Money Management (June 28, 2012) by Cirrus Media

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SHARES NOT BONDS: Page 18 | TRANSITION TO RETIREMENT: Page 25

Lonsec wins favour with fundies By Milana Pokrajac LONSEC has yet again come out on top in Money Management’s 2012 Rate the Raters survey, but other researchers have been closing in on the firm over the past 12 months. The first part of the Rate the Raters survey (full results on page 14) looks at sentiment coming from fund managers towards the six – soon to be five – major research firms who rate their products. Despite holding a significantly smaller share of the market, Zenith Investment Partners received stellar ratings from fund managers, particularly in areas such as research methodology, transparency and feedback. Other research houses – such as Morningstar and van Eyk Research – have slightly improved since last year, but have also received

polarised results, which they mostly attribute to their subscription-based remuneration model and accountability to dealer-group clients, rather than fund managers they rate. In fact, the remuneration model war in the research sector is still raging, with some claiming Australia is one of the few markets where the ‘pay-for-ratings’ model was still viewed as acceptable. Co-head of research for Morningstar Tim Murphy said this was also the reason why Australia remains one of the most researched markets in the world. “Because for whatever reason the Australian market still views paid-for research as being acceptable, there will be more firms that will put their hand up to do [research],” he said. However, in a recent interview with Money Management, Zenith’s

Amanda Gillespie John Nicoll said if the pay-forratings model is removed by the regulator, the quality of fund reviews could fall dramatically. He claimed that research that would be available in the market would be simpler and quantitatively skewed.

The Australian Securities and Investments Commission has been reviewing the potential conflicts of interest apparent in some of the financial arrangements between fund managers and research houses, but is yet to make its decision public. Focus on research transparency and methodology in this year’s survey also comes amid changes implemented by almost all major firms in funds research, which could change the results in the coming years. van Eyk has revamped its strategy in a bid to combat market challenges, which will see the company focus on the alternatives sector, potentially dropping up to 60 names off its current ratings list. Morningstar changed its analyst ratings scale model in January this year, which resulted in some funds, which were previously

‘recommended’, receiving silver or bronze labels. Lonsec’s Amanda Gillespie said the researcher is increasing its focus on more strategic guidance and communication with subscribers. “This is in terms of how to use products, giving them more basis for the discussions they have with their clients, and I guess it kind of comes back to that shift to a more strategy-focused advice model,” Gillespie said. Furthermore, Standard & Poor’s recently announced it would no longer be conducting funds research and local wealth management services in Australia as of 1 October this year. However, the impact of these changes is likely to be seen in the second part of the Rate the Raters survey (which gauges dealer group sentiment), to be published later this year.

Planners positioned to engage life insurance customers When a dog gets INFOCUS

By Bela Moore

DESPITE the rise of direct channels, financial planners are better poised to engage customers about life insurance, according to industry executives. Rice Warner’s direct life insurance report for 2011 said direct life insurance sales were up 11.3 per cent in the 2011 calendar year, with the take-up of products spiking 86 per cent in the four years to December 2011. But while direct life insurance has filled a gap for cash and time-poor consumers seeking death cover, the country is still under-insured, with engagement one of the major problems. Suncorp executive manager for Direct

Life Jane Power said the industry needed to convert products into tangible assets that have relevance to customers’ lives. She said the industry could learn from the increased popularity of funeral cover, which customers see as tangible and relevant to their future. Rice Warner said the market was saturated and growing, with inforce premiums for funeral cover reaching 15.4 per cent in 2011. “I think if we can make it tangible … as an industry we are going to grow and every channel will benefit, be it the financial planner, the direct operators, we all Continued on page 3

a bad name ON the same day the Future of Financial Advice (FOFA) bills completed their passage through both houses of Parliament, the Minister for Financial Services and Superannuation, Bill Shorten, cited the collapse of Opes Prime as being one of the reasons the legislation was necessary. However, the collapse of Opes Prime represented a stockbroking-related failure with little or nothing to do with financial planners. Similarly, the references in the debate around FOFA to the collapse of Storm Financial and Trio Capital overlook the fact that, operationally, Storm ticked all the regulatory boxes and

Trio failed as a result of criminal fraud. In this week’s In Focus, Money Management argues that financial planners have suffered significant reputational damage and are too often being blamed for product failures and other events beyond their control. See In Focus on page 12

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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End game – a post-election FOFA?

ith the Future of Financial Advice (FOFA) bills now having passed both the House of Representatives and the Senate, all eyes in the industry will now be turned to the Australian Securities and Investments Commission (ASIC) and the consequent shape of the regulations it proposes to deliver. Notwithstanding some strong words from the Opposition during the debate, there was never any doubt about the FOFA bills passing the Senate. The support of the Greens meant it was a fait accompli and the legislation was ultimately guillotined through the upper house. But as much as everyone will now be focused on ASIC and the shape of the FOFA regulations, Australia's continuing political circumstances dictate that they will also need to closely track the policy of the Coalition Liberal and National Parties. They will need to weigh their next steps against the reality that most of FOFA will not become a legislated reality until 1 July 2013, and that within three to six months of that date there will be a Federal Election. If there is no significant change in the polls, the Coalition will take the Treasury benches before the end of next year and, if it remains true to its word, it will amend or

Coalition will take “theTheTreasury benches before the end of next year and, if it remains true to its word, it will amend or rescind a number of key elements of the FOFA legislation.

”

rescind a number of key elements of the FOFA legislation, including the two-year opt-in. In fact, the Opposition spokesman on Financial Services, Senator Mathias Cormann, went to unusual lengths to declare, precisely, what the Coalition would do with respect to the FOFA legislation once it gained Government, In the immediate aftermath of the bills passing the House of Representatives, Cormann declared: "The Coalition in government will fix FOFA by implementing all of the 16 recommendations we made as part of the Parliamentary Joint Committee inquiry into this

People

legislation. These changes will include: • the complete removal of opt-in; • the simplification and streamlining of the additional annual fee disclosure requirements; • improving the best interest duty; • providing certainty around the provision and availability of scaled advice; • refining the ban of commissions on risk insurance inside superannuation.” Cormann also earlier this month declared that he remained unconvinced on the issue of refining the terms ‘financial planner’ and ‘financial adviser’ in law. So the question for financial planners and others working in the financial services industry is not so much how the FOFA Acts and the consequent regulation will look between now and the end of the current financial year, but how they will look after a change of Government occurs. Stripped of elements such as “opt-in”, it is arguable that the FOFA bills will more closely accord with the objectives outlined in the bipartisan report of the Parliamentary Joint Committee which followed the collapse of Storm Financial. If it gets the opportunity to do so, the Coalition should ensure this is the case.

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News FOFA passes, but confusion over enshrining ‘financial planner’ THE Government’s Future of Financial Advice (FOFA) legislation passed through the Senate last week, but there seems to be some confusion over whether the terms ‘financial planner’ and ‘financial adviser’ are still going to be enshrined in law. A key part of the agreement tabled by the Financial Planning Association (FPA) and the Industry Super Network in getting the FOFA legislation passed included a proposal that the Government agree to present and table legislation in Parliament by 1 July 2013 that would enshrine the term ‘financial planner’ in law. A statement from Minister for Financial Services and Superannuation Bill Shorten announcing the

passage of reforms said the Government is “consulting on whether the term financial planner or adviser should be defined in the Corporations Act”. “In light of the passage of FOFA, I am seriously considering accelerating the timetable for the resolution of this matter. I will have more to say about this matter shortly,” Shorten said. If the new legislation is not passed before the next election and Labor is not returned, it seems unlikely the terms would still be enshrined in law, with Opposition financial services spokesman Mathias Cormann recently telling Money Management he was not convinced the extra legislation is warranted. In a statement, FPA chief executive Mark Rantall said he

Planners positioned to engage life insurance customers Continued from page 1

benefit from that by making that experience for customers so much simpler,” Power said. Macquarie reported in May that working parents with stand-alone policies decreased from 28 per cent in 2006 to 18 per cent in 2012. Gary Lembit, head of research at Macquarie Adviser Services, told the Macquarie Life roadshow that while customer s were cautious when making life decisions, they wanted to appear confident and needed a financial planner to help them along. Lembit said life insurance was often placed in the toohard basket because customers “didn’t have a clue” about life insurance and perceived the process as difficult and cumbersome. He said financial planners needed to imbue customers with confidence through conversations about their lives which brought the product into existence. Power agreed that financial planners have more opportunities to engage with customers in a face-to-face environment, but said to raise the level of insurance with scale would be harder MONEY MANAGEMENT iPad® edition

welcomed the Minister’s urgency in supporting the measure to protect the term ‘financial planner’. The legislation also moved the official start date for hard compliance with the reforms from 1 July 2012 to 1 July 2013 – less than two weeks before the reforms would have taken effect. The Australian Securities and Investments Commission (ASIC)’s extended powers and anti-avoidance provisions will still come into force from 1 July 2012. Shorten said the reforms also introduced “a new duty for financial planners and advisers to put their customers’ interests first, ban the payment of sales commissions, and make it easier for a wider range of advice to be provided to consumers”. However, Cormann responded

Bill Shorten angrily to Labor’s refusal to further debate proposed amendments to the legislation. “Labor has arrogantly shut down debate in the Senate and rammed through its flawed Future of Financial Advice legislation without allowing any debate at all on 63 separate amendments,” he said.

“The Government even gagged debate on its own confusing and convoluted amendments that would introduce a complex floating start date for FOFA, with a soft start date on 1 July 2012 and a hard start date one year later,” Cormann said. Cormann said the further ASIC guidance that is required to provide certainty for consumers and financial advisers is unlikely to be published until the end of 2012, and ASIC will not release the code of conduct for financial advisers until some time in 2013. Cormann said the Coalition in government will “fix” FOFA by implementing all of the 16 recommendations it made as part of the Parliamentary Joint Committee inquiry into the legislation, including the complete removal of opt-in.

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Property Jane Power to achieve through the adviser channel. She said the industry needed to work to make products simpler to engage customers in a subject they shied away from. The great thing about life insurance through superannuation, Power said, was that it was simple, and added that some cover was better than no cover. “That’s what appeals to the customer, but there’s still a real disconnect between what customers think they have and what they really have,” she said. She said while direct life insurance is yet to shake up Australia’s under-insurance problem, she hoped that by increasing channels for customers, the industry would slowly begin to see changes, but engagement was key.

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News

Don’t tax via super funds says ASFA By Mike Taylor

SUPERANNUATION funds should not be made to administer the changed superannuation tax regime around higher income earners, according to the Association of Superannuation Funds of Australia (ASFA). Instead, ASFA has told the Government that the measure should be implemented by way of a personal tax on the individual, utilising the resources

of the Australian Taxation Office (ATO). As well, the ASFA submission makes it clear that the organisation does not generally support the Government’s decision to reduce the level of tax concession to very high income earners. It said it did not endorse the proposal and had reservations about the net increase to government revenues that would flow from implementing the measure. However, it said that if the measure

was to be implemented it should be “by way of a personal tax on the individual and not by way of a tax on the superannuation fund that received, or is holder, of the contributions”. The ASFA submission suggested that the ATO should model administration of the tax on the existing processes for levying and collecting excess contributions tax, and that defined benefit funds should be given the capacity to offer a tax offset account to members

so that payment might be deferred until the member’s benefit crystallises. In arguing against making superannuation funds integral to administration of the tax, the ASFA submission said that assessment against a fund could work smoothly and efficiently where a tax was applied uniformly across all members, but assessment against the individual was a better form u l a w h e r e d i f fe r e n t i a l t a x r a te s applied.

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4 — Money Management June 28, 2012 www.moneymanagement.com.au

Danger in cutting payfor-ratings By Andrew Tsanadis WITH submissions still being considered by the Australian Securities and Investments Commission (ASIC), it is essential that the financial services industry understands the potential ramifications of removing the current pay-forratings model of research houses, according to Zenith Investment Partners. Submissions to ASIC’s Consultation Paper 171 – ‘Strengthening the regulation of research report providers (including research houses)’ – closed in February, but research providers are yet to be provided with any indication of how the regulatory guide will look. According to John Nicoll, Zenith’s national sales manager, key to the proposed guide will be ASIC’s decision on the pay-for-ratings model, which could potentially be a “game changer” for the research houses. He said if the regulator were to eliminate this model, the quality of fund reviews could fall dramatically. “Potentially, the research that will be available to the market will be very simple, one-page, quantitative driven research that’s not going to add much value to financial advisers’ businesses,” he said. Nicoll said a drop in the standards of the research process could also see more risky managed funds passing the review process and coming to market than is currently the case. If ASIC makes the decision to completely cut the pay-forratings model, it needs to take into account every form of subsidy that a fund manager provides a research provider, including sponsorship and payment for data, he said.

