business and its longevity and its ability to produce continued outperformance with the risks of taking on a new business and all the things that can go wrong there – it costs lots of money to change managers, and that’s clients’ money.” Hyperion is soft closed on institutional money but still has a couple of hundred million available but is “not just giving that away” – it is looking carefully at where that capacity should be allocated. “We endeavour to be fair to clients who have supported us for a long time,” Samway says. There is a direct correlation between a boutique going over capacity and investment performance, according to Samway. “Once you go too far investment performance stops. There is a very strong correlation between underperformance and losing funds.” Boutiques are more cognisant of that b e c a u s e m a n a g e r s h a v e t h e i r ow n money in the business, so their priority remains on long-term performance and they are constantly thinking about how much money they can reasonably manage, he adds. In a larger business without that equity alignment you become more focused on short-term performance, he says. “Short-term incentives lead to short-term behaviour. If it’s about how much money you can sell in a year and that’s what you get rewarded on, then that’s not in the client’s interests. Shorttermism is a pandemic that’s overtaking this market.”

Source: van Eyk

Cathy Hales

Table 4: Australian equities large cap been together for five to seven years and there have been no departures to date, he says. “To outperform you need to have a very small team making the important calls and investment decisions rather than managing by consensus – which is another reason why we wanted to maintain our independence. We are managing [our] own money; I don’t want a big team managing my money by consensus,” he says. McGill says the more confident and successful managers gravitate towards the boutique model due to that desire for independence. “[But] no-one starts in a boutique – you have to earn your stripes elsewhere,” he says. A key part of the autonomy afforded individual managers is being able to run a small team, but this also means boutiques are overly dependent on those individuals staying within the business, and creates a headache when those individuals want to move on or retire. Part of the solution lies within the alignment of interests. Bryant says the first step in migrating key foundation principles from the foundation members is firstly to recruit and train the rest of their team, generally over long period of time. “Also, because they’re an equity owner it’s in their interests to

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

Equally weighted portfolio

1yr

3yr

5yr

7yr

Genuine boutique

0.67

11.45

-0.04

5.59

Insto-backed boutique

-5.21

8.63

-2.27

6.23

Institutional

-5.24

9.95

-2.93

5.81

Source: Lonsec

work in a concentrated way on succession planning, progressively handing over responsibility and bringing others to fore. Generally, we find those people look to go part time,” he says. “There’s ongoing passion and involvement in the business – the key thing is to tap into that.” Samway says Hyperion manages succession over many years by having different age groups within the business, with key members aged from their late fifties down to their early thirties. You’ve also got to lock them in with equity so they don’t leave, he says. “The real key is having a formula for entry and exit that treats each party fairly and ensures the departing party on retirement has the best interests of the firm in mind and flags it well in advance and transitions that departure over time.” Collins says it’s an area where an institutional partner can help, but generally Ascalon will step out of the way unless required. “We see it as our job to work

closely with our partners if and when it arises,” he says.

Looking ahead Collins says there are a number of trends in the market that bode well for boutiques: there is a continuing search for alpha, and in some cases a trend towards a passive satellite approach. “A boutique is well placed to offer alpha if it has the right investment process and team,” he says. The difficult investment environment will continue to create headwinds for boutique and institutional investors alike, but McGill says funds management in Australia is still a relatively attractive industry in spite of the volatility of equity markets globally and investment returns. Over the next 12 months the difficult investment markets will remain but the industry can still be fairly prosperous, and McGill says that for business models that are focused on where they can add value, shareholders can expect managers to be successful for them in the coming year. MM

OpinionSMSF

Stronger super and SMSFs Aaron Dunn looks at some of the changes flowing from the Stronger Super reforms and how SMSFs will be affected.

he new financial year will see the introduction of several changes stemming from the Stronger Super reforms to improve the operation and regulation of the selfmanaged super fund (SMSF) sector. One of these changes – the proposed banning of off-market share transfers – appears set to be deferred, as no regulations have yet been provided by Treasury for consultation. Some of the changes to take effect from 1 July 2012 include: • The need to consider insurance as part of the fund’s investment strategy; • The inclusion as an operating standard of the requirement to have fund assets held separately from personal or employer assets; and • Fund assets to be valued at net market value for reporting purposes.

Trustee requirement to consider insurance for SMSF members as part of their investment strategy The proposed regulations are to insert a new paragraph into sub-regulation 4.09(2) to ensure that trustees consider whether they should hold a contract of insurance that provides insurance cover for one or more members of the fund. With less than 13 per cent of SMSFs holding insurance for members, this recommendation aims to ensure that trustees appropriately consider the holding of insurance for fund members. There will be a requirement for trustees to consider whether to hold insurance for their members such as life insurance when they formulate, regularly review and give effect to the fund’s investment strategy. It is expected that trustees will evidence this requirement by documenting decisions in

“

The regulator will have powers to enforce fines of up to $11,000 for a person who intentionally or recklessly contravenes the standard.

”

the fund’s investment strategy or minutes of trustee meetings that are held during an income year. In addition to the consideration of insurance within a fund’s investment strategy, this regulation would also amend sub-regulation 4.09(2) to require trustees to regularly review the fund’s investment strategy. This will require trustees to evidence this review by documenting decisions in the minutes of trustee meetings that are held during the income year.

The separation of fund assets from personal or employer assets These changes will insert into sub-regulation 4.09A a requirement that a fund trustee must keep money and other assets of the fund separate from money or assets held by the trustee personally, or by a standard employer sponsor. Currently, this requirement forms part of a covenant (section 52(2)(d) of the Superannuation Industry (Supervision) Act 1993 (the SIS Act)) that is deemed to be incorporated into the governing rules of the fund (ie, trust deed). The Australian Taxation Office

(ATO) is currently unable to enforce compliance with covenants and relies on voluntary compliance by trustees. It is not uncommon within SMSFs that breaches occur within this existing covenant where investments are incorrectly held by the fund. This may include the fund bank account or other investments that may be incorrectly recorded in a member’s own name rather than in the capacity as trustee of the SMSF. Contraventions of this existing covenant are one of the most commonly reported contraventions sent by auditors to the ATO. With this regulation becoming a prescribed standard applicable to the operation of a SMSF, the regulator will have powers to enforce fines of up to $11,000 for a person who intentionally or recklessly contravenes the standard.

