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Vol.26 No.22 | June 14, 2012 | $6.95 INC GST
The publication for the personal investment professional
www.moneymanagement.com.au
RISK FOR FREE: Page 12 | BEHAVIOURAL FINANCE: Page 22
Industry wants answers on intrafund advice By Bela Moore CONFUSION appears to be the outcome of the Government’s failure to answer questions about the provision of intrafund advice in the latest tranche of Stronger Super draft exposure. Although financial planners balked at the idea super funds would be exempt from some of the Future of Financial Advice provisions and the super industry has been pushing for leniency in tackling members’ personal finance issues, both sides have demanded the Government nail down issues surrounding intrafund advice. King and Wood Mallesons partner Michelle Levy said the industry was expecting tranche three of the Stronger Super draft exposure to answer questions raised in the Cooper Review about compulsory intrafund advice. Trustees are looking for relief from the obligations around personal advice, she said. “It’s not a rule about giving intrafund advice. It’s not permission to give intrafund advice. It
doesn’t require you to give intrafund advice, and if you choose to give intrafund advice it’s not offering you any relief,” she said. “All it really does is show that where you do give advice it’s got to be charged to the members [to whom] you’re giving the advice,” Levy said. Margaret Stewart, general manager of policy at the Association of Superannuation Funds, said the draft exposure raised more questions than it answered. “The way that the exposure is drafted it could read as though that (product advice) was ongoing advice, which then pulls it out of the intrafund space and you have a whole set of obligations around ongoing advice,” she said. Stewart said intrafund advice should extend to transitioning from an accumulation to a retirement product under the same trustee and was an area that also needed clarity. Corporate Superannuation Specialist Alliance president Douglas Latto said the provisions left a “massive, open-ended
Move to direct equities is on By Tim Stewart
DISILLUSIONMENT with the funds management industry and a hunger for transparency among clients is fuelling a move towards direct equities. Gold Seal director Claire WivellPlater said she is helping planners vary their licences in order to “expand the level of discretionary management they’re doing”. “We’re seeing a trend towards advisers being more intimately involved with asset selection and using direct equities rather than managed investments,” she said. According to MultiPort technical services director Phil La Greca, the shift away from managed funds is inevitable given the ongoing volatility of markets. “People want to know: ‘Why is my fund doing so badly? Is it because I’m being charged a fortune, or is it because I’ve picked bad assets?’” he said. The costs involved with managed investments are a big deterrent for self-managed superannuation fund (SMSF) trustees who already have a layer of costs associated with the upkeep of their
fund, according to SMSF Professionals’ Association technical director Peter Burgess. “For some trustees it defeats the purpose of having an SMSF if you’re just going to invest in a managed fund,” he said. Instreet managing director George Lucas said his firm is looking to acquire private stock broker firms in order to partner with advisers in the direct equities space. Instreet already sits on the investment committees of several dealer groups, and is in the process of finalising its direct equities offering for planners. Lucas put the growing interest in direct equities down to technology changes, the growing popularity of SMSFs and an increasing desire for transparency. When it came to technology, planners can now buy advanced software off the shelf, rather than having to use something like the BT platform, Lucas said. La Greca said advisers who want to go direct tend to have three avenues in front of them. Firstly, they can acquire an Continued on page 3
Michelle Levy question” about how to charge for all the services it provides. “They’re not part of intrafund advice, but those services still have to be delivered and the big question is how can we be paid to deliver those services if it’s not part of intrafund advice?” he said.
Latto said funds will find a fair and reasonable way of legally rewarding advisers for those services, while Stewart said some industry players would struggle with how to charge for things like general and practical advice. The ambiguity of charging for intrafund advice has left a lack of consistency, with particular confusion around whether to charge a dollar or percentage amount, Latto said. “I can assure you all the fund providers would be speaking to their legal people trying to get their interpretation of what’s there, but I’m already seeing different interpretations from different firms,” he said. He said it was unfair to charge a fee to the membership base, which would be inequitable if charged at a percentage. Stewart was confident the next tranche would bring clarity, but Levy said it was unlikely to be helpful. “I think they’re [trustees] probably not going to get anything. You might get some statements from ASIC in its regulatory guide about what trustees can do,” she said.
DIRECT PROPERTY
Cleaning up the act THE two biggest problems for direct property during the global financial crisis were gearing and illiquidity. At the same time, issues related to manager capability and asset quality have not helped the sector either. But industry experts claim direct property has cleaned up its act, with gearing leverage being in the 35-50 per cent range, with much higher quality assets and distribution focused on real income. There has also been an increased focus on getting retail investors to understand and accept the liquidity limitations of the asset class, with fund managers doing the same. Another thing working for the sector at present is the lack of volatility compared with equities or even listed property. However, the sector is only seeing “early adopters” – such as larger dealerships, boutique advice groups and sophisticated direct investors – getting on board. While Australian direct property appeals to foreigners, the industry is yet to see a notable increase in interest from domestic investors. But despite the slow uptake, most players in the sector are optimistic the solid fundamentals would bring this asset class to prominence. For more on direct property, turn to page 14.