News

Govt recommits to Johnson Report By Mike Taylor THE Federal Government has recommitted to delivering on the Financial Markets Report regime evolving out of the so-called Johnson Report – the first time it has been flagged as a policy priority since January last year. The Government’s agenda was first flagged by the Minister for Financial Services, Bill Shorten, in January last year.

Addressing a Financial Services Council function at Parliament House in Canberra last week, Shorten committed to the change arrangement at the same time as acknowledging the importance of the financial services industry to the broader economy. He said that one of the reasons the Australian economy was prospering was that the financial services industry had been delivering in terms of employment generation and that it had sought to

hold on to jobs in tough times. “Financial services has been one of the quiet achievers ever since the global financial crisis,” he said. The Opposition spokesman on financial services, Senator Mathias Cormann, welcomed Shorten’s recommitment to the changes and said that the Coalition would be similarly pursuing the objective when it gained Government. He pointed out that the Govern-

ment had given its initial commitment in January last year, and it was beyond the time that the policy objective was ultimately delivered. Cormann said the Coalition saw the initiative as vital to ensuring Australia became a regional financial service hub. “We have said for some time that we support Australia becoming a genuine financial services hub for the AsiaPacific region,” he said. Bill Shorten

Software satisfaction on a new high By Milana Pokrajac

OVERALL satisfaction with financial planning software has reached a fouryear high, with AdviserNETgain receiving the highest rating, according to a survey. The Investment Trends 2012 Planner Technology Report found the increase in satisfaction was mostly attributed to the development work undertaken around many features over the past 12-18 months. AdviserNETgain achieved particularly strong ratings for user interface, integration with platforms and production of client review reports. “As an industry, planning software providers increased satisfaction fastest, with integration with platforms, the production of comprehensive financial plans and ease of use … playing major roles,” said Investment Trends senior analyst Recep Peker. Macquarie-owned COIN saw the fastest increase in overall satisfaction from 2011, with notable gains to ratings within the production of comprehensive financial plans, ease of use and integration with platforms. Meanwhile, XPLAN remains the leader in terms of market share, with 37 per cent of planners using it as a main provider – up from 34 per cent in 2011. COIN holds approximately 23 per cent of market share, followed by Midwinter (7 per cent), AdviserCentral (6 per cent) and AdviserNETgain (4 per cent).

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News

Satisfaction with financial advisers improves By Chris Kennedy CLIENT perceptions of the reliability and technical skills of their advisers have improved significantly in the past six months despite share market performance, according to the Lifeplan/International Centre for Financial Services (ICFS) Financial Advice Satisfaction Index. Adelaide University’s ICFS undertakes the study every six months, sponsored by Australian Unity subsidiary Lifeplan Funds Management, and collected data from just

over 400 investors on their attitudes towards their advisers. The most recent study, conducted in April and May this year, showed improvement in all three major drivers: perception of trust and reliability (up from 7.44 to 7.76), perception of technical ability (up from 6.99 to 7.41), and perception of investment performance (up from 5.61 to 6.02). The resulting index score of 71.30, up from 67.46 in the previous survey, is at its highest point since October 2008, according to Lifeplan.

While share market performance always correlates with perceptions of investment performance, the same does not hold for the other drivers, according to the head of Lifeplan, Matt Walsh. “The dramatic increase in perceptions of trust and reliability and technical ability, at a time when the ASX 200 was doing very little, suggests that advisers have made good progress in helping clients understand the true benefit that they can provide,” he said. Client perceptions are influenced by other skills such as tax advice, estate planning or

structuring of finances rather than just investment performance, he said. The study also found higher satisfaction levels where the client had been with the adviser for more than five years. “It’s understandable that [newer clients], who have only had an adviser during the worst of the global financial crisis, are disillusioned by financial markets and investments, but it’s important advisers don’t give up on educating them on the full range of financial planning options available to them,” Walsh said.

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2020 DIRECTINVEST founder Michael Lannon has retired from the business just three months after its merger with Mason Stevens. Lannon founded 2020 DIRECTINVEST in 1997, aiming to give individual investors improved investment knowledge and a way to invest with lower fees, the company stated. In March, Mason Stevens merged with 2020 Funds Management and 2020 DIRECTINVEST, with the combined entity branded as Mason Stevens Group. Patrick Handley from 2020 Funds Management was appointed group executive chairman and Thomas Bignill from Mason Stevens was appointed chief executive of the merged entity. The product capabilities combined under the banner of One Capital Asset Management, headed by 2020 Funds Management’s Vincent Hua in his new role as Mason Stevens Group chief investment officer. “2020 DIRECTINVEST remains dedicated to providing our clients with unique investment offerings that are not directly available to individuals. Our recent merger with Mason Stevens has enhanced this offering by opening up access to an exciting range of new opportunities,” Handley said. Shafei Ou-Yang will now step into the role of head of 2020 DIRECTINVEST.

News

Financial services sector set for strong growth By Tim Stewart DEXX&R projects the total financial services market will grow by 8 per cent per annum to reach $3,372 billion by December 2021. The 10-year rate of growth has fallen from 8.3 per cent when the last projection was made in June 2011, according to the latest DEXX&R Market Projections report. The superannuation sector is projected

to grow from its current $1,380 billion to $2,862 billion by December 2021 – a growth rate of 8.5 per cent per annum, according to the report. But some sectors of the superannuation industry are faring better than others, according to the report. While funds under management/advice (FUM/A) for self-managed superannuation funds, industry funds and employersponsored master trusts have recovered to be higher than FUM/A at June 2011, the

personal super segment is struggling. “The personal super segment has experienced a lower rate of recovery, and at December 2011 FUM/A was 21.7 per cent lower than at June 2007. “The change in relative FUM/A between these sectors indicates that the personal super segment will be a smaller part of the superannuation market in future years,” the report said. Allocated pensions are projected to make up 99 per cent of the total funds

Good advice down to ‘chance’: Bowerman FINDING a good adviser is “almost a matter of chance”, according to Vanguard head of corporate affairs and market development Robin Bowerman. “The problem we see is that finding a good adviser is almost a matter of chance rather doing it by design,” he said. As evidence, he pointed to the results of the recent Australian Securities and Investments Commission (ASIC) shadow shop, which he described as a “fantastic piece of work”. The survey looked at 64 examples of advice, and only 3 per cent of the plans reviewed were rated as “good”. “One of the case studies ticked the boxes in terms of transparency,” Bowerman said. “The adviser disclosed that the investor would be tens of thousands of dollars worse off if they implemented the advice that was being recommended. So the transparency piece was absolutely fine,” he said. The Statement of Advice explained there were fewer features in the product being recommended than the product the client was currently in, and that the fees would be higher, Bowerman said. “What was interesting was that when ASIC looked at it they found it was a poor piece of a d v i c e. Bu t w h e n t h e y we n t b a c k t o t h e investor, the investor rated it highly – and had actually implemented it,” he said. The shadow shop found that 86 per cent of

under management in the retirement market by December 2021, and the market itself will grow by 10.8 per cent per annum to reach $312 billion, according to DEXX&R. The report projects individual risk inforce premiums will grow at a rate of 12.1 per cent per annum, from $9.9 billion to $30.9 billion in December 2021. Group risk in-force premiums are projected to grow at 11.4 per cent per annum, from $2.3 billion to $7 billion.

Financial advisers show ‘maturity’ in portfolio management By Andrew Tsanadis

Robin Bowerman investors rated the advice they received as “good”, even though only 60 per cent of the plans were rated as “adequate”, Bowerman said. “The investor’s ability to judge what is good advice and what’s good value for money is really difficult, because they don’t have the technical skills to do it,” he said. “The challenge for the industry is to better differentiate and segment advisers, so that when consumers seek out a planner they can be aligned with the skill levels they want,” Bowerman said.

8 — Money Management June 28, 2012 www.moneymanagement.com.au

ACTIVE portfolio management will be the key to success in current financial markets rather than a reliance on investment products alone, according to Wealthtrac. Based on a survey of 30 of its member advisers, superannuation and investment platform providers, Wealthtrac found that almost 85 per cent had made changes to their clients’ asset allocation in the past 12 months. In addition, 80 per cent said they had sufficient access to products in order to meet their clients’ needs. Wealthtrac chief executive Ma t t h e w Jo h n s o n s a i d t h e results reflect the “maturity in the approach from advisers”. “They are not just remaining passive and hoping markets will improve,” he said. “Instead they are looking for prudent strategies to preserve capital and achieve a reasonable level of return.”

On average, 48 per cent of a c l i e n t’s p o r t f o l i o w a s n ow focussed on capital preservation, 24 per cent on income and growth strategies and 5 per cent on cash, Wealthtrac stated. Despite the focus on preserving capital, 70 per cent of re s p o n d e n t s s a i d t h e y a re prepared to accept some level of risk to generate strong returns. Less than 30 per cent said they are only willing to take on a very small amount of risk. “Advisers cannot afford to leave their clients sitting in cash or they will never make up for the market losses of the past four years,” Johnson said. According to the study, 55 per cent of advisers said their clients remained “deeply scarred and bearish” following the global financial crisis, with just 4 per cent actively seeking benchmark outperformance. In spite of this, 40 per cent of respondents said their clients understood market cycles and were now willing to look for opportunities.

Ranked No.1 by advisers for overall platform satisfaction. FirstChoice is thrilled to add another trophy to its award winning kit, having been ranked No.1 for Overall Platform Satisfaction in the 2012 Wealth Insights Service Level Survey*. FirstChoice consistently sets the benchmark for great value, which is why we’ve also won the Investment Trends Best Value for Money Award six years running**. What’s more, FirstChoice fees are among the lowest in the platform market. Plus our innovative services

include some of the fastest trade settlement and most powerful reporting capabilities of any platform in the market. Better yet, FirstChoice is designed to help manage your business and your clients through the upcoming industry reforms. So start using our award winning FirstChoice kit. Contact your Business Development Manager today for transition services. Call 13 18 36 or visit colonialfirststate.com.au/satisfaction

2012 Wealth Insights Service Level Survey

*Wealth Insights 2012 Service Level Survey - 883 advisers participated in the survey between February and March 2012. **Investment Trends Planner Technology Reports 2005–2011 – 490 IFAs (advisers employed by dealer groups with less than 50% institutional ownership) surveyed in June–July 2011. This is general information only and does not take into account any individual objectives, ﬁnancial situation or needs. Investors should consider the relevant PDS available from us before making an investment decision. Different fees and costs apply to different investment options and may change. Colonial First State Investment Limited ABN 98 002 348 352 is the issuer of the FirstChoice range of super and pension products from the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557. Colonial First State also issues interests in investment products made available under FirstChoice Investments and FirstChoice Wholesale Investments. CFS2068 FPC MM

News ASIC unveils shorter PDS guidance

THE financial services regulator has released guidance on the shorter product disclosure statement (PDS) regime which will apply to superannuation and simple managed investment scheme providers. In what the Australian Securities and Investments Commission (ASIC) deemed a positive step for investors, these product issuers will have to cut their PDSs to eight pages, amongst making a number of other changes. “Reducing lengthy PDSs of up to 100 pages for superannuation and managed investment products to eight pages is a great improvement for consumers and business,” ASIC Commissioner John Price said. Some product providers, however, are still unclear on some of the requirements of the new regime, and ASIC would take a “facilitative approach to compliance” in the first six months after the shorter PDS commenced on 22 June 2012, he said. “Provided industry participants are making a reasonable effort to comply with the shorter PDS regime, ASIC will adopt a measured approach where inadvertent breaches result from a misunderstanding of requirements or systems issues,” Price said. “However, where ASIC finds deliberate and systemic breaches, we will take stronger regulatory action,” he added. Class order relief will be provided to product issuers such as multifunds, superannuation platforms, and hedge funds.

Clients want transparency ATO research By Tim Stewart A DEMAND for transparency from clients is driving the move out of unitised trusts and into direct equities, according to IRESS business development executive Todd Yarrow. There is increasing demand from planners for IRESS’s trading, reporting and client portal services, Yarrow said. “[Advisers] like the ability to interact directly with the broker without having to bang the trades in,” he said. The trend is not resulting in a “massive revenue boost” for IRESS, because it is coming from advisers who already use the company’s software, he said. “It’s the same guys that are using our portfolio package, but instead of data-feeding and managed funds services they’re utilising the direct equities features,” Yarrow said.

Most advisers who offer direct equities to their clients do not have discretion to pick stocks, he said. “There aren’t many managed discretionary accounts. Not many people are able to get those,” he added. The biggest stumbling block for planners is to do with administration and volume, Yarrow said. Typically, it is not worthwhile for a planning business to run direct equities unless it has a large amount of funds under advice and can afford to hire someone to do the administration – but IRESS’s services can help smaller practices who want to run direct equities, Yarrow said. “[A planner who is just starting out would] probably be better off to go into managed funds from a business point of view, but it’s not always what the client wants. And these days you’ve got to give them what they want,” he said.