Valuing fund assets at net market value – a problem? A SMSF is required under section 35B of the SIS Act to prepare a Statement of Financial Position and Operating Statement each income year. From the 2012/13

financial year, all SMSFs will be required to value an asset at its net market value when preparing accounts and statements. Sub-regulation 8.02A(2) will define net market value as the amount that could be expected to be received from the disposal of an asset – in an orderly market – after deducting costs expected to be incurred in realising the proceeds of such a disposal. Currently, SMSFs are generally able to choose either historical cost or market valuation methods to determine the value of fund assets when preparing financial statements. The lack of consistency in valuation methodology has not only lead to an impact on a member to not be able to ascertain the current value of their super benefits, but it also affects the reliability and usefulness of superannuation data to make accurate comparisons across the entire superannuation sector. It has been raised, however, through consultation that using net market value will not actually meet policy intent by using this methodology – in particular, with APRA regulated superannuation funds moving to a requirement to value assets at their ‘fair value’. This inconsistency in valuations will cause further confusion when it comes to addressing issues such as valuing whether a member’s account balance (over 50 years) is less than $500,000 to determine qualification for the extended concessional contribution cap from 1 July 2014. With the SMSF sector being recognised as well-functioning, these changes look to further improve on the pedigree of this fastgrowing industry. Aaron Dunn is the managing director of The SMSF Academy.

www.moneymanagement.com.au July 5, 2012 Money Management — 19

OpinionRisk

Restoring the logic to TPD Col Fullagar suggests that the need for an underlying logic in any risk insurance recommendation, including TPD, is an important component of safe advice.

he debate about the merit or otherwise of total and permanent disability (TPD) insurance started when the product was first introduced in the 1970s and it has continued unabated ever since. The following arguments are cited as sound reasons to avoid TPD: • Trauma insurance supersedes the TPD need; • It is difficult to get a claim paid; and • Calculating an appropriate benefit amount is similarly difficult. And yet the trauma insurance need, whilst partially overlapping TPD, in no way replaces it. TPD claims are paid and are paid often, and apparently sound and comprehensive recommendations are being made. The real issue may therefore be more subtle, lying somewhere else other than in the need, the claims process or the benefit amount recommended. The real issue may in fact be a perceived lack of an underlying logic to the TPD needs analysis process.

The TPD need When questioned about the basis of a generic TPD recommendation, responses vary dramatically, for example: • Sufficient to cover all debts and an additional amount to cover medical expenses; • An equivalent amount to death cover; and • As much as the client can afford. There can be no doubting that the needs being covered by the above are genuine areas of potential risk exposure for an insured and, when considered in their own right, each is a sound and logical recommendation. However, whilst the above bases may be typical and even relatively common, it is also accepted that variations are endless, which gives rise to the necessity for an underling logic that will enable all areas of need to be identified so they can either be covered or the client informed where gaps exist. This logic would not only enable all areas of need to be identified, it would

Appreciating the differences between the business and “personal TPD need is an important prerequisite to the construction of a logical framework for the personal TPD recommendation. ”

also enable the recommendation to be made in such a way as to engender confidence that a comprehensive solution was being provided. The challenge, however, is to build a framework which possesses unlimited flexibility so the unique needs of each client can be quantified and presented, thus facilitating the making of an informed decision. A good place to start to build is to establish the generic need for TPD insurance, recognising that it can exist in both a business and personal situation: • In a business situation, TPD insurance mitigates the financial impact on the business if the insured is permanently unable to work; and • In a personal situation, TPD insurance mitigates the financial impact on the insured’s current and future financial security, again if the insured is permanently unable to work. Of course, TPD is not the only risk insurance protection vehicle available, insofar that business expenses and income protection insurance provide some protection. Business expenses insurance reimburses fixed business expenses that continue, notwithstanding the insured is unable to work. Income protection insurance provides protection against the loss of earnings and the subsequent impact on the insured’s lifestyle, and the lifestyle of those dependant on the insured. Thus, the need for TPD insurance is, more specifically, to protect against the financial impact that arises over and above that covered by these other insurances, which in turn highlights that TPD insurance cannot

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

be considered on its own but should be considered in tandem with them. Having established the generic business and personal needs, each can be considered in greater detail.

Business need The generic business need for TPD is to mitigate the financial impact on the business if the insured is permanently unable to work. This need arises by virtue of the fact that if the insured is permanently unable to work, they will exit the business. Therefore, the business need is likely to be identical to that arising as a result of the death of the insured, i.e. both events (death and TPD) lead to the insured being totally and permanently removed from the business. The various business needs for both death and TPD cover a number of areas such as: • Loan protection; • Key person; and • Business succession. With loan protection, the financial impact is known as it is tied to the amount of the loan, thus the benefit amount recommendation would be all or part of the loan amount. With key person and business succession, the financial impact is unknown, so the interested parties agree to quantify the impact by way of a pre-set formula – for example, once times turnover or twice time’s net profit. Therefore in a business situation the benefit amount recommendation can be objectively arrived at because it is either

linked to a known loss or, if the loss is unknown, it is linked to an agreed formula. Further, the range of areas of impact has been identified and documented such that the adviser and the client can be confident all relevant matters have been considered. Any offset arising as a result of business expenses insurance being in place can also be taken into account. It would thus be reasonable to say that, in regards to the business TPD need, an underlying logic to the benefit amount recommendation exists.

Business versus personal need When considering the personal need for TPD insurance, a totally different approach has to be taken. First, while death will result in the insured exiting the family, as it were, total and permanent disability will not. There-

• Recurring expenses such as loan repayments, school fees, general living expenses, etc; and • One-off expenses such as the provision for depreciation of the personal car and home, provision for holidays, etc. Because of the inter-relationship between TPD and income protection insurance, simplistically 75 per cent of current expenses would already be covered. Therefore, TPD insurance would only need to cover the shortfall; again simplistically, the 25 per cent top-up. This shortfall could be reduced if provision was made within the TPD recommendation for the reduction or removal of actual or contingent debts for which repayments form part of the expenses; for example, home mortgage, future school fees, etc. The provision of a lump sum TPD payment to cover the remaining shortfall forms the first component of the personal TPD recommendation.

fore, even if ultimately the benefit amount recommended for death is the same as that for TPD, the logic behind the TPD recommendation will differ. Second, generally in a business situation the business is not responsible for many of the costs associated with TPD at a personal level; most obviously, the medical costs that may arise as a result of the sickness or injury leading to the insured being TPD. Third, in a personal situation it is not only necessary to consider the financial impact on the insured of being TPD, but also on others financially reliant on the insured: ie, dependants, and those linked to the insured, for example, a spouse whose ability to work may be impacted by the insured being TPD. Appreciating the differences between the business and personal TPD need is an important prerequisite to the construction

of a logical framework for the personal TPD recommendation.

Personal need The generic personal need for TPD insurance was established as being to mitigate the financial impact on the insured’s wealth creation process if the insured is permanently unable to work. The financial impact at a personal level can manifest in two ways; in the form of what will be termed recurring and one-off expenses. Further, these expenses can be current (ie, current at time of the insured becoming TPD) or new (ie, arising as a result of the insured becoming TPD). (i) Current expenses The financial impact in this category would include:

(ii) New expenses Not only will some current expenses continue, but the insured being TPD will likely give rise to new expenses, recurring and one-off. New recurring expenses might include medical expenses, nursing expenses, home maintenance expenses, etc. New one-off expenses might include car and home modification costs or maybe a new car or home, one-off medical expenses, etc. As these are ‘new’ they will not be covered by income protection insurance, and therefore allowance needs to be made for them by virtue of an invested lump sum. The provision for new expenses forms the second component of the personal TPD recommendation. One seemingly insurmountable problem still exists. Traditionally, it has been difficult, and in fact impossible, to objectively quantify the extent of the new expenses because to do so would require foreknowledge of the particular sickness or injury the insured was going to suffer and also the severity of that sickness or injury. For example, expenses arising as a result of an electrician losing a hand would be quite different to the financial impact if the same electrician lost both hands or was rendered TPD as a result of contracting multiple sclerosis. As it is not possible to know claim events and the severity of them in advance, an objective calculation of a recommended benefit amount is impossible to achieve. One alternative would be for the recommendation of ‘the maximum cover available’, with the possible logic being that by doing this safety of advice is achieved. Unfortunately, this might result in the recommendation of unrealistically high levels of cover at similarly unrealistically high premiums, which in turn could have an adverse impact on adviser credibility. Notwithstanding an objective recommendation may be impossible and an extreme one unrealistic, this does not preclude the making of a logical benefit amount recommendation. Advisers have known for ages, despite the protests of some in Compliance, that if any part of the risk insurance need cannot be

established objectively, the recommendation must be ‘budget-based’.

TPD case study The confines of space necessitate the pulling of all this together via a case study example involving the provision of a TPD recommendation to a client called Jim: “Jim, when we met we agreed you were looking to make a total investment of $5,000 a year to meet your overall risk insurance needs. “I have been able to cover your needs in the areas of term, trauma and income protection for $3,500 a year, which has left $1,500 for the TPD need. “Of course we cannot know in advance what might render you TPD, so I am setting out below what we can do within the remaining budget. If you want more done, we will need to expand the budget. “I am making the following recommendation: • $200,000 to repay your current actual and contingent debts – ie, mortgage and prepayment of school fees, funding for future holidays etc, thus reducing expenses to 85 per cent of current levels. The income protection insurance we have in place will account for 75 of the 85 per cent, leaving a shortfall of 10 per cent. • $200,000 to be invested, which will provide sufficient after-tax revenue to cover the above 10 per cent shortfall. Therefore, provision of $400,000 has been made to ensure current expenses are covered. In addition: • $200,000 to be invested to cover new recurring expenses that may arise, such as home maintenance costs, medical and nursing costs, etc. • $300,000 to be invested to cover new one-off expenses such as car and home modification costs; “Therefore, provision of $500,000 has been made to ensure at least some of the new expenses are covered. “Thus the total personal TPD recommendation made is $900,000.”

Summary Of course, the purpose of this article is not to imply that the above is the only way to develop an underlying logic for a TPD recommendation. Nor is it to suggest that the above is the best way. Each client, each adviser and each adviser practice will be different, and it may well be that a different approach would therefore be more appropriate. It is, however, the purpose of this article to suggest that the need for an underlying logic in any risk insurance recommendation is an important component of safe advice. This is even more so the case in regards to what may be seen as the problematic area of the TPD recommendation. The use of an underlying logic ensures that all areas of need are identified. The explanation of the logic will engender confidence in the client that a comprehensive solution is being provided. The presence of the logic will ensure an understanding of the TPD benefit. Col Fullagar is the principal of Integrity Resolutions Pty Ltd.

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

Financial planning

Wanted: female advisers Women need financial advice, and the financial planning industry needs more women, writes Tim Steele.

profession should broadly reflect the demographics of society. Women are significantly under-represented in the financial planning profession, with only one quarter of financial planners being female. So what are we doing to correct this imbalance?

Women and financial advice According to a 2009 Harvard Business Review article “The Female Economy”, women control about $20 trillion in annual consumer spending globally, but it’s “still tough for women to … get financial advice without being patronised”. We also know that women’s proportion of global spending is increasing, so what does this mean for financial advice and how can we make sure we are providing the right kind of advice? Recent research from CoreData shows that while women are gaining more control over their finances, many still feel financially insecure. The research shows that one third of women – 35.1 per cent – feel financially insecure, compared to just 21.5 per cent of men. And, 37.5 per cent of women said they often have difficulty making

decisions about investing money, compared to only 26 per cent of men. The gap increases around the issue of retirement, with two in five women (41.7 per cent) saying they are unlikely to have the level of wealth required to finance their retirement, compared to 29.1 per cent of men, according to CoreData. More broadly, just one in five people (21 per cent) have used a financial planner in the past 12 months, so to bridge this advice gap, more people – both men and women – need to join the profession, and we need to think a lot harder about what appeals to those Australians who may hesitate about seeking financial advice.