Segmentation not client-tailored By Bela Moore TRADITIONAL segmentation which focuses on a client’s asset size is “blunt” and not tailored to suit the client’s objectives, according to Perpetual’s general manager for private client advice Nick Langton. Segmenting high net worth clients into predictors of their service offering has aligned Perpetual’s advice service with its clients’ needs and life stages, he said. “The idea that because they’re both $2 million clients they get a similar service is a bit incongruous because they’ve got fundamentally different advice needs, and it led us to think about the real predictor of a service offering; and the kind of service and segmentation we want to apply to

10 — Money Management June 28, 2012 www.moneymanagement.com.au

our clients really is around source of wealth,” Langton said. He said Perpetual segments high net worth clients into the traditional retiree market, the professional market and the business owner market. Business owners align neatly with its acquisition of the Fordham Group – a tax advisory and wealth management business, Langton said. Professionals and business owners represent approximately 53 per cent of the market, and retirees represent a huge chunk of the high net wealth client base in Australia, according

to Langton. “It made sense that we already have a big base of those clients in our business … and we also know that our product suite, our advisory offering and our skill set doesn’t lend itself to be as attractive to another market like the executives market,” he said. Langton said drawing on internal resources allowed Perpetual to conduct high quality research and gain innovative insights from different companies and operations all over the world. He said recent research focused on profitability, staff engagement, client advocacy and staff development, and how to implement changes in those areas to Perpetual’s business model to better service advice clients.

points to super confusion By Mike Taylor THE Federal Opposition has sought to use research commissioned by the Australian Taxation Office (ATO) to claim the Government's tinkering with superannuation has undermined confidence in the super system. However the Minister for Financial Services and Superannuation, Bill Shorten, has interpreted the research results very differently and said it shows broad support for the super system, albeit many people continue to find it a difficult topic to understand. The research, released by the ATO last week, said that while there was broad support for the super system as a savings vehicle for retirement, "many people continue to find super a difficult and confusing topic". The research, undertaken by Colmar Brunton Social Research, said many people did not have sufficient financial literacy to participate in the system in an informed way. However the Opposition spokesman on Financial Services, Senator Mathias Cormann, said that after more than four years of constant chopping and changing and increasing taxes on superannuation, the ATO research had found that 43 per cent of Australians did not have any interest in super, and 69 per cent had no knowledge of the Government's latest proposed changes. "Despite having been promised before the 2007 election that Labor would not change superannuation arrangements not one jot not one tittle - Australians saving to achieve self-funded retirement have been forced to pay the price for Labor's fiscal mismanagement ever since," he said. Cormann claimed a Coalition Government would consequently work with all stakeholders to ensure a more transparent and efficient system, and committed the Coalition to a range of policy initiatives including fixing the excess contributions regime.

SMSF Weekly

SMSFs leaving advisers in the cold By Tim Stewart

Eric Blewitt

THE number of self-managed superannuation funds (SMSFs) using a RG146compliant adviser has continued to decline, sitting at 52 per cent, according to Investment Trends. Investment Trends has conducted its SMSF Report for eight consecutive years, with the number of SMSF trustees using a RG146-compliant adviser falling from a peak of 71 per cent in May 2007.

The repor t is based on an online survey of 2,132 SMSF investors between March and April this year. Investment Trends chief executive Eric Blewitt said while trustees are focusing on cost, they do have unmet advice needs â&#x20AC;&#x201C; â&#x20AC;&#x153;but they really want to see value for itâ&#x20AC;?. Of the trustees who currently use a RG146-compliant adviser, almost 40 per cent say â&#x20AC;&#x153;I make all the decisionsâ&#x20AC;?, according to the report.

Fall in SMSF fees allows real super competition: SPAA

The repor t also saw the amount invested in managed funds within SMSFs continue its decline, falling from 9 per cent last year to 6 per cent. The amount of SMSF funds invested in direct shares rose slightly from 2011 to 41 per cent, and the amount in cash and cash products edged up to 28 per cent. Thirty-eight per cent of the SMSF cash balance â&#x20AC;&#x201C; $50 billion â&#x20AC;&#x201C; is in excess cash, according to the report.

Off-market transfer legislation delayed

By Bela Moore THE Australian Taxation Officeâ&#x20AC;&#x2122;s (ATO) latest statistical report on self-managed super funds (SMSFs) proves SMSFs are competitive with other superannuation sectors in terms of fees, according to chief executive of the SMSF Professionalsâ&#x20AC;&#x2122; Association of Australia (SPAA), Andrea Slattery. The ATOâ&#x20AC;&#x2122;s SMSF statistical report for December 2011 showed falling average fees in the three years to 2010, from 0.95 per cent in 2008, to 0.67 per cent in 2009, to 0.65 per cent in 2010. The report said per member fees for SMSFs are 40 per cent less than total fund fees and 38 per cent of SMSFs had

Andrea Slattery fees less than 0.25 per cent per fund in 2010. Slattery said looking at the trends it would be reasonable to expect fees to be even lower now.

She said the ATO report proved SMSFs were in good health, despite the continued fallout from the global financial crisis. According to Slattery, the number of funds being established has increased on average over the past ten years, while SMSF membership numbers have nearly doubled over the past eight years, rising particularly among women. â&#x20AC;&#x153;Although men still dominate the number of SMSFs starting for those over 54 years of age, women starting an SMSF with an income of less than $60,000 dominate, while men are larger in numbers who have incomes that are greater than $60,000,â&#x20AC;? Slattery said.

ETFs stable despite market volatility By Damon Taylor THE number of units on issue in the Australian exchange-traded fund (ETF) industry was stable last month, primarily due to new money flowing into several ETFs across a number of asset classes this month, according to BetaSharesâ&#x20AC;&#x2122; Australian ETF Review for May. While market cap shrunk slightly to $5.2 billion, BetaShares believes the drop can be attributed to market

forces, with equity markets down seven per cent during May. Accordingly, the most popular products for the month were the high interest cash ETFs which attracted just over $20 million in funds, along with high dividend ETFs which, combined, attracted approximately $18 million. Drew Corbett, Head of Investment Strategy at BetaShares, said it was interesting to note that while there were now even more options available for investors looking for yield, familiar

methods such as cash and dividends remained popular. â&#x20AC;&#x153;The flows for May indicate the volatility in the market has turned investors away from risk assets to yield strategies,â&#x20AC;? he said. â&#x20AC;&#x153;While Bond ETFs can also be used for yield strategies, they are currently being overlooked by investors. â&#x20AC;&#x153;This will likely change with further education and market penetration,â&#x20AC;? Corbett said. Corbett also commented that ETF trading values had increased

almost 50 per cent, suggesting investors were trading with higher levels of conviction than previously. â&#x20AC;&#x153;With the increased menu in ETFs outside of equities, the industry is continuing to see investors access different asset classes to diversify portfolios,â&#x20AC;? he said. â&#x20AC;&#x153;The fact the market did not contract in terms of units outstanding is a testament to the continued investor interest in ETFs across all the asset classes.â&#x20AC;?

By Mike Taylor SPECIALIST self-managed superannuation funds (SMSFs) company Cavendish Superannuation says Treasury officials have confirmed a deferral of the legislation which would have impacted offmarket transfers. Cavendish head of education David Busoli said the legislation was to have taken effect from 1 July 2012, but that the legislation had yet to be introduced to the Parliament. â&#x20AC;&#x153;Essentially, what has been expected is the banning of off-market transfers into self-managed superannuation funds where a trading market exists,â&#x20AC;? he said. Busoli said this would mean that funds wishing to acquire listed securities from members would need to do so by having the member sell them on market, while the SMSF purchased them on market instead of the current situation where they merely had to complete the transfer form. He said he was hopeful the delay would lead to more consultation capable of influencing the view of regulators on the desirability of the proposed changes.

...AFTER TIME. THATâ&#x20AC;&#x2122;S PERPETUALâ&#x20AC;&#x2122;S AUSTRALIAN SHARE FUND. /É&#x201E; -+ /0 'É&#x201E; )1 ./( )/.Ć&#x2021;É&#x201E;*0-É&#x201E; 3+ -$ ) É&#x201E; ,0$/$ .É&#x201E;/ ( ( & É&#x201E; /$1 É&#x201E;$)1 ./( )/É&#x201E; $.$*).É&#x201E; . É&#x201E;*)É&#x201E; É&#x201E;0)$,0 $)1 ./( )/É&#x201E;+-* ..É&#x201E;/# /É&#x201E;# .É&#x201E; )É&#x201E;/-$ É&#x201E; ) É&#x201E;+-*1 )É&#x201E;*1 -É&#x201E; '' ( -& /É&#x201E; 4 ' .É&#x201E;.$) É&#x201E;ĹłĹťĹ¸Ĺ¸Ć&#x2020;É&#x201E; # É&#x201E;.0 ..É&#x201E;*!É&#x201E;*0-É&#x201E; ++-* #É&#x201E; ) É&#x201E;. )É&#x201E;$)É&#x201E;/# É&#x201E;+ -!*-( ) É&#x201E;*!É&#x201E;/# É&#x201E; 0./- '$ )É&#x201E; # - É&#x201E; 0) Ć&#x2030; - )& É&#x201E;$)É&#x201E;/# É&#x201E;/*+É&#x201E;,0 -/$' É&#x201E;*1 -É&#x201E;ĹłĆ&#x2021;É&#x201E;Ĺ´Ć&#x2021;É&#x201E;ĹľĆ&#x2021;É&#x201E;ĹˇĆ&#x2021;É&#x201E;ĹšÉ&#x201E; ) É&#x201E;ĹłĹ˛É&#x201E;4 -.Ć&#x2020;* $.$/É&#x201E;222Ć&#x2020;+ -+ /0 'Ć&#x2020; *(Ć&#x2020; 0Ć¤ 0./- '$ ) ,0$/$ .É&#x201E;/*É&#x201E;Ĺ¨) *0/ (*- Ć&#x2021;É&#x201E;*-É&#x201E; *)/ /É&#x201E;4*0-É&#x201E; -+ /0 'É&#x201E; É&#x201E;*)É&#x201E;ĹłĹşĹ˛Ĺ˛É&#x201E;Ĺ˛Ĺ¸Ĺ´É&#x201E;ĹšĹ´ĹˇĆ&#x2020;

1 $' ' É&#x201E;*)É&#x201E;(*./É&#x201E;+' /!*-(.É&#x201E;$) '0 $)"Ć&#x2C6; Ć&#x152;É&#x201E; ." - Ć&#x152;É&#x201E; É&#x201E; 1$" /*Ć&#x152;É&#x201E; É&#x201E; *-/# Ć&#x152;É&#x201E; É&#x201E; - + Ć&#x152;É&#x201E; É&#x201E; - + Ć&#x152;É&#x201E; .$. Ć&#x152;É&#x201E; É&#x201E; $-./ - + Ć&#x152;É&#x201E; ) ).2 Ć&#x152;É&#x201E; ,0 -$ É&#x201E; - + Ć&#x152;É&#x201E; '/# * 0. Now on Colonial First State FIRSTCHOICE

units in the fund. Past performance is not indicative of future performance. *Source: Mercer Investment Performance Survey of Wholesale-Equity-Australian-All Cap ending March 2012. Quartile rankings / returns after fees. Fund ranked is the Perpetual Wholesale Australian Fund. www.moneymanagement.com.au June 28, 2012 Money Management â&#x20AC;&#x201D; 11

InFocus SMSF SNAPSHOT Average SMSF balance reached over $1 million in April

of total average holdings are held in cash Use of advisers for SMSFs declined

33,000 Number of investors who hold exchange-traded funds in their portfolios Source: Vanguard/Investment Trends

WHAT’S ON

YFP Investment Strategies: Battle for Supremacy 19 July 120 Collins Street, Melbourne www.finsia.com

SPAA State Technical Conference 2012 24 July Shangri-La Hotel, Sydney members.spaa.asn.au/Core/ Events/events.aspx

AFA National Roadshow Sydney 25 July Doltone House, Sydney www.afa.asn.au

FSC Annual Conference 2012 1 August Gold Coast Convention and Exhibition Centre www.fsc.org.au/events.aspx

SMAs, ETFs and Direct Investing 7 August Dockside, Cockle Bay, Sydney www.moneymanagement.com. au/events

When a dog gets a bad name The FOFA legislation may now be law but, as Mike Taylor reports, the new laws cannot be guaranteed to eliminate a repeat of events such as the collapse of Storm Financial or Trio Capital or restore the reputation of the planning industry.

mid all the official commentary which accompanied last week's passage of the Future of Financial Advice (FOFA) bills through both houses of the Parliament, a number of the key players made reference to the notable events which gave rise to the legislation. Among the notable events cited by the various industry spokesmen and women were, of course, the collapse of Storm Financial but, as well, there was also the citing of the collapse of Trio Capital and, on the part of the Minister for Financial Services, Bill Shorten, Opes Prime. Anyone who has closely followed events in the financial planning industry over the past decade would know that in citing Storm, Trio and Opes Prime, the industry spokesmen and commentators are probably only 30 per cent right.