The need for more female financial planners The data is irrefutable: women need to be more empowered when it comes to financial matters. We can begin to address this issue by attracting more women to the financial planning profession and by having a better understanding of what makes financial advice attractive to customers. The greatest opportunities to reach women are during trigger points such as

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

“

In a world where there is no shortage of people that need financial advice, encouraging more women to become financial planners can help achieve the greater goal of providing more advice to more Australians.

”

marriage, childbirth, and job changes, because women are more likely than men to be making the financial decisions around these events. We know that while many women do not necessar ily have a preference between a male or female financial planner, a significant proportion do. More importantly, in a world where there is no shortage of people that need financial advice, encouraging more women to become financial planners can help achieve the greater goal of providing more advice to more Australians. Building long-term, professional relationships and being a trusted adviser is crucial to having a successful career in the financial planning industry. It is no surprise that a recent Harvard Business Review study of 7,000 leaders found that women particularly excel at building relationships. The study found that women are great at displaying integrity, developing others, inspiring people, collaborating, and working in teams. Of course, these are attributes we see in the workplace amongst both men and women, but it seems that women – according to the research at least – have the edge.

Just as with other well-respected professionals, interpersonal skills complement the technical skills for financial planners, ensuring a relationship of trust is built. This trust ensures the advice provided is communicated so as to be understood, respected and valued by the person seeking the advice. We wanted to lear n more about Australian women’s perceptions of financial planning as a possible career. In September 2011, we commissioned independent employment researchers to conduct a series of focus groups in Sydney and Melbourne. The findings showed that women saw the profession as inflexible and incompatible with their lives. They also considered the industry to have a predominant macho culture and this was, of course, a deterrent. Some of the comments made by the focus group participants included: • “I don’t want to be a woman in a man’s world.” • “There’s no emotion – the role is about numbers.” • “It’s a male-dominated, old-boys’ club.” These perceptions are concerning, and our efforts are focussed on negating any deterrent to people choosing a career in financial planning. This is not an altruistic ambition – it is driven by

“

The findings showed that women saw the profession as inflexible and incompatible with their lives.

”

the knowledge that women can be very successful financial planners. Indeed, our internal data for planners in Horizons highlights that on most of our productivity metrics, women outperform men.

Women wanted as financial planners Attracting and retaining top female talent is key to the continued success of the financial planning industry and to creating a competitive advantage for financial planning firms.

More broadly, there is tremendous opportunity for the right people to be successful and to attain the workplace flexibility they desire. If they choose, for example, to start their own financial planning practice, they can select the hours they prefer to work. The challenge has been to create an induction program that makes financial planning an attractive career choice for more women. Until now, these programs have been full-time, and inhibitive to those who have pressures placed upon their time. A lack of flexibility has meant the industry has missed out on some very talented candidates. Flexibility, significant earning potential, intellectually stimulating work and the opportunity to positively impact lives are job attributes that should be appealing to anyone and are, indeed, the attributes of a career as a financial planner. Many women don’t consider this a career option, so we are working to spread the word and introduce them to this wonderful profession. My aspiration is to someday report that the percentage of female financial planners in Australia reflects the proportion of women in society. Tim Steele is director of AMP Horizons Academy.

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

Toolbox Nothing but the TTR truth Scott Quinn tries to determine whether the marriage of the transition-toretirement pension with salary sacrifice can survive the latest legislative changes.

he introduction of transition to retirement (TTR) pensions on 1 July 2005 saw the marriage of the TTR pension with salary sacrifice to super – commonly known as the TTR strategy. The marriage was tested when maximum deductible contributions limits were replaced with concessional contributions caps on 1 July 2007, and again when the concessional contributions cap was reduced from $100,000 to $50,000 on 1 July 2009 – but the marriage survived. After the next 3 years, the marriage will be tested again with the concessional contributions cap being reduced from $50,000 to $25,000 on 1 July 2012. Before we take out our crystal ball to determine whether this marriage will survive the next test, we need to understand exactly what the TTR strategy is.

What is the TTR strategy? Upon attaining preservation age, a super fund member may be able to use their existing super savings to commence a TTR pension. The pension payments increase the members’ cashflow, allowing them to salary sacrifice a portion of their salary to super. Often by combining a TTR pension with salary sacrifice, a member can increase their super savings whilst maintaining the same level of cashflow.

Example In the 2012/13 financial year, Holly (57) has a salary of $100,000 and a super balance of $250,000. She wishes to maintain her after tax income of $73,553. By commencing a TTR pension, she can draw a super pension

BETWEEN PRESERVATION AGE AND 60, 100% TAXABLE COMPONENT Figure 1: Super balance $100,000

Figure 2: Super balance $250,000

Figure 3: Super balance $500,000

Income

Benefit

2011/12

2012/13

$40,000

$2,313

$60,000

$2,698

$2,398

- $300

- $17

$100,000 $2,950

$2,439

- $511

$1,134

- $64

$150,000 $2,995

$2,300

- $695

$1,247

- $282

$200,000 $3,822

$2,107

- $1,715

Benefit

2011/12

2012/13

Difference

$40,000

$1,063

$60,000

$1,079

$1,063

- $16

$100,000

$1,180

$1,163

$150,000

$1,198

$200,000

$1,529

Source: OnePath

Difference $-

Source: OnePath

Benefit

2011/12

2012/13

Difference

$40,000

$4,236

$60,000

$4,978

$4,343

- $635

$100,000 $5,213

$3,774

- $1,439

$150,000 $5,118

$2,601

- $2,517

$200,000 $5,888

$1,310

- $4,578

Source: OnePath

AT LEAST AGE 60 BUT LESS THAN 65 OR COMMENCED WITH 100% TAX FREE COMPONENT Figure 4: Super balance $100,000