Why? Because while Storm Financial arguably represented the failure of particular advice strategies, there is nothing which will flow out of the FOFA bills which will prevent such a failure occurring again – including the best interests test. It has now been widely acknowledged that while many people in the financial planning industry did not admire or endorse the strategies which were pursued and recommended by Storm Financial, those strategies did not breach any particular laws and, from a regulatory compliance point of view, ticked all the boxes. It might also be remembered that many of the planners working within Storm Financial were members of the Financial Planning Association and held high-level financial planning qualifications. If there was illegality or breaches where Storm Financial was concerned, that largely related to the manner in which certain regional bank branches assessed the value of

12 — Money Management June 28, 2012 www.moneymanagement.com.au

“

Opes Prime represented a failure in a stockbroking model, there is very little flowing from the FOFA changes which would serve to prevent the problem recurring.

”

customers' assets and therefore their eligibility for access to margin loans. Trio/Astarra represents another collapse in which, while some financial planners and even some financial planning organisations might be regarded as culpable, the underlying problem was corporate criminality that was not quickly enough detected by the regulators – both the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA). Beyond banning some of the remuneration structures which made Trio/Astarra an attractive recommendation for some planners, there is nothing in the FOFA bills which will specifically prevent a recurrence of the fraud which gave rise to its ultimate collapse and the consequent investor losses. While both the FOFA legislation and the Government's Stronger Super changes have delivered ASIC and APRA greater powers, it remains to be seen whether the regulators will choose to be more proactive. Perhaps the greatest red herring with respect to financial services collapses and the need for FOFA was when Bill Shorten cited Opes Prime. The Opes Prime collapse had virtually nothing to do with the Australian financial

planning community. It was a stockbroking firm and the millions of dollars in losses incurred by investors were largely based on the model it used – investors used the firm to buy shares on the margin and assigned beneficial ownership of their entire holdings to the broker. Because Opes Prime represented a failure in a stockbroking model, there is very little flowing from the FOFA changes which would serve to prevent the problem recurring. It is probably a measure of the reputational damage which has been inflicted on the Australian financial planning industry over the past decade or so that even those people who would normally be expected to have a detailed understanding of the industry wrongly associate planners with corporate disasters. While some sort of a truce may have been negotiated with the Industry Super Network (ISN), it seems undeniable that much of the negativity which is still being directed towards planners is owed to the millions of dollars expended in television advertising over the best part of a decade. For the record, financial planners were far from blameless with respect to the collapse of Storm Financial or the manner in which clients' funds were directed towards the Trio/Astarra debacle, but the public is being misled when politicians and industry spokesmen suggest that the FOFA bills will prevent similar events ever happening again. Seeking to turn financial planning into a “profession" is a noble objective, but one that will only be achieved when the industry embraces the necessary uniform educational standards and the will to eject those who prove themselves to be not fit and proper to participate in the sector. The reaction to the passage of the FOFA bills and the citing of Storm, Trio and Opes Prime demonstrates the industry still has a long way to go.

HAS YOUR SHARE PORTFOLIO REACHED THE POINT OF LOW RETURN? It’s no secret, in the new world of lower market returns and higher market volatility, many traditional Australian share portfolios are no longer performing the way they used to.

“So what do I do with my money?” You need to look further for investments that provide opportunities for positive returns in both rising and falling markets. Alternative investments like long/short funds and market neutral strategies aim to do just that. Consider the BlackRock Australian Equity Opportunities Fund which aims to outperform the S&P/ASX 200 Accumulation Index by 8% per annum (before fees) over rolling 3-year periods. The fund’s underlying strategy has exceeded this investment objective since its launch over a decade ago1. That’s not something every investment strategy can claim.

BLACKROCK WAS BUILT FOR THESE TIMES. BlackRock is uniquely positioned to help you unlock the potential of alternative investments in today’s lower return environment. Our team of experts are armed with unrivaled access to market information – thanks to BlackRock’s 1,600 investment professionals around the globe – and the same multi-faceted risk management process that is relied on by the world’s biggest governments, companies and institutional investors. That’s why no one is better placed to offer you alternative strategies that are right for your portfolio – and today’s markets.

Visit blackrock.com/newworld/alternatives or call 1800 222 331 to contact a BlackRock representative.

1. Past performance is not a reliable indicator of future performance. The BlackRock Australian Equity Opportunities Fund (Fund) invests in the BlackRock Equitised Long Short Fund (Inception Date 18 December 2001. Open to wholesale clients only). Issued by BlackRock Investment Management (Australia) Limited ABN 13 006 165 975, AFS Licence Number 230523 (BlackRock). This document contains general information only, is subject to change and does not take into account an individual’s objectives, financial situation or needs and consideration should be given to talking to a financial or other professional adviser before making an investment decision. BlackRock believes that the information in this document is correct at the time of publication however no warranty of accuracy or reliability is given. Investing involves risk including loss of principal. No guarantee as to the capital value of investments nor future returns is made by BlackRock or any company in the BlackRock group. A Product Disclosure Statement (PDS) for the Fund is available from BlackRock. You should consider the PDS in deciding whether to acquire, or to continue to hold, the product. Please visit our website www.blackrock.com/au to obtain a copy of the PDS. © 2012 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, iSHARES, LIFEPATH, SO WHAT DO I DO WITH MY MONEY, INVESTING FOR A NEW WORLD, and BUILT FOR THESE TIMES are registered and unregistered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners. OMHKO0274_2I_MM3

Rate the Raters

RATE THE RATERS 2012 The results of the first part of Money Management’s annual Rate the Raters survey are in and Lonsec seems to have come out on top yet again, albeit by a smaller margin. Bela Moore and Milana Pokrajac analyse the results. THE Australian investment research industry has seen quite a bit of change over the past 12 months, with Standard and Poor’s (S&P) announcing its departure from the Aussie market, van Eyk Research revamping its strategy and Morningstar changing its rating scale model. Research houses are under increasing pressure to compete in tough market conditions. The remuneration model war is still on, with Morningstar, Mercer and van Eyk Research constantly expressing concerns about conflicts of interest apparent elsewhere in the market. ASIC, too, is reviewing its position on these conflicts of interest, mostly witnessed in financial relationships between fund managers and research houses. No doubt industry players have done their fair share of lobbying for a desired outcome. On top of the increased pressure and scrutiny, one of the major players, Standard & Poor’s, has announced earlier this year that it will depart the Australian market in the second half of 2012. While this might have thrown other players into a client-grabbing frenzy, fresh claims about market saturation have emerged. But reigning Money Management Rate the Raters champion, Lonsec, has come out on top again – although by a smaller margin than last year – as fund managers rated surprise pocket-rocket Zenith Investment Partners highly as well. The first part of Money Management’s Rate the Raters survey turns the tables on the industry whose job it is to cast judgement on funds. Fund managers were invited to rate the six major research houses in

Key points z z z z

Lonsec scored consistently high results, but Zenith also performed well in a number of areas. Some researchers looking to expand their services. Some claim Australian investment research market is saturated. Survey respondents placed high value on the quality of personnel and research methodology.

Australia: Lonsec, Morningstar, Mercer, S&P, van Eyk Research and Zenith. While the research gurus still rated highly among fund managers in 2012, ratings houses as a whole were unable to reach the same heights as last year as they came under greater scrutiny from the industry at large. This year’s survey captured some of the industry’s current focus on governance with varying results bestowed upon ratings houses for ‘transparency’ and ‘feedback’. Transparency in particular has become an even more important issue in adhering to calls for stronger governance in upcoming regulations. On transparency, Zenith rated 61 per cent ‘excellent’ with fund managers and 100 per cent combined with the ‘average’ category, Lonsec rated 88 per cent in the ‘average’ and ‘excellent’ categories combined, while S&P also rated well. Zenith and Mercer topped fund managers’ experience with personnel based on teams’ quality and depth of experience, while Lonsec, S&P and van Eyk Research also received good feedback from respon-

14 — Money Management June 28, 2012 www.moneymanagement.com.au

dents. At the core of what ratings houses do are their research methods, and Zenith and Lonsec topped fund managers’ appraisals with 53 per cent and 40 per cent in the ‘excellent’ categories respectively, while Mercer and van Eyk Research both rated well in the ‘good’ and ‘excellent’ categories. Raters’ levels of communication and feedback are important aspects of conveying their methodology and processes to fund managers who are eager for greater insights into their products. A broad spread of results in 2012 saw Lonsec and Zenith clearly impressing fund managers the most.

Too many kids on the block? There are six major investment research houses currently operating in the Australian market. Even with S&P leaving later this year, Australia remains one of the most crowded research markets in the world. “There are more research houses here than anywhere else in the world,” said co-head of research at Morningstar, Tim Murphy. Morningstar operates in Canada, US and South Africa. Murphy believes the main reason for a socalled funds research market saturation in Australia is that this remains one of the last countries where the pay-for-ratings remuneration model is still viewed as acceptable. “Most of the research house models here are built around a ‘fund manager pays’ model,” he said. “In other markets this just isn’t viewed as acceptable and that’s why these sorts of practices don’t exist.” From a client’s perspective, however, healthy

Rate the Raters

60% 50% 40% 30% 20% 10% 0%

Excellent Good Average Below average

ar ni M

k n

r ce M

ni Ze

Poor th

Figure 1 How did you rate the research methodology of these firms?

Research house Source: Money Management

Figure 2 Looking at the firms that rated your fund, how would you describe the rating they gave? 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Excellent Fair

Research house

k Ey n va

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S& P

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competition is always a good sign, according to Zenith’s David Wright. “I know there’s a lot of industry talk about a need for greater consolidation in research and in some ways that’s driven by the research business model (how we generate part of our revenue and so forth), but from a users perspective, I can honestly say, I’ve never spoken to a client or dealer group, adviser who said I wish there was less research,” Wright said. Although it’s on its way out, S&P Capital IQ is continuing to publish sector reviews of the managers they had been rating. Head of research fund services Leanne Milton says S&P will leave a gap in the market. She said with this researcher leaving, Mercer and Morningstar will be the only global researchers in the space. Meanwhile, the industry is waiting for ASIC to publish its view on what the business model should be and whether the current conflicts of interest have been properly managed. But Mercer believes the departure of S&P is already a strong enough sign. “We believe the S&P departure signals that a pay for ratings model may not be viable, as clients seek to avoid conflicts of interest in their own businesses and in those of their suppliers,” the company spokesperson told Money Management.

Turn to page 16 for survey analysis. Source: Money Management

www.moneymanagement.com.au June 28, 2012 Money Management — 15

Rate the Raters

personnel for the past two years, rating over 90 per cent in the ‘average’ and ‘above average’ categories combined in 2011 and 2012, and 41 per cent in the ‘above average’ category this year. Milton said S&P’s focus on sourcing high quality analysts helped set it apart. She said company culture supported analysts upgrading skills and internal mentoring between senior and junior team members. It is an example of how S&P has continued to power on as the Australian business winds up. S&P still did sector ratings and talked to the managers they rated, Milton said. The company is also waiting to hear back from the Australian Securities and Investments Commission about proposed industry regulations. She said transparency was an important part of the job and 36 per cent of respondents rated it ‘above average’ for transparency levels and

Leanne Milton a further 50 per cent ‘average’. “Everyone was brought along on the approach so everyone understands exactly what our approach was and how S&P went about our research,” she said. Milton said the industry had also been comforted from S&P as a global brand name.

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16 — Money Management June 28, 2012 www.moneymanagement.com.au

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Morningstar’s rating in this year’s survey of fund managers has slightly deteriorated over the past 12 months, particularly in the area of methodology. This, however, could be explained by a recent change in Morningstar’s analyst ratings scale, which was introduced to align the approach to qualitative investment research across its global business. The five-tiered analyst rating scale now has three positive levels – Gold, Silver and Bronze – in addition to Neutral and Negative ratings. Following the change, many funds previously holding a “Recommended” label received Silver or Bronze ratings, according to cohead of fund research, Tim Murphy. “A lot of them reacted badly because ‘Recommended’ sounds good, while Bronze [although still a positive rating] doesn’t sound that great,” he said. “We are working with fund managers to help them understand the new model.” Much of the dissatisfaction might also come from a high proportion of average and negative fund ratings given by the researcher – in fact, higher than other players in the market, Murphy said. This is due to the company’s pure subscription-based remuneration model (also exercised by van Eyk Research and Mercer) which makes it accountable to its client base rather than fund managers, Murphy added. Morningstar’s real focus over the past 12 months, however, was increasing the resources in its research business with senior hires such as that of former Lonsec chief Grant Kennaway. There was also an increasing focus on building the technology supporting Morningstar’s research and introducing features such as adviser desktop tools. “In a [Future of Financial Advice] world advisers will need to clearly define their value proposition, so it’s not just about having a rating on a fund, but about having a complete picture,” Murphy said.