Figure 5: Super balance $250,000

Figure 6: Super balance $500,000

Income

Benefit

2011/12

2012/13

$40,000

$1,654

$1,780

$60,000

$3,914

$3,846

- $68

$100,000 $4,625

$4,448

- $177

$150,000 $4,743

$3,416

- $1,327

$200,000 $6,948

$3,452

- $3,496

Source: OnePath

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

Difference $126

Benefit

2011/12

2012/13

$40,000

$2,820

$3,095

$275

$60,000

$6,831

$5,823

- $1,008

$100,000 $10,017

$5,615

- $4,402

$150,000 $10,701

$4,561

- $6,140

$200,000 $11,836

$4,470

- $7,366

Source: OnePath

Difference

Benefit

2011/12

2012/13

$40,000

$4,749

$4,935

$186

$60,000

$9,063

$7,648

- $1,415

$100,000 $12,323

$7,299

- $5,024

$150,000 $12,646

$6,126

- $6,520

$200,000 $13,781

$6,035

- $7,746

Source: OnePath

Difference

payment of $12,863, allowing her to salary sacrifice $16,000 into super (this takes into consideration her contributions cap of $25,000 and super guarantee of $9,000). Holly’s after tax cashflow of $73,553 is maintained, but her net super balance has increased by $2,439 (refer to figure 1-6). Under the TTR strategy, the amount of salary that can be sacrificed into super is effectively limited by the: • Maximum TTR pension payment. TTR pension payments are limited to 10 percent of the account balance at commencement and each 1 July thereafter. There have to be sufficient TTR pension payments to offset the reduction in cashflow resulting from the salary sacrificed into super. • Concessional contributions cap. Penalties may apply for concessional contributions exceeding the cap. Concessional contributions include salary sacrifice and super guarantee. The TTR strategy could similarly combine a TTR pension with personal deductible super contributions (where eligible). However, our focus will be on employees and salary sacrifice – the broader application of the TTR strategy.

What are the benefits? The benefits of the TTR strategy are generated from a reduction in total tax payable by the member. The reduction in tax can occur on two levels: • Personal income tax savings that exceed the tax incurred on the salary sacrificed to super (often referred to as super contributions tax). • Reduced tax payable on the super investment returns by moving to pension phase. Investment returns on assets in the accumulation phase are taxed up to 15 per cent, whilst investment returns on assets backing the pension are not taxed. Given the current global economic climate, some attempt to discredit the benefit of reduced tax payable on the super investment returns by moving to pension phase. It is important to realise that super investment returns include interest, rent, dividends and realised capital gains. Unrealised capital losses cannot offset these returns. Realised capital losses can only offset realised capital gains. Hence, even in a declining market a super fund may still pay tax on their taxable income and tax savings can still be generated by moving into pension phase. In some cases, the tax savings on the super investment returns by moving to pension phase may be greater than the personal income tax savings. This is particularly true where the TTR pension trends towards higher investment returns, higher super balances and taxable pension payments.

The reduction of the concessional contributions cap to $25,000 The reduction in the concessional contributions cap from $50,000 to $25,000 on 1 July 2012 (for those at least age 50 by the end of the financial year) will significantly reduce the amount that can be salary sacrificed into super without breaching the concessional contributions cap. Someone with a super based salary of $100,000 will

receive super guarantee of $9,000. With a reduced cap of $25,000, they could salary sacrifice up to $16,000 without breaching the cap, compared to $41,000 if the cap was $50,000 (this represents a 61 per cent reduction). Similarly, for someone receiving maximum super guarantee of $16,470 in the 2012/13 financial year, they could salary sacrifice up to $8,530 without breaching the cap, compared to $33,530 (representing 75 per cent reduction). These calculations assume that salary sacrifice will not change the level of employer super support. Let’s take out our crystal ball to see whether the marriage of the TTR pension with salary sacrifice to super will survive the reduction in the concessional contributions cap from 1 July 2012.

Comparing benefits from the TTR strategy for 2011/12 and 2012/13 To accurately compare the benefits of the TTR strategy for the 2011/12 financial year with the 2012/13 financial year we have to compare the benefits of the TTR strategy across different income levels and super balances, and vary the taxation of the TTR pension. The following tables are based on accumulation super returns of 6 per cent and super pension returns of 6.67 per cent (assumes an average tax rate in accumulation of 10 per cent). Refer to Figures 1-6. Additional assumptions: • Includes the low income tax offset, mature age worker tax offset and 15 per cent pension tax offset only; • The Medicare levy surcharge does not apply; • Flood levy applies for the 2011/12 financial year; • Employer super support is 9 per cent of pre-salary sacrifice wage/salary (subject to the maximum quarterly contributions base) and no influence is exerted by the employee. Using these tables, it is evident that a benefit can still be gained by applying the TTR strategy in the 2012/13 financial year. In fact, for those under age 60 with a taxable TTR pension, the benefits are mostly similar across the 2011/12 and 2012/13 financial years. For those at least age 60 or who have commenced their TTR pension with tax-free components only, the variation in benefits is far greater. This is highlighted by the following graphs illustrating when the variation is less than / more than $1,000. Refer to Figures 7 and 8. In addition to the fact that the TTR strategy may still generate benefits in the 2012/13 financial year, the above tables and the process of constructing the above tables allowed several other observations to be made.