Despite announcing it would close its doors in Australia in October, S&P hasn’t dropped the ball, bringing in consistent results from respondents in Money Management’s Rate the Raters survey 2012. It has been over two decades since S&P entered the country, acquiring a stake in Australian Ratings in 1990 and taking full ownership of the company in 1996. S&P’s head of research for fund services Leanne Milton said its departure from the Australian market would leave a gap in the competitive industry. “We (ratings houses) have quite different business models and we (S&P) had quite a broad coverage of funds and we were prepared to look at some managers potentially earlier than other research houses and that’s just part of our process relative to others,” she said. Respondents have praised S&P for the quality and experience of its

Morningstar

Standard and Poor’s

Lonsec’s steady-as-she-goes approach has seen the ratings house top Money Management’s Rate the Raters survey for the past few years. Lonsec general manager research Amanda Gillespie said Lonsec’s success was due to a steadfast focus on the quality of products they rate and being true to the research process. “We’re sticking to our knitting, but at the same time continually reviewing and making sure that our process and the products we’re rating are relevant to the market,” Gillespie said. Respondents rated Lonsec highly on the quality and experience of its personnel, with 50 per cent of respondents saying the company was ‘above average’. Gillespie said it was due to their consistency and depth of seniority. She said Lonsec experienced low staff turnover and added further resources over the year. “People have ownership and there are experienced lead analysts for each sector, but we’re using those people in other sectors in a support role as well, just to leverage the expertise of people across the team and enhance the cross-pollination of research views and ideas across all sectors,” she said. Lonsec encouraged an open door policy with managers and tried to be clear about its processes, Gillespie said, and it came through in the survey results with forty-two per cent of respondents rating Lonsec ‘above average’ for transparency. Gillespie said Lonsec will start to host manager forums in the next six weeks, which it would try to implement regularly to encourage two-way communication – a focus which was highlighted in the survey. Fifty-four per cent of respondents rated the company ‘above average’ for feedback. “We’re pretty up-front about the things we look for in quality products. In terms of our methodology and process, the team is encouraged to be open and transparent with the product providers we rate but also with prospective products as well,” she said. Gillespie said while product is still core to Lonsec’s focus, they would include more strategic advice in line with shifting investor demand in the future. “We will be increasing the focus on more strategic guidance and communication to our subscribers in terms of how to use products and giving them more basis for the discussions they have with their clients,” she said.

that are continually invested in, James said. “This ensures we continue to develop our investment thinking ahead of the market,” she said. Fundies rated ‘transparency’ as a weak point for Mercer, with 50 per cent of respondents ticking Mercer off as ‘poor’. James said this may be explained by its relative position amongst the competition. “Unlike our competitors, Mercer does not accept payment for ratings nor does it seek to be a library and publish research directly to our market,” she said. Mercer distributes research to clients and maintains quarterly contact with managers it reviewed as highly rated but does not provide intellectual property to all fund managers, James said. She said inconsistent results for ‘feedback’ may stem from Mercer’s product selection process. James said Mercer were heeding industry’s call to provide more than just investment research and were currently expanding wealth management services to include governance advice, client risk profiling tools, product development and innovations in post-retirement product design.

Leveraging worldwide resources, Mercer’s global status has helped win respect for its research methods among the majority of fund managers in Money Management’s Rate the Raters survey in 2012. It’s what sets the ratings house apart, according to Mercer’s media and communications manager for Australia and New Zealand, Caroline James, who said it is the only Australian-based ratings house to service institutional clients globally. Mercer has 120 manager research staff globally, each with an average financial services industry experience of 15 years, she said. Fourteen per cent of respondents rated Mercer’s research methodologies as ‘excellent’ and a further 57 per cent ‘good’. “We believe we are in a unique position to be able to bring the best global ideas of the institutional market to Australian financial planners,” James said. She said Mercer believes research and knowledgesharing is integral to providing value-added advice. Mercer’s local team draw on the knowledge and research of global colleagues via a range of tools and interactions

Lonsec

Mercer

Continued from page 15

Rate the Raters

van Eyk

The change in strategy for van Eyk Research also came as a response to tougher conditions facing the sector. Developed market equities now make up only a quarter of its strategic asset allocation (down from 60 per cent in 2007), which Thomas said required a realignment of van Eyk’s resources. The researcher was spending seven or eight months every year on two big reviews in areas where van Eyk only had 25 per cent allocation. The new strategy would allow for a greater focus on fund managers willing to take active risks, which means van Eyk will drop up to 60 names off its list to make room for funds aligned with its focus, Thomas said. The research house fared relatively well in areas such as research methodology and feedback, but fund managers were divided on questions such as fairness of the research provided and transparency. It should also be noted that van Eyk operates a subscriber-only remuneration model and is not taking payments for research conducted internally.

One area van Eyk improved on in 2011 was the quality of its personnel. But the unveiling of the new strategy which will see the researcher focus more on the alternatives sector has seen three redundancies and another analyst departing the firm voluntarily. In a recent interview with Money Management, van Eyk Research chief executive officer Mark Thomas said the three analysts leaving the company were mostly focusing on the administrative, data collection and compilation side of research, which will now be outsourced to offshore firms. While the effects of this move – if any – will only be evident in next year’s Rate the Raters survey, van Eyk’s rating in this area did deteriorate slightly over the past 12 months. Around 32 per cent of respondents rated them ‘above average’ (down from 55 per cent in 2011) and 10 per cent of fund managers surveyed said they were ‘below average’ – up from 5 per cent last year.

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Zenith Zenith may be the underdogs when comparing resources of some other ratings houses, but Money Management’s Rate the Raters 2012 proved you don’t need shiny toys to play with the big boys. Zenith were narrowly edged out by Lonsec who pulled a bigger slice of the fund manager pie, rating 89 per cent of respondents compared to Zenith’s 67 per cent. But fund managers were David Wright impressed by Zenith’s ‘research methodology’, ‘transparency’, ‘quality and experience of personnel’ and ‘feedback’, rating the researcher over 50 per cent in the highest category on all questions. Zenith director David Wright said Zenith had “beefed up” reporting for clients with multiple funds and upgraded its individual funds reports suite over the past 12 months, which may have pushed them above the mark. “In this difficult environment, advisers are looking for any sort of angle or story or information they can take to clients about it (the product), so it just provides a greater depth in terms of the break-down of portfolio returns and also greater detail in terms of the underlying stock they’re holding,” he said. Wright said Zenith had expanded feedback to include risk ratings in an absolute return sense and also in relation to specific asset classes. The company incorporated learnings from recent soft cases against advisers – mainly advice on how to use and blend products and match client types, according to Wright. Zenith rated 68 per cent ‘above average’ and 32 per cent ‘average’ for the quality and experience of personnel, although Wright said sourcing the right people and retaining them was difficult in the research industry. He said the company had also invested in its alternative investments research team which he said was, coincidentally, very timely. “With the way that investment markets have been, clearly you’ve needed other strategies and/or asset classes to help generate returns. Traditional market strategies are making it difficult in some parts to generate attractive returns,” he said. Zenith received minimal negative feedback, stumbling only slightly on the issue of ‘transparency’ with 6 per cent of respondents rating it as ‘poor’. But the overall results revealed the small fish Zenith is making a big splash in the MM ratings house world.

www.moneymanagement.com.au June 28, 2012 Money Management — 17

Observer

Taking shares in the future Dominick McCormick argues that shares, not bonds, should be the core of longterm portfolios.

magine a simple world for a longterm investor with the only portfolio choices currently being Australian shares and Australian bonds. At the time of writing, Australian 10-year bonds were yielding less than 3 per cent. The current earnings yield on shares is around 9 per cent – price-to-earnings ratio (PE) around 11. Dividend yields are almost 5 per cent, with grossed up dividends accounting for franking credits close to 7 per cent. So the current grossed up dividend yield is more than twice the bond yield. Earnings yields are around three times higher. Typically shares have traded at a lower dividend yield than bonds. A recent Strategy Update by Deutsche Bank highlighted that the Australian dividend yield has been higher than bond yields only 3 per cent of the time over the last 40 years. The current differential in favour of shares is the highest in 50 years. The simple conclusion is that shares are dramatically undervalued and/or bonds dramatically overvalued. Either way it makes sense for long-ter m investors to focus on shares not bonds from current levels. The Deutsche Bank research even indicates that in the year following periods when the yield gap spikes, Australian shares have typically

performed well (15 per cent plus). The ratios are similar in many overseas markets, albeit with both dividend yields and bond rates lower. Therefore, in regard to the recent industry discussion about the need for more bonds versus equities in investor portfolios, I believe now is definitely not the time to make the switch, unless an investor is already actively drawing down on their assets for retirement or other purposes. Of course, the real world complicates the simple comparison above. While the coupons on most government bonds are fixed, the earnings and dividends from individual shares are not. Further, the Australian share market is heavily skewed to cyclical materials and leveraged financials – banks. Never theless, dividends for the market as a whole, while not immune to falls in tough economic times, do tend to grow over the longer term in line with or slightly below gross domestic product (GDP) growth. Therefore, unless one is expecting a depression or a much extended recession – a scenario that cannot be totally ruled out – it is realistic to expect those earnings and dividends to be meaningfully higher in five to 10 years time. A higher earnings/dividend “coupon” in the future is not something you will

18 — Money Management June 28, 2012 www.moneymanagement.com.au

For the longer-term “investor, or even those retirees with large enough portfolios to live off the income, shares should be the cornerstone of the portfolio.

”

obtain from a bond purchased today. We have also ignored inflation, so let’s look at some more specific numbers. Assume inflation over the next 10 years averages 2.5 per cent, and real GDP is subdued versus history at 2.0 per cent per annum: ie, nominal GDP grows 4.5 per cent per annum. Assume also that dividends grow at just two thirds the rate of nominal GDP growth: ie, 3 per cent, again a conservative view. So that means an investor will receive a dividend of 5 per cent plus 3 per cent growth plus franking credits resulting in a pre-tax return of around 10 per cent per annum, assuming PEs don’t change over the period – a reasonable assumption with current PE levels around 11, which is quite low versus

history, particularly in low inflation environments. That is more than three times the return an investor will receive from an Australian 10-year bond held to maturity. Of course, inflation could be much higher than expected. However, it is likely shares would withstand higher inflation significantly better than bonds where the real value of the already low coupon yield will be devastated by inflation and there could be large potential capital losses if an investor was forced to sell before maturity. On the other hand, many corporations would be able to raise earnings/dividends in line with inflation, although this could be partly offset by lower-end PEs in a higher inflation/interest rate environment. In the real world there are clearly also a lot more investment choices than just Australian shares and bonds, even within the share and fixed interest asset classes. The fixed interest/defensive component is not restricted to government bonds. Term deposit rates significantly higher than history relative to the cash rate are currently available, albeit with relatively short maturities. Corporate debt instruments also offer better returns, and inflation-linked bonds are a further choice. A portfolio across these and

other defensive investments can offer a better prospective return, and lower risk, than government bonds alone. Likewise Australian shares are just a small part of the global share universe which can help diversify away from the concentration risk in the Australian market. Listed and unlisted property and infrastructure add another dimension with often attractive yield and total return characteristics. In addition, there is the broader range of alternative assets and strategies that can further aid diversification by providing returns less correlated to equity and bond markets, and so help smooth the path of returns along the way. However, adding these additional elements to a portfolio does not change the central premise that shares are currently significantly better value and offer significantly higher prospective returns than bonds over the mediumlong term. Still, even if one is convinced of the investment merits of shares versus bonds as the core of a portfolio going forward, there are still many emotional barriers currently discouraging investment in shares. Investors look backwards and their recent experience with shares has not been a happy one. Many just want out, disgusted with returns and the share market generally. For those in retirement without large portfolios, the necessary income/capital draw-downs from a heavily share-oriented portfolio (at the wrong time) have been devastating in some cases. These investors are clearly those that should never have been so heavily invested in volatile assets in the first place. For the longer-term investor, especially in the accumulation phase, or even those retirees with large enough portfolios to live off the income, shares should be the cornerstone of the portfolio. The perceived safety of bonds may satisfy the current need for comfort in the short term, but at current record low yields and with no inflation protection they do little to help achieve longer-term investment objectives. Of course, those who have been

promoting the case for shares over bonds have typically been doing so for some time. Meanwhile bonds have dramatically outperformed. However, this is not a time to be obsessing about what one should have done in the past, if it had been known that bond rates would reach current low levels. The logical procedure is to look forward from here and determine what makes sense for long-term investors now, and how they can be convinced to implement it? Firstly, in my view, the industry needs to get better at articulating the case for shares versus bonds in relatively simple terms, and encouraging investors to ride through current high levels of volatility. However, I do not underestimate the difficulty of doing this in the current environment; and the additional appropriate response is for portfolio construction to focus on developing portfolios that allow investors to obtain exposure to growth assets in ways that enable them to better handle volatility and shorterterm risks, to ensure they are positioned to benefit from the current longer-term shares/bond valuation anomaly. It is possible to build equity exposures that are considerably more diversified, less volatile and less vulnerable to large draw-downs than the broader market index, without hampering longer-term returns in all but the most bullish of share environments. This is why I believe an all-passive approach to growth assets is a flawed approach for many investors in the current environment. Passive and standard benchmark relative funds can make sense as part of a portfolio, but as the sole solution they are heavily exposed to the very characteristics that share investors are currently rebelling against and unlikely to stick with for the long term. Those believers in efficient markets are likely to say that the current valuation “anomaly” between equities and