CPD Quiz This activity has been pre-accredited by the Financial Planning Association for 0.25 CPD credit, which may be used by financial planners as supporting evidence of ongoing professional development. Readers are invited to submit their answers online: www.moneymanagement.com.au

1. What is the concessional contributions cap for the 2012/13 financial year? a) $25,000 for taxpayers less than 50 at the end of the 2012/13 financial year, otherwise $50,000. b) $25,000 c) $25,000 for taxpayers less than 50 at the end of the 2012/13 financial year, otherwise $50,000 if total super benefits is less than $500,000. d) $50,000 2. What best describes the TTR strategy? a) Salary sacrificing excess cashflow to superannuation. b) Commencing a TTR pension to increase cashflow. c) Combining a TTR pension with salary sacrifice to super with the objective of increasing super savings and maintaining the same level of cashflow. d) Commencing a TTR pension to avoid tax on super investment returns. 3. The benefits of a TTR strategy may include: i) Increased super savings whilst maintaining the same level of cashflow ii) Reduced tax payable on super investment returns iii) Allow access to super regardless of age iv) Personal income tax savings Which of the above statements are correct? a) i,ii and iv only b) ii only c) iv only d) All of the above 4. Which of the following is not a general trend regarding the TTR strategy? a) For those at least age 60 or commenced a TTR pension with a 100% tax free component, the benefits of the TTR strategy in the 2012/13 financial year is often reduced by more than $1,000 when compared to the 2011/12 financial year. b) For those over age 60 with higher income and higher super balances, the benefit across the 2011/12 and 2012/13 financial year are similar. c) Benefits of the TTR strategy are usually higher for those at least age 60 or commence the TTR pension with a tax free component. d) For those under age 60 with a taxable TTR pension the benefits of the TTR strategy is mostly similar across the 2011/12 and 2012/13 financial year. 5. Which of the following is true regarding the minimum percentage payments from TTR pensions? a) The minimum for 2011/12 and 2012/13 is 4% b) The minimum for 2011/12 and 2012/13 is 3% c) The minimum for 2011/12 is 3% and the minimum for 2012/13 is 4% d) The minimum for 2011/12 is 4% and the minimum for 2012/13 is 3%

Observations 1. For members trending towards taxable pension payments, lower personal taxable income and lower super balances, the benefit of the transition to retirement strategy in the 2012/13 financial year is similar to the benefits in the 2011/12 financial year. For those trending towards higher income and higher super balances, the benefits in the 2012/13 financial year may be signifiContinued on page 26

For more information about the CPD Quiz, please contact Milana Pokrajac on (02) 9422 2080 or email milana.pokrajac@reedbusiness.com.au.

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www.moneymanagement.com.au July 5, 2012 Money Management — 25

Toolbox Continued from page 25 cantly lower, especially where the member is at least age 60 or their super balance trends towards a tax-free component.

Example Based on personal taxable income of $200,000 and a super balance of $500,000, using the above tables the benefit of the TTR strategy in the 2012/13 financial year is $6,035. This is approximately 44 per cent of the $13,781 strategy benefit generated in the 2011/12 financial year. These trends can be illustrated in Figure 9. 2. For higher income earners, more of their

concessional contributions cap is used by their compulsory super guarantee. Combined with the lower concessional contributions cap of $25,000 for the 2012/13 financial year, this significantly reduces the amount that can be salary sacrificed to super and the benefit of the TTR strategy.

Example Given a salary of $150,000, super guarantee would be $13,500. Under a TTR strategy in the 2011/12 financial year, this super guarantee uses 27 per cent of the concessional cap and allows an additional $36,500 to be salary sacrificed without breaching the concessional contributions

Figure 7 Between preservation age and 60, 100% taxable component

$500,000 $150,000 $100,000 $60,000 $40,000 $250,000

$100,000

$500,000

SUPER FUND BALANCE Difference less than $1,000 Source: OnePath

Figure 8

cap. Under a TTR strategy in the 2012/13 financial year, this super guarantee uses 54 per cent of the concessional contributions cap and allows an additional $11,500 to be salary sacrificed without breaching the concessional contributions cap. These calculations assume that salary sacrificed will not change the level of employer super support.

At least age 60 but less than 65 or commenced with 100% tax free component

$500,000

3. The minimum pension payment required to be drawn from a TTR pension for the 2011/12 and 2012/13 financial years is 3 per cent. With a reduction in the amount that can be effectively salary sacrificed in the 2012/13 financial year, those with higher TTR pension balances may be required to draw a minimum pension payment exceeding that required by the member to replace the salary sacrificed income. Where the TTR pension payments are taxable, this creates extra taxable income, extra tax payable and diminishes the value of the TTR strategy. In addition, any excess cashflow will have to be managed. This problem will be exacerbated from 1 July 2013 when the minimum pension payment from a TTR pension returns to 4 per cent.

Example Michelle is 57, her super based salary is $150,000 pa and her super balance is $500,000 (100 per cent taxable). Michelle commences a TTR strategy. She receives super guarantee of $13,500, allowing her to salary sacrifice $11,500 without breaching the $25,000 concessional contributions cap. The minimum pension payment she must draw from her TTR pension is $15,000 (3 per cent of $500,000) – $5,755 more than required to replace her lost income. After paying personal income tax, Michelle has excess cashflow of $4,403.

Employer super support is not reduced by salary sacrifice, is capped at the maximum quarterly base for super guarantee, and considers employer super support for the full financial year.

Summary The marriage of the TTR pension with salary sacrifice to super survived the reduction in the concessional contributions cap from $100,000 to $50,000 on 1 July 2009 and will survive the reduction of the concessional contributions cap from $50,000 to $25,000 on 1 July 2012. Admittedly, the benefits from the TTR strategy will significantly reduce for those trending towards higher incomes, higher super balances and tax-free TTR pensions. Based on the tables above, those similar to this category will still generate benefits around $4,000 to $7,000 (subject to the assumptions used). For many others, the benefit of the TTR strategy will remain relatively unchanged.

Interesting fact Prior to the concessional contributions caps being introduced in 1 July 2007, we had age-based maximum deductible contributions limits. If we indexed the age-based maximum deductible contributions limits to the 2012/13 financial year, they would be:

Figure 11: Age

Maximum deductible contribution limit

Less than 35

$19,828

35 to 49

$55,074

At least 50

$136,581

Source: OnePath

$150,000

Review existing TTR strategies $100,000 $60,000 $40,000 $100,000

$250,000

$500,000

SUPER FUND BALANCE Difference greater than $1,000 Source: OnePath

Figure 9 General trends relating to the TTR strategy

Given the considerable reduction in the concessional contributions cap from 1 July 2012, it is important that existing TTR strategies (those in place at 30 June 2012) are reviewed as early as possible in the 2012/13 financial year. Assuming regular contributions made across the financial year to fully utilise the concessional contributions cap, it could take as little as three months before a breach of the concessional contributions cap will eventuate (refer to Figure 10). Where the level of salary sacrificed into super is reduced, a comparable reduction in the TTR pension payments is also required (subject to the minimum pension payment).