Ways to make shares pay Approaches that I believe can help achieve this include: • Focusing equity exposure on highdividend and/or high-quality companies. This increases the certainty that investors will get the yield/earnings benefit of equities, and these companies tend to be less volatile than the broader market. • Consider diversifying the types of strategies employed to gain equity exposure. This could include long short equity strategies and option-based strategies such as buy-write. Again, a lower volatile equity exposure should be the result. • Incorporating some equity-related exposures that can behave quite differently to the overall market, even if quite volatile themselves – eg, gold mining, agriculture. • More dynamic asset allocation between shares and other assets incorporating the future economic outlook, valuations, sentiment and momentum. • Recognising that a range of future scenarios is possible, and allocating a small proportion of portfolios to opportunistic tail risk hedging/insurance.

bonds reflects the very real risks present in the world. After all, some of the major macroeconomic r isks currently weighing on economies and markets are unprecedented. However, when one looks at the actual behaviour of a range of participants, it seems the last thing driving

many buying/selling decisions – and therefore prices – is rational, objective assessment of the long-term macro risks and their implications for the valuation dynamics discussed above. Instead we have policy and structural imperatives pushing central banks and financial institutions to buy bonds at virtually any level. Mutual funds and pension fund investors are being forced to sell equities as their underlying retail investors redeem/switch in fear, irrespective of the long-term value. Then there are the direct investors grappling with alarmist media headlines, and increasingly giving up and selling out in favour of bonds/term deposits, with their only analysis being how their portfolio has fared in recent times. Emotive behavioural decisions rather than rational analysis rules the day. Successful investing requires that long-term value should be bought and over valuation avoided or downweighted. That suggests an increasing skew towards shares and away from bonds/cash in the current environment. That is certainly not reflected in industry flows or anecdotal evidence. This is again highlighting the difficulty, but necessity, of being willing to be contrarian to be successful in investment in the long term. Still, the value and success of the investment industry should at least partly be judged by its ability to encourage investors to build and implement portfolios that appropriately reflect objective judgements of future relative value and prospective returns, rather than just providing emotionally dr iven investors what they are currently demanding. If it doesn’t, then the quest to become a profession will fail and investors will be worse off in the long term. Dominic McCormick is the chief investment officer at Select Asset Management.

www.moneymanagement.com.au June 28, 2012 Money Management — 19

Retirement income How much is enough? Gerard O’Reilly believes the focus of retirement planning should move from savings in the abstract to consumption planning.

major source of anxiety for many workers is uncertainty about whether they will be able to afford to retire comfortably. In addressing this anxiety, much of the focus in traditional models is on building as big a lump sum as possible by the retirement age of 65 or so. Perhaps a more realistic alternative is to come at the problem from the other end and model instead how much income a household might need in retirement. From this, a required level of savings can be targeted that will satisfy the desired standard of living. Against this background, we examined the actual spending patterns of thousands of US households and modelled the impact of different patterns of investment returns and changes in income. Using this information, we created a framework for understanding how much income a household might need in the years after leaving the workforce. While the study was confined to the US, the questions raised by the research are also relevant for Australia. The key findings of this study were as follows: • The range of income required to maintain the same standard of living is much wider than commonly assumed. Dimensional’s US research suggests the assumed range of pre-retirement income needed to maintain the same standard of living is far too narrow. Given how much individual circumstances can differ, our study indicates that anywhere from less than 60 per cent to more than 80 per cent of pre-retirement income may be needed to maintain the same living standard. • Higher earners cut spending in retirement, while poorer households didn’t. The typical household with an annual income of $50,000 or above reduced total spending by about 10 per cent or more in retirement, and spending declined with age. Households with income below $50,000 held spending roughly constant. Higher earners spent less on housing and workrelated expenses. Interestingly, total discretionary spending (the amount spent on items such as holidays, entertainment, hobbies, and charity) actually rose for all income groups as people aged. • Most households need to consistently

Maintaining the same “standard of living in retirement doesn’t necessarily require 100 per cent of pre-retirement income.

”

save 10 per cent – 15 per cent of income through the working years. Simulation results based on actual patterns of investment returns and income changes showed that households need to target savings rates of 10 per cent – 15 per cent. Even lowincome households – where the age pension can replace a significant proportion of their pre-retirement income – still need savings rates in the low double-digits.

Background Both economic theory and common sense suggest that maintaining the same standard of living in retirement doesn’t necessarily require 100 per cent of preretirement income. Typically, tax rates are lower and there is no longer a need to put income into savings. Academic research over the past four decades has shown that household spending peaks around age 45-50 and then declines steadily as people age. While there are likely many factors at work, we wanted to rule out insufficient financial resources as the primary reason for the decline. Breaking down non-durable spending into categories and then by household income and age reveals that total discretionary spending rose for all income groups as people aged. This suggests that a lack of financial resources isn’t the driving force behind the spending decline, as these would likely be the first things cut if money was tight. Where did the decline in spending come from? In part, retirees tend to spend less on food. Earlier research shows that older households spend more time shopping, thus paying lower prices for the same items. Work-related expenses such as clothing and transport decline. And among homeown-

20 — Money Management June 28, 2012 www.moneymanagement.com.au

ers, there was a large reduction in housing expenses because, typically, homeowners have paid off their mortgages by the time they retire. This last point leads to another key finding: The typical household with an annual income of $50,000 or above reduced spending by about 10 per cent or more as they transitioned into retirement. In contrast, households with income below $50,000 held spending roughly constant. What does this mean in terms of savings rates? After examining spending needs in retirement, the Dimensional study simulated income and portfolio paths for 10,000 households. Pay raises and portfolio outcomes were drawn from changes in real per-capita income and real stock and bond returns over the period from 1930–2010. Working years were assumed to be from 25 to 65, retiring at 66. Portfolios were invested in a mix of stocks and bonds that gradually became more conservative. The study assumed that households with below-median final incomes would want to replace 100 per cent of their net preretirement spending (gross income less savings and taxes), while above-median households would want to replace 90 per cent of their net pre-retirement income. The question was what savings rates are needed to achieve this spending level with a reasonable level of confidence (75 per cent to 90 per cent probability)? The results suggest that households that consistently save throughout the working

years need to target savings rates of 10 per cent – 15 per cent. Even low-income households – where the age pension replaces much of their pre-retirement income – still need savings rates in the low double-digits. While that number might seem high, it’s not far off from observed behaviour. Among active defined contribution participants, median total contribution rates (including both the employee and employer contributions) range from 8 per cent to 12 per cent, depending on income level.

Conclusion Since many people do not start saving at the beginning of their careers, or save consistently throughout their working years, there is a high real-world risk of coming up short of the income needed in retirement. We believe the focus of retirement planning should move from savings in the abstract to consumption planning. An Australian Treasury study on the adequacy of Australian retirement incomes (released in 2011) estimates the average spending replacement rate for retirees here at just over 60 per cent, and projects it to rise to 80 per cent in around 20 years. The Australian Government has not set an explicit benchmark replacement rate, but many commentators have said a net rate of between 65 to 80 per cent would be adequate. Gerard O’Reilly is head of research, Dimensional Fund Advisors.

OpinionInsurance

Now more than ever Jim Minto argues that while the current economic climate is continuing to worry consumers, now more than ever is precisely the time advisers and insurers should encourage their clients to hold on to their life insurance policies.

t’s impossible to open a newspaper or turn on the television these days without seeing a story on the tough economic environment and rising cost of living. As the headlines paint a picture of Australian workers under more economic pressure than ever, consumer confidence is taking a battering, particularly within the sections of middle Australia not currently prospering from the resources boom. The statistics are sobering, and the figures portraying a lack of job security among the community are particularly worrying. Despite the national unemployment rate remaining a relatively steady 5.1 per cent as at April 2012, the availability of full-time work for those who want it is decreasing. Of the 3.4 million part-time workers in Australia, 24 per cent would prefer to work more hours but had not been able to do so. At the same time, and perhaps of more concern, the length of unemployment is also increasing: according to the latest Australian Bureau of Statistics figures, the number of people who have been out of work for between six months and two years has grown by more than 40 per cent over the five years to April 2012. This difficulty in accessing work for many Australians, coupled with the rising price of key goods and services such as petrol, utilities and childcare, is making many in the community nervous about the security of their finances.

It’s all about priorities With household budgets being squeezed, and consumer confidence weak, some families are wondering whether life insurance is something they can do without. We’re hearing from our financial adviser colleagues that many clients are either letting their policies lapse or are asking for less comprehensive (and,

Some families are “wondering whether life insurance is something they can do without. ”

often, cheaper) cover at renewal time. While this desire to cut back is understandable, it seems perverse to me that many families feel they have to let their policies go just at a time when claims around the countr y are rising, and particularly in white-collar areas. Insurers are currently fielding rising numbers of claims related to the stresses and strains of difficult economic conditions. We are seeing a significant upswing in the number of income protection claims related to the human fallout of the global economic crisis. Of the $145 million we paid out to help policyholders maintain an income stream when they were unable to work last year, around half of payouts were related to stress, depression or back pain (claims for back pain are often related to stress). Our youngest claimant was 20, the oldest 70 – showing that consumers across a wide cross-section of the community are in need of financial support to get themselves through

periods of illness or injury. Our experience of rising claims is borne out by both the latest Australian Prudential Regulation Authority Quarterly Life Insurance Performance statistics and recent research from The Risk Store, which shows that the 10 biggest life insurers in Australia paid out just under $4 billion in claims in 2011, up 11.4 per cent from 2010. Life insurance has always competed for a slice of the household budget, so the challenge of maintaining relevance in consumers’ minds through tough economic periods is nothing new. But with more people claiming against their policies than in the past, rolling the dice to forego or reduce cover is riskier than ever.

done without. It is in times like these that the financial backup of life insurance is most needed – more than in the good times. People earning income are under threat more than ever, and it’s vital to protect them. The life insurance and financial advice communities must work together to educate the community on the importance of life insurance, and move cover from the ‘nice-to-have’ list to the ‘must-have’ list for middle Australia. After all, while the global economy and investment markets, or accidents and illnesses, are outside our control, we can control our ability to provide for ourselves and our families if ill health or injury affects our ability to work. Surely that’s peace of mind worth having in tough economic times.

The way forward Life insurance is a necessity, not a luxury or something that should be

Jim Minto is managing director of TAL Limited.

www.moneymanagement.com.au June 28, 2012 Money Management — 21

Market volatility

Overcoming pessimism Jeff Rogers details the thought process behind looking through the prevailing pessimism and reaffirming the efficacy of long-term strategies.

essimism is in the ascendency today. You can observe that by scanning articles on economies and markets in the press where there is an evident competition among editors for the most apocalyptic headline. You can infer it from the negative real yields on long-term bonds in the US. Safety is the trade of the day. Even yields on Commonwealth Government bonds have been pushed to historical lows in the rush to hide from uncertainty. Ultimately, this pessimism creates an opportunity for those who do not believe the global economy faces inevitable disaster. However, we need to stay invested in our equity portfolios if we are to grasp that opportunity. And it is not easy to stay invested during protracted periods of share market volatility, at which time the natural behavioural response is to abandon our long-term strategy in the pursuit of nearterm respite. Changing strategy in response to temporary setbacks is one of the biggest investment mistakes we can make. When times

are tough, quality advice helps clients fight this destructive impulse. In order to be most effective, advisors need to be positioned to confidently address client concerns.

Be clear on objectives The appropriate place to start is to reaffirm the goals which our investment strategy has been designed to achieve. While everyone's circumstances are different, the key objective for the majority of our clients is to achieve and preserve an acceptable future real standard of living in retirement. It is our assessment that the most important source of return to help clients achieve these longer-term goals is a sustainable income stream from share dividends.

Be clear on what is important It is critical to distinguish between a temporary loss of value and a permanent loss of capital. The former often creates an opportunity, while the latter is something we work hard to avoid through

Figure 1 Pessimism priced in Bonds Market

Source: Bloomberg

22 — Money Management June 28, 2012 www.moneymanagement.com.au

thoughtful diversification across a portfolio of quality companies. We should not be frightened by volatility or a temporary loss in value.

objective for most clients, the trajectory of corporate cashflows and dividends is more important than short-term movements in share prices.

The current income “available for spending from

Understand what is currently “priced” in the market

the share strategy exceeds that of the term deposits, and is likely to do so for quite some time.

”

In the short-term, market returns are determined by largely unpredictable shifts in investor sentiment – fear and greed. But over the long-term, sentiment diminishes in importance and the impact of corporate performance rises in its influence on returns. Given the dominant

Investors and policymakers are acutely aware of the threats facing the global economy and financial system. This is in stark contrast to the conditions prevailing prior to the onset of the global financial crisis, at which time investors were expressing considerable optimism. Today, fear is the dominant force driving market prices. Investors still have vivid memories of the financial crisis and dread getting caught out again. Investors demand a significant margin of safety in uncertain times. So it is of little surprise that valuations are depressed in many share markets. While it would be wrong to claim that a worst-case scenario is already priced in markets, the consensus is deeply pessimistic. If the news in the period ahead turns out

Figure 2 Contribution to global growth

Source: IMF, AMP Capital Investors

not to be quite as bad as currently feared, then market prices will rise. It is important to be aware that policymakers, who were blindsided by the events that unfolded four years ago, have had a good deal of time to work out how they might deal with financial dislocations, should they emerge.

Focus on what drives the fundamentals In the short-term, share prices are likely to continue to exhibit ongoing bouts of volatility as deleveraging continues to be the dominant policy imperative in

advanced economies. But that is a shortterm issue. It is important to recognise that the medium-term outcome for global activity will have a far larger impact on the achievement of our long-term objectives. Here we have reasons to be optimistic, largely on account of the prospects for growth in the developing economies. Their future economic activity is expected to more than offset weaker growth in the advanced economies. This bodes well for future progress of corporate revenue and profit, especially given

Figure 3: Yields on Shares and Term Deposits in Australia

the anticipated trebling in the number of middle class consumers over the period from 1990 to 2040.

Dividends are “the new black” The constructive outlook for corporate fundamentals and the low valuations of the current market combine to produce attractive share market yields. These yields represent a compelling opportunity for clients focussed on building sustainable spending power in the future. Nowhere, is this more evident than in Australia where the share market currently has a forecast cash dividend yield in excess of 5% and a gross yield which incorporates the value of imputation credits of around 7 per cent. This yield is well above prevailing interest rates on cash and term deposits. Think about two different investment strategies. One strategy is to purchase a term deposit, spend the income, and then rollover the capital at maturity into a new term deposit. The other strategy is to buy a diversified portfolio of Australian shares, spend the dividends and the imputation credits, while maintaining capital invested in the underlying portfolio. Many people regard the first strategy as safe while the second as risky. That is because the second strategy is exposed to

Source: AMP Capital, RBA, Bloomberg

loss of value in the short-term, while the former is not. Clients seeking to build and preserve an acceptable real standard of living in retirement should form a different conclusion. Viewed through their lens, the income stream available for spending from the equity strategy is far more stable and reliable than that from the term deposit strategy. In addition, the income stream from the equity strategy is likely to grow at least as fast as inflation over time, while the spending power generated by term deposits is most likely to decline. Critically, the current income available for spending from the share strategy exceeds that of the term deposits, and is likely to do so for quite some time. Clients hoping for a rebound in share value are currently being paid to wait for that price adjustment.

Conclusion The most recent bout of fear in share markets happened to coincide with the Diamond Jubilee celebrations for the Queen. Perhaps the best advice we can provide investors at present is to follow the catch-cry printed on posters by the UK Government during the Second World War: “Keep Calm and Carry On”. Jeff Rogers is chief investment officer at ipac.

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www.moneymanagement.com.au June 28, 2012 Money Management — 23

OpinionReturns Tricky trails Kathryn Young discusses the pitfalls lurking in trailing returns data and the best ways to use it in fund assessment.

railing returns are the most basic and widely-used measure of a fund's historical performance, and with good reason. They measure total returns over standardised time periods, usually with a recent ending date, making them easy to understand and readily comparable with a relevant index or peer group. Three-year trailing returns have become a particularly important metric. Industry participants tend to use that time period as a hurdle for admission onto platforms, and many investors have become comfortable relying on that track record for their decisions. The problem, however, is that trailing returns are inherently time-period-sensitive, and three years isn't nearly long enough to provide a full picture of a fund's performance. Recent performance updates offer a stark example of this issue. Over the second half of 2011 and the first part of 2012, market losses stemming from the global financial crisis cycled out of three-year trailing return calculations. The contrast between the deep lows experienced during the crisis and the extreme highs during the recovery that began in March 2009 has led to dramatic fluctuations in trailing returns from month to month, as the data for the funds in Table 1 demonstrates. Note the significant increase between

the returns figures for the periods that started in October 2008 and November 2008. Australian share funds generally suffered extreme losses in September and October 2008 directly relating to the Lehman Brothers bankruptcy, so their three-year returns perked up substantially after those months rolled off. Similarly, the returns beginning in February 2009 and March 2009 reflected significant increases as the losses in January and February 2009 rolled out of the calculation. The funds’ three-year category rankings (in brackets after each return figure) and comparison to the relevant index demonstrate that these dramatic return fluctuations have had a powerful impact on the funds’ relative standing. For example, Perennial Value Australian Shares 6821 generally fared well through the crisis relative to its Australian Large Value peers, but lagged them as the rebound started. As a result, its category rank declined for the period starting March 2009. In contrast, Lazard Australian Equity Wholesale 10700 lost substantially more than the average large-value fund in January and February 2009, so its category rank improved considerably as that performance rolled out of its three-year return rank calculation. These dramatic shifts in funds’ relative standings can have a major impact on investment decisions. Investors who use

these performance measures in isolation might, for example, select Perennial Value if using October 2011 data, but Lazard if looking to invest in April 2012. The two funds are quite different, and are likely to produce divergent investment experiences. Perennial Value, which we rate Silver, employs a relative value approach, is benchmark-aware, and tends to perform well in rising markets. Neutral-rated Lazard applies a deep value strategy and has historically looked very different than the S&P/ASX200 Index thanks to a persistent underweight in materials stocks. Despite its underperformance in early 2009, Lazard typically fares better in a falling market than Perennial Value, but lags in rallies. This demonstrates that reliance on trailing returns – especially over periods of three years and less – could lead to undesirable outcomes. This phenomenon isn’t exclusive to Australian or equities assets. The funds in Table 2 confirm that while the effect may be different depending on each asset class’ performance during the extreme turbulence of the global financial crisis, the time period sensitivity of trailing return and relative ranking calculations persists across different asset classes. The issues demonstrated here don't make trailing returns useless. They remain valuable for their convenient, straightforward characteristics. The drawbacks,

however, are important to keep in mind. Trailing returns should be evaluated in the context of market conditions and fund strategy. For example, funds with more defensive, conservative strategies tended to fare better during the global financial crisis, so their returns look relatively worse as that period rolls off. Similarly, funds with more aggressive strategies can look better over periods of more sanguine market conditions. Our research reports offer a description of a fund’s strategy and performance tendencies. In addition, the flaws inherent in trailing returns underscore the importance of evaluating funds over the longest applicable time period available. Five and 10-year trailing returns have been less affected by the fluctuations discussed above, and 10-year returns should comprise a full market cycle, providing a picture of the fund's performance throughout a variety of market conditions. That principle applies when reviewing the existing pieces of a portfolio as well. It’s best to resist the urge to make changes on the basis of short-term performance data, and to instead take a longer-term perspective and a holistic approach to analysis that also includes qualitative elements. Kathryn Young is a fund research analyst at Morningstar.

Table 1 Three-Year Returns and Three-Year Category Rankings (Brackets) of Selected Australian Share Funds, Index Fund/Index Name

31-Oct-08

30-Nov-08

31-Dec-08

31-Jan-09

28-Feb-09

31-Mar-09

30-Apr-09

– 30-Sep-11

– 31-Oct-11

– 30-Nov-11

– 31-Dec-11

– 31-Jan-12

– 29-Feb-12

– 31-Mar-12

Perennial Value Australian Shares

0.99 (45)

8.00 (19)

8.78 (30)

8.22 (35)

11.98 (30)

14.36 (43)

10.53 (70)

Acadian Wholesale Australian Equity

-2.38 (86)

6.28 (47)

7.01 (57)

6.70 (53)

10.66 (38)

13.38 (31)

10.27 (47)

Lazard Australian Equity Wholesale

0.70 (47)

6.00 (58)

7.77 (54)

6.42 (66)

10.04 (67)

16.63 (14)

14.71 (9)

S&P/ASX200 TR Index

-0.11

6.94

7.97

7.58

11.21

13.67

11.25

Source: Morningstar® DirectTM

Table 2:

Three-Year Returns and Three-Year Category Rankings (Brackets) of Selected International Share, Australian Listed Property, and Australian Fixed Income Funds, Indices

Name

Sector

31-Oct-08

30-Nov-08

31-Dec-08

31-Jan-09

28-Feb-09

31-Mar-09

30-Apr-09

– 30-Sep-11

– 31-Oct-11

– 30-Nov-11

– 31-Dec-11

– 31-Jan-12

– 29-Feb-12

– 31-Mar-12

Platinum International

World Equity

2.35 (3)

1.31 (6)

1.12 (10)

0.07 (16)

0.03 (20)

3.44 (35)

4.26 (59)

Walter Scott Global Equity

World Equity

-2.48 (7)

-3.14 (26)

-1.65 (44)

-0.95 (35)

-2.18 (55)

0.98 (72)

4.01 (56)

-7.02

-5.85

-3.86

-2.58

-2.26

2.63

5.07

MSCI World Ex Australia NR AUD AMP Capital Listed Property

AREITs

-12.20 (81)

-2.98 (85)

-1.40 (72)

1.74 (59)

7.32 (43)

13.89 (45)

14.10 (37)

Antares Prof Listed Property

AREITs

-8.16 (9)

-0.37 (25)

0.51 (27)

2.56 (38)

7.51 (36)

12.50 (70)

13.08 (55)

-11.83

-1.67

-0.89

1.93

7.33

14.68

14.43

S&P/ASX200 A-REIT TR CFS Wholesale Australian Bond

Aust Bonds

7.69 (45)

7.00 (42)

5.93 (75)

5.73 (78)

5.30 (80)

5.90 (73)

6.25 (70)

Tyndall Australian Bond

Aust Bonds

7.85 (36)

7.08 (38)

6.61 (47)

6.26 (57)

5.99 (52)

6.26 (55)

6.43 (65)

7.82

6.90

6.47

6.31

5.86

6.22

6.49

UBS Composite 0+ Yr TR AUD Source: Morningstar® DirectTM

24 — Money Management June 28, 2012 www.moneymanagement.com.au

Toolbox Revisiting the transition Mansi Desai and Richard Edwards revisit the transition to retirement strategy to assess the client implications the upcoming tax and super changes will have on it.

number of tax and super changes are scheduled to take effect from 1 July 2012 that could impact clients using the transition to retirement (TTR) strategy. While many clients will need to adjust their strategy periodically, our analysis shows it should still be worthwhile for people with sufficient incomes and super balances.

Cash flows may increase Some of the 1 July changes may actually be quite positive for TTR clients. The new marginal tax rates and income thresholds will increase the “effective tax-free threshold” and mean that many clients under age-60 will pay less tax on their TTR income payments. The flood levy, which is currently payable to those earning $50,000 per annum or more, will also be removed. These changes could increase surplus cash flows and enable TTR clients to make larger concessional contributions without compromising their living standard.

contributions from 1 July this year to avoid tax penalties. All TTR clients should also track their contributions closely, as mistakes are still very common.

Reduced cap may warrant income adjustments Clients under age-60 who are impacted by the reduced concessional contributions cap may also want to decrease their TTR income payments to avoid receiving surplus taxable income. Some clients in this age group may even want to commute and repurchase a T TR pension with a lower balance if they would receive surplus taxable income after switching to the minimum. At age 60 or over, receiving surplus TTR income will be less of an issue, as the payments won’t be taxable. However, reducing the TTR income payments may still be worthwhile for clients in this age group as it would enable them to keep more in their pension where no tax is payable on investment earnings.