Figure 10: Income

How many months until the concessional cap is exceeded

$40,000

5.5

$60,000

5.3

$100,000

5.9

$150,000

3.8

$200,000

3.1

Source: OnePath

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

Assumptions: Utilises the full concessional contributions cap and regular monthly salary sacrifice contributions.

Don’t underestimate the benefits that can be gained by moving super benefits to pension phase. Investment returns on assets in the accumulation phase are taxed up to 15 per cent, while investment returns on assets backing the pension are not taxed. Even if a super fund experiences negative investment returns, it may still be liable to pay tax on taxable income. It is important to review any existing TTR strategies at 1 July 2012 as soon as possible. Given the sizeable reduction in the concessional contributions cap, an inadvertent breach of this cap could arise quicker than you think. The financial adviser is the marriage counsellor of the TTR strategy. A financial adviser may improve the benefits of the TTR strategy by exploring ways to increase the tax-effectiveness of the TTR pension for those under age 60. They can also help protect non-preserved benefits that are accessible as lump sums. Regardless of how the reduced concessional contributions cap at 1 July 2012 impacts the TTR strategy, one thing is certain – there is still a need for comprehensive financial planning advice including estate planning, risk and retirement planning. Scott Quinn is the technical services manager at OnePath.

Appointments

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

Colonial First State Investments and Challenger Financial Services.

Chris Cuffe Fitzpatricks Private Wealth has appointed John McMurdo as group managing director and Chris Cuffe as non-executive director. With more than 25 years’ experience in wealth management and banking, McMurdo was previously chief executive of Centric Wealth and managing director of Hillross Financial Services. He is also a board member o f t h e Fi n a n c i a l Pl a n n i n g Association’s professionalism and policy committee. Cuffe is the current chairman of Un i Su p e r , and has helped to build wealth management businesses at

M LC h a s a n n o u n c e d t h e departure of portfolio manager Stuart Keighran. Taking responsibility for MLC’s Australian and global property securities funds will be head of equities Jonathan Armitage and Australian equities portfolio manager Peter Summer. Su m m e r w i l l a s s u m e management duties for the Au s t ra l i a n l i s t e d p r o p e r t y strategy, while Armitage will cover MLC’s global listed property strategy.

Fi r s t f o l i o h a s a p p o i n t e d former Commonwealth Bank ( C B A ) e x e c u t i v e g e n e ra l manager David Hancock as its new chief executive. Involved with the Firstfolio board on a consultancy basis, he will help grow the business by leveraging its assets. Before his tenure with CBA, Hancock worked at Shinsei Bank Tokyo, JP Morgan and Citigroup/Salomon Smith Barney.

He re p l a c e s a c t i n g c h i e f executive Mark Flack, who also stepped down from the executive director position.

To support the expansion of its private market capabilities over the past 18 months, Mercer’s investments business has appointed Ray King as a partner.

Move of the week The Financial Services Council (FSC) has appointed a new deputy chairman and a director. AMP Financial Services managing director Craig Meller will take on the deputy chairman position, while Commonwealth Bank group executive of wealth management Annabel Spring will fill the vacant position created by the resignation of former Colonial First State chief executive Brian Bissaker as director. FSC chairman Peter Maher said Meller had been instrumental in the development of industry policy and leadership in his preceding five years on the board.

alternatives boutique, while McNally and Azzi will be based in Mercer’s Sydney office. All three will work closely with Mercer Investment Consulting partner Mike Forestner.

Ray King Joining King will be his two associates – Scott McNally and Sarah Azzi – from Sovereign Investment Research, who will serve as principals within the investments team. King will continue to be based in Melbourne, reporting to the global leader of Mercer’s

Bi b by Fi n a n c i a l S e r v i c e s Au s t r a l i a h a s a p p o i n t e d Raffaele Giuliano as business development manager in Victoria. He will serve the growing demand for debtor finance, and

Opportunities FINANCIAL CONTROLLER Location: Adelaide Company: Terrington Consulting Description: An opportunity has become available to manage the overall management accounting function of a business. Your key responsibilities will include providing financial business advice and support to staff and management; prepare divisional profit and loss performance reports; assist in formulating budgetary and account policies; and establishing and monitoring the implementation and maintenance of accounting control procedures. It is essential that you be CPA/CA qualified and skilled in the use of spreadsheet software. For more information and to apply, visit www.moneymanagement.com.au/jobs, or contact Victor at Terrington Consulting – 0499 771 827, www.terringtonconsulting.com.au

JUNIOR PARAPLANNER Location: Adelaide Company: Terrington Consulting Description: A financial planning firm is seeking a junior paraplanner. In this role, you will assist in preparing/amending documentation for

Craig Meller

help expand Bibby’s presence in metropolitan and rural Victoria. Most recently serving as a business transaction specialist with Ocet Finance, Giuliano previously worked at Westpac’s senior management team for over 15 years. Along with his role as regional marketing manager at the Export Credit Agency, he has developed a deep understanding of both commercial and institutional banking businesses.