Significant value can be added at 60+

Reduced cap may constrain contributions The downside for many clients aged 50 or over is the concessional contributions cap will halve from $50,000 per annum to $25,000 per annum on 1 July 2012 and will not be indexed on 1 July 2013. Some TTR clients will therefore need to reduce their

At age 60 or over, TTR clients may want to use any surplus income payments to make non-concessional contributions so they can get the money back into the concessionally-taxed super system. This Continued on page 26

Table 1: Income and contributions

In 2011/12

In 2012/13

Without TTR

With TTR

Without TTR

With TTR

Salary

$100,000

$62,682

$100,000

$84,000

TTR income

Nil

$30,000

Nil

$12,863

Tax

$26,450

$19,132

$26,447

$23,310

Net income

$73,550

$73,553

$9,000

Salary sacrifice

Nil

$37,317

Nil

$16,000

Total CCs

$9,000

$46,317

$9,000

$25,000

$9,000

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. The higher “effective tax-free threshold” from 1 July 2012 could benefit TTR clients under age-60 by: a) Reducing the tax payable on TTR income payments b) Increasing surplus cash flows c) Providing capacity to make larger concessional contributions without compromising current living standards d) All of the above 2. If TTR clients are currently making concessional contributions of more than $25,000 per annum, from 1 July 2012 they should consider: a) Increasing their concessional contributions b) Reducing their concessional contributions c) Leaving the strategy unchanged d) Winding up the strategy and making non-concessional contributions only 3. Using surplus income to make non-concessional super contributions at age 60 or over could: a) Reduce the tax payable on lump sum death benefits paid to non-tax dependants. b) Reduce the tax payable on TTR income payments. c) Increase the anti-detriment payment that could be made to eligible beneficiaries. d) Increase the taxable component of the TTR pension and reduce the taxfree component of the super (accumulation) benefit.

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

Source: MLC

Table 2: After of investments after 10 years

Without TTR

With TTR

Super plus pension (where applicable)

$760,442

$850,295

Value added by TTR strategy Source: MLC

$89,853

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www.moneymanagement.com.au June 28, 2012 Money Management — 25

Toolbox Continued from page 25 strategy variation could also reduce the tax payable on lump sum death benefits paid to non-tax dependants. This is because it would reduce the taxable component of their TTR pension and increase the tax-free component of their super money. But before doing this, it’s important to consider the potential impact on anti-detriment payments. Another option for clients in the 60plus age group is to commute their pension, consolidate the money with their super balance and start a larger pension where earnings are tax-free. Considerable value could be added by ‘refreshing’ the pension in this way at age 60 and at the start of each year thereafter.

TTR strategy needs to be actively managed While the post-1 July changes could impact TTR clients in different ways, it’s clearly not a ‘set and forget’ strategy. The following case study outlines some of the key adjustments that may be required and illustrates the potential value-add if managed properly.

Case study Roger earns a salary of $100,000 per annum plus 9 per cent superannuation.

“

The Government has proposed the tax payable on concessional super contributions will increase from 15 per cent to 30 per cent for clients with an income of $300,000 or more.

”

cent per annum (split 3.5 per cent income and 4.5 per cent growth). Investment income is franked at 30 per cent. Salary is not indexed. Super guarantee contributions are based on Roger’s package of $100,000, even after he makes salary sacrifice contributions. The concessional contr ibutions cap is indexed on 1 July 2014 and 1 July 2019.

Other considerations

On 1 July 2011, he started a TTR pension with $300,000 at age 55. He wants to retire at 65 and would like to maintain his current living standard. In 2011/12, Roger will receive the maximum TTR income of $30,000 and salary sacrifice $37,317 into super. His concessional contributions in 2011/12 will therefore total $46,317, which is within the available cap of $50,000 per annum. In 2012/13, he will reduce his salary sacrifice contributions to $16,000 to avoid exceeding his concessional contributions cap and decrease his TTR income payments to $12,863 to ensure he doesn’t

receive any surplus taxable income. During the remaining eight years, Roger will increase his salary sacrifice contributions when the concessional contributions cap is indexed. When he reaches age 60 and in each year thereafter, he will also ‘refresh’ his pension and re-contribute any surplus TTR income back into super as a nonconcessional contribution. At age 65 we estimate Roger will be well-rewarded for making these ongoing adjustments by accumulating an extra $89,853 for his retirement. Other assumptions: The super and TTR pension earn a total return of 8 per

The Government has proposed the tax payable on concessional super contributions will increase from 15 per cent to 30 per cent for clients with an income of $300,000 or more. If legislated, our analysis shows that clients in this income bracket could generally still benefit from the TTR strategy, mainly because it enables them to get super money into a 0 per cent tax environment. Another proposal is that the concessional contribution cap will increase on 1 July 2014 to $50,000 per annum for people aged 50 and over with super balances less than $500,000. If implemented, this measure would be very positive for TTR clients who meet the eligibility requirements. Mansi Desai is a technical consultant and Richard Edwards is technical writer at MLC Technical Services.

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Appointments

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

MLC has appointed Jasia Fabig as head of practice management for MLC Advice Solutions and Godfrey Pembroke. With 17 years of financial services experience, she was most recently head of sales and strategy at St George Wealth. Before that, Fabig was a practice development manager with MLC for nine years. Commencing her new role on 16 July, she will be responsible for leading and developing MLC's practice management offering. "Jasia has extensive knowledge of self-employed advice business at a strategic and practice level, and her extensive experience has given her great insight into businesses that focus on both the mass market and high net worth advice," MLC general manager of Advice Solutions Tom Reddacliff said. Fabig's addition marks the next stage of MLC's practice development piece, he added.

GUARDIAN Advice has made three senior appointments to help expand its service offering to financial advisers. John Gray will move into the position of state manager NSW/ACT to drive the growth practices in the region as well as supporting their acquisition and

succession plans. As the newly-appointed national distributions manager, Patrick Casey will be responsible for implementing strategic initiatives within the business and will work closely with Guardian's National Advisory Council to ensure its adviser services meet the needs of its member base. Richard Johnson, the newlyappointed dealer operations manager, will lead the research, dealer operations and adviser desktop solutions team for Suncorp Life licensees, including Guardian.

PLAN B Wealth Management has expanded its financial services team with the addition of two financial advisers. With over 25 years' experience, Des Luplau joins the business having most recently worked as an adviser at Horizon Investment Solutions. His other roles include general manager for AE Hoskins as well as Westpac Financial Planning. The other appointee, Scott Harvey, previously worked at accounting practice Nissen Hestel Harford before moving to Candor Financial Management in 2007 as financial adviser and group financial controller.

TOWERS Watson has appointed Ben Trollip as an investment research consultant to its Australian fixed interest manager research team. He joins from Melville Jessup Weaver – Towers' affiliate company in New Zealand – where he worked from 2004. Greg Miller, director, investment services for Tower Watson in Australia said Trollip's move from New Zealand reflects the firm's tradition of sharing research resources from across the world.

Mani Kastellas B R AV U R A S o l u t i o n s h a s expanded its product team with the appointment of two key personnel.

Opportunities FINANCIAL PLANNER Location: Melbourne Company: Investor Wealth Description: A boutique financial services practice is seeking an experienced financial planner to join as a partner. The successful candidate will ideally have their own client base, with over $150,000 of recurring revenue. The candidate will have the opportunity to leverage their business with a view to purchasing clientele. For more information and to apply, visit www.moneymanagement.com.au/jobs, or contact John at Investor Wealth - (03) 9663 9595 reception@investorwealth.com.au

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 statements of advice, build and maintain client relationships and maintain compliance procedures.

Peter Daly has joined Yellow Brick Road ( YBR) to lead the company's expansion into the financial planning space. The former Australian Financial Services chief executive has over 25 years’ experience in the financial services industry, and YBR will be looking to utilise his expertise to attract planning practices to the business.

With experience in the wrap and investment space across Europe and Australia, Mani Kastellas has stepped into the position of product consultant, wrap and investment. Bravura global head of product, wealth management Darren Stevens said Kastellas' appointment forms part of a larger strategy to focus more on product. Stevens said Kastellas will oversee product governance to ensure best practice in its Garradin and Sonata solutions. The software developer has also promoted Michelle Lusty to the position of product manager, Sonata, which it said reflected the strategic development in the

Peter Daly

Mani Kastellas solution across wrap, superannuation and life insurance. "Both Mani and Michelle have deep knowledge and experience with our product, having been instrumental in their design over the years," Stevens added.

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

Experience in 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 an 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 JUNIOR PARAPLANNER

Move of the week

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 incumbent 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

SUPERANNUATION ACCOUNTANT Location: Adelaide Company: Terrington Consulting Description: Due further growth within the business, a financial services firm is seeking a superannuation accountant on a contract basis. A senior level background is essential, specifically supervising assistant accountants and other more junior staff. You will also need a CA/CPA qualification, as well as experience in preparing financial statements and tax returns in relation to SMSFs. To find out more and to apply, visit www.moneymanagement.com.au/jobs, or

contact Sean at Terrington Consulting 0499 771 810 www.terringtonconsulting.com.au

FINANCIAL CONTROLLER Location: Adelaide Company: Terrington Consulting Description: An opportunity has become available for a financial controller to take charge of the overall accounting function of a construction business. Your key responsibilities will include providing financial business advice and support to staff and management; preparing divisional profit and loss performance reports; assisting 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

www.moneymanagement.com.au June 28, 2012 Money Management — 27

Outsider

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

Shorten to stand tall – in 25 years OUTSIDER has decided the Minister for Financial Services and Superannuation, Bill Shorten, has an eye to both the future and the past – particularly how history might judge him. Shorten’s views on how he might ultimately be perceived through the lens of history were revealed in an address to a Financial Services Council (FSC) function at Parliament House in Canberra last week, when he suggested those assembled might reassemble at the same venue in 25 years time and reflect that perhaps the Gillard Government had been responsible for delivering some good policy. Shorten then further surprised Outsider by paying a compliment to the Opposition spokesman on Financial

Services, Senator Mathias Cormann, by suggesting he was one of the best prepared and most assiduous shadow ministers and therefore a challenging opponent. Given how often Shorten is touted as future Prime Ministerial material, Outsider was somewhat surprised by the diminutive minister’s reflective mood and wondered whether perhaps he had just finished viewing some Australian Labor Party internal polling. Then, again, Outsider calculated that given normal circumstances, 25 years represents eight terms of

government in Australia and he cannot believe that even based on current polling the ALP will be out of office for more than half that time. The FSC bash in Parliament’s mural hall was notable for who was there and who was not there – and Outsider noted that while Association of Superannuation Funds of Australia chief executive Pauline Vamos was present, he could not detect a representative from the key financial planning organisations, unless you counted a certain ubiquitous public relations operative assiduously working the room.

In which Outsider has a capital time OUTSIDER spent nearly 18 years domiciled in Canberra, but until last week had forgotten just how bitterly cold the national capital could be. Your venerable correspondent had also forgotten just how difficult it was to get accommodation during a Parliamentary sitting week. The result was that he found himself

“

Out of context

staying not at the Hyatt, the Crown Plaza or Rydges Capital Hill, but in the somewhat more modest but nonetheless comfortable surrounds of the Australian National University’s University House. However Outsider quickly learned that it was churlish to bemoan the standard of his own accommodation when he found himself in discussion with a certain funds management type who was spending the night in a local caravan park – no doubt in a premium bungalow. He was also pleased that unlike one asset consultant he was not forced to turn around after a Financial Services Council dinner and drive back to Sydney. It is worth noting that a number of senior dealer group operatives had the good sense to have seats booked on the latest possible flight back to civilisation – which probably explains why they earn the big bucks. Outsider found himself grateful for the heated floor in his University House bathroom and for his Qantas frequent flyer card when he had to scrape the ice off his car windscreen on a minus-6 degree Canberra morning. For Outsider it was all proof of why certain newspaper organisations used to pay their Canberra correspondents a remote location allowance.

“They can do it online but taken in bite-size chunks; they can become addicted to it as they would in a zombie-farm.” Bytes but no blood required to turn members digital, says executive general manager for direct customer at Suncorp Life Australia, Vicki Doyle.

28 — Money Management June 28, 2012 www.moneymanagement.com.au

Planners, you’re safe as the Bank of Scotland IF Australian financial planners think they’re doing it tough, they should spare a thought for their counterparts in Ol’ Blighty. The Royal Bank of Scotland (RBS) – which is 82 per cent owned by UK taxpayers thanks to a huge bailout during the global financial crisis – has announced it is culling 618 financial planners from its operations. The cuts represent a 50 per cent reduction in RBS’s financial planning division across the UK. The bank put the decision to axe the planning jobs down to the UK financial regulator’s Retail Distribution Review

(RDR), which will ban commissions and force planners to charge their clients upfront from 1 January 2013. This doesn’t exactly bode well for financial advisers working for big institutions in Australia, with the Future of Financial Advice (FOFA) reforms passing through the Senate last week. With the implementation of FOFA delayed until 1 July 2013, the impact of regulatory changes in the UK could well be prophetic for antipodean planners. Outsider reckons Aussie advisers will be eyeing events in the UK over the next six months with a certain degree of trepidation.

“I think Pauline’s given him the brief; we’re not looking back, we’re looking forward. She’s going through the process of managing Paul as we speak.” ASFA’s Pauline Vamos is busy briefing Paul Keating on what not to say at an ASFA conference in November, explains AMP Capital trustee of investment solutions Glen Sanders.

“We piloted this, as you do when you pilot most things – in Tasmania.” HostPlus chief executive David Elia admits the super fund’s inaugural roadshow was tested in Australia’s least relevant state.