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

statements of advice, build and maintain client relationships and maintain compliance procedures. Experience in a financial planning is essential, and ideally, the successful candidate will have spent at least 2 years in a client services role in which you have begun to undertake some junior paraplanning duties. You will also have a basic understanding of the elements required to develop a basic financial plan around risk and/or transition to retirement. To find out more and to apply, visit www.moneymanagement.com.au/jobs, or contact Myra at Terrington Consulting – 0499 771 629, www.terringtonconsulting.com.au

MORTGAGE BROKER Location: Adelaide Company: Terrington Consulting Description: A leading finance broking firm is seeking a mortgage broker or banking professional with mortgage financing experience. In this role, you will conduct interviews with prospective customers, manage bank relationships, and liaise with internal stakeholders – specifically, financial planners. A holistic suite of banking products and

services will be available to the successful candidate to ensure a competitive product offering. It is essential that the candidate have extensive experience in mortgage broking or residential/business lending within the banking industry. For more information and to apply, visit www.moneymanagement.com.au/jobs, or contact George at Terrington Consulting – 0499 118 147, www.terringtonconsulting.com.au

RELATIONSHIP MANAGER Location: Western Australia Company: Terrington Consulting Description: An Australian owned bank with plans to expand its business across regional Australia is seeking a senior relationship manager to join its Geraldton team. The role is well suited to an agribusiness or commercial banker who is capable of building a network of referrals. In addition, you may be required to manage an assistant and encourage the drive and flow of business propositions from existing retail networks. On a day-to-day basis, the relationship manager will be responsible for providing tailored solutions to existing and prospective agribusiness customers. For more information and to apply, visit

www.moneymanagement.com.au/jobs, or contact Emily at Terrington Consulting – 0499 771 742, www.terringtonconsulting.com.au

COMPLIANCE AND TECHNICAL MANAGER Location: Sydney Company: Patron Financial Advice Description: A financial services firm is seeking a compliance and technical specialist to join its Sydney team. Joining two other senior recruits, the successful candidate will work closely with the general manager to manage the AFSL, advice compliance and risk mitigation. You will also be required to review various investment offerings, manage the APL and model portfolio, and coordinate the investment review committee. It is essential that the candidate has a successful track record with a life company, fund manager or AFSL in either a compliance manager, adviser, risk or audit office capacity. Advanced DFS is also an essential requirement. Knowledge of financial planning software, research houses and a broad knowledge of fund and investment products will be a distinct advantage. To find out more and to apply, visit www.moneymanagement.com.au/jobs

www.moneymanagement.com.au July 5, 2012 Money Management — 27

Outsider

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

Pinching your princess’ pumps? You cad, Shak! HAVING been wed to a woman who owns well over 100 pairs of shoes, Outsider is well aware of this strange love affair women seem to have with their footwear, though he will not pretend to understand it. After all, he only needs three pairs of shoes: golf shoes, dancing shoes and drinking shoes. He will, however, look at Mrs O’s shoe closet in a different light after reading about a certain US hedge fund manager and his custody battle over his ex-wife’s astounding

$1 million footwear collection. In fact, Beth Shak – a New York-based professional poker player and former wife of hedge fund manager Daniel Shak – owns 1200 pairs of shoes, including 700 pairs of pricey and allegedly fabulous Christian Loubutins. Mr Shak is now suing former Mrs Shak for 35 per cent of her collection, which he claims she hid from him during their reportedly bitter divorce. Now, having seen Mrs O’s rather modest closet (compared

to that of ex-Mrs Shak), Outsider cannot help but wonder – where does one hide 1200 pairs of shoes? Or rather, how does one fail to notice a closet the size of a bedroom crammed from floor to ceiling with shoes? Since Outsider is too old and too lazy to file for divorce, he will speak to his financial adviser about the possibility of including his wife’s shoes as a collectible asset in his selfmanaged super fund. They are his if he paid for them, are they not?

Barclays’ good name’s got Buckley’s THE reputation of British bank Barclays has taken a hit following news that it has copped £290 million in fines for manipulating the Libor and Euribor interest rates. Libor (the London Interbank Offered Rate) and its European equivalent, Euribor, are measures of the willingness of banks to lend to each other. Both rates are set daily, based on submissions from banks about their borrowing costs. It turns out that Barclays traders were leaning on their ‘submitter’ colleagues in the Barclays treasury department to submit false Libor numbers in order to boost profits. The bank’s market manipulation may well have cost mortgage holders money, considering that many mortgages rates are either directly or indirectly tied to Libor and Euribor. But for all the gnashing of teeth about the evil shenanigans of the banking industry, Outsider was drawn to the human side of the story. He was interested to read one of the interactions between a Barclays trader and a Libor submitter, as reported in the UK newspaper The Guardian: Trader to manager, complaining about a submitter: “[He is putting in] the highest Libor of anybody … He’s like, I think this is where it should be. I’m like, dude, you’re killing us.” Manager to trader: “Just tell him to keep it, to put it low.” Submitter: “[I will] see what I can do.” Outsider reckons that as far as the PR department at the bank is concerned, the Barclays Premier League season can’t start soon enough.

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Out of context

“Taxes. They send you to sleep!” Parametric managing director Scott Lawrence reveals to an educational seminar on after-tax investment performance his secret to getting enough shut-eye.

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

In dentists we trust TRUST is an important factor in any meaningful relationship, so Outsider was more than worried to hear that the local populace don’t trust financial planners all that much. Roy Morgan’s annual Image of Professions Survey ranked the planner profession 17th this year, with 74 per cent of the country believing the industry cannot be trusted. Thankfully, the profession was more highly regarded than some of our “friends” in the industry, mainly stockbrokers at 23rd and insurance brokers at 25th. Outsider was most upset however, after his last orthodontic visit, to discover dentists reached the top five, and thinks the profession needs no more accolades considering the cost of his recent orthodontic procedures. The industry should be pleased to note, however, that financial planners did rate more highly in the minds of the

“David, my head hurts when I think of all your moving parts.” ASFA’s Pauline Vamos, at an ASFA conference, gets a headache thinking about Mercer executive David Anderson’s multiple appendages.

Australian public than Outsider’s own profession, with media professionals ranked among the least trustworthy (albeit under intense scrutiny following certain scandals in the UK). W h i l e t a l k b a c k ra d i o h o s t s understandably ranked 20th, newsp a p e r j o u r n a l i s t s ra n k e d 2 4 t h . Outsider can only take comfort in the fact that both he and his devoted readership were viewed as more trustworthy than State and Federal MPs, real estate agents, advertising executives and car salesmen.

“Compliance people should get out a lot more.” Manager of retirement services at Equipsuper John Farrington thinks compliance officers should sometimes leave the Great Indoors.