Money Management (June 7, 2012) by Cirrus Media

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The publication for the personal investment professional

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GOVERNMENT’S SUPER MUDDLE: Page 10 | HEART ATTACK TERRITORY: Page 18

ASIC recruits from within the industry By Milana Pokrajac THE Australian Securities and Investments Commission (ASIC) has confirmed it has increased its efforts to better understand the inner workings of the financial planning industry by recruiting from within the sector. Money Management understands former employees of small practices and institutions such as AMP have been poached by the regulator in recent months. “While I don’t have exact figures to provide, I can say that ASIC’s financial advisers team has a strong diverse skill set,” said Danielle McInerney, a spokesperson for ASIC. “It has people with many years of industry experience such as lawyers, financial planners, risk and compliance managers.” This apparent move by ASIC was welcomed by the financial planning industry. “A combination of having people

Graph:

with experience inside the team and engaging more with the industry can only help them better regulate the industry,” said Dante De Gori, the Financial Planning Association’s (FPA’s) general manager for policy and government. “There is a lot more that could be done – resourcing is a constant, ongoing battle – but this is a good start and a good step,” he added. The change in the regulator’s approach is also reflected in the availability and willingness of ASIC’s senior representatives to speak at events and attend roadshows, according to the Association of Financial Advisers (AFA) chief executive officer Richard Klipin. “The shift to recruit people from within the industry with strong experience is to be applauded,” Klipin said. “We were always of the view that the regulator has a strong and key role to play and the closer the industry and the regulator are in terms of the focus,

Dealer Group Poaching

Proportion of planners approached to change dealer groups

strategy and activity, the better the outcome for the industry – but most importantly for the consumer.” Both De Gori and Klipin have also noted increased efforts by the regulator to consult with the industry, the most recent example being the financial planning shadow shop exercise conducted by ASIC. Apart from engaging ASIC’s Consumer Advisory Panel, which was established in 1999, the regulator also employed a socalled ‘expert reference group’ for oversight, members of which came from advice groups and superannuation funds initially nominated by the FPA, the AFA and the Association of Superannuation Funds of Australia. “The group assisted in defining the quality of advice benchmarks and provided guidance on the grading of the advice, including calibration with industry standards,” ASIC stated in its Continued on page 3

Turf war hits nearly half By Mike Taylor

Not Approached

44%

50%

Approached

Don’t Know Forty-four percent of planners report that their practice has been approached in the past few months by a rival dealer group asking them to join them. Source: Wealth Insights

THE extent of the current dealer group turf war has been revealed by new Wealth Insights research revealing around 44 per cent of the planners surveyed had been approached to move to a rival dealer group. The research also revealed that those most affected were planners within the Count Financial group recently acquired by the Commonwealth Bank – which is known to have been targeted by BT Magnitude. Wealth Insights managing director Vanessa McMahon said that of the Count advisers covered by her company’s survey process, 74 per cent said they had been approached by a rival dealer group to change allegiance in the past few months. However, she pointed out that Count planners were

MULTI-MANAGER FUNDS

Taking a fresh look THE dispersion between returns across the multimanager funds sector has been at its widest for a number of years, which could be a direct result of some – but not all – multi-managers taking a fresh approach to investing. The revised approach generally involves ditching strategic asset allocation and growth/defensive labels, and introducing more flexibility and dynamic responses. Many have rebranded themselves from multi-manager to multi-asset funds. According to Lonsec, returns vary from -6.9 per cent to 3.9 per cent, with active management generally resulting in better performance – though recurring declines in equity markets made life difficult for many. The costly nature of activelymanaged products has been out of favour with advisers and investors, but the revised structure of multi-managers might make for a perfect product in current market conditions. This was represented in relatively healthy inflows over the past year – at a time when managed funds generally suffer – but the ongoing volatility still impacts both adviser and investor sentiment towards actively-managed products. Despite difficulties with fund flows faced by the broader funds management sector, multi-managers believe they are better placed than many single strategy or asset class managers. For more on multi-manager funds, turn to page 12.

Continued on page 3

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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

The watchdog rolls over on delay

asmanian Liberal Senator David Bushby has been like a dog with a bone when it has come to scrutinising the performance of the Australian Prudential Regulation Authority (APRA) with respect to its regulation of superannuation funds. And perhaps the Tasmanian Senator has a point in circumstances where the performance of APRA was found wanting in relation to its handling of the collapse of Trio Capital and where, just last week, it emerged that the regulator had little or no idea of how well superannuation funds were performing with respect to handling superannuation rollovers. APRA admitted in answer to a question on notice from Senator Bushby that it did not hold a particular view on what represented ‘best practice’ with respect to superannuation rollovers – an admission which suggests the regulator is guilty of focusing too much on regulatory machinery and too little on consumer outcomes. Financial planners have for years been complaining about how long it takes some superannuation funds to undertake the mechanical process of rolling a client from one superannuation fund into another. Rightly or wrongly, industry superannuation funds have been

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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such as APRA “andRegulators the Australian Securities and Investments Commission should not be above scrutiny as to their own performance.

”

identified as particular laggards. Given the number of vociferous complaints which have been aired about rollovers, it seems remarkable that, as the relevant regulator, APRA had not kept a closer watch on the issue and made some effort to measure performance. That it has not, does not reflect well upon the organisation. APRA’s seeming inaction also raises the question of whether it has bothered to observe the work of the Superannuation Complaints Tribunal (SCT) and the number of occasions on which it has dealt with

claims that superannuation fund members have ended up being financially disadvantaged by the amount of time it has taken for a rollover to occur. In the immediate aftermath of the global financial crisis, the SCT determined a number of cases where superannuation fund members claimed to have suffered financial loss because of the amount of time taken by funds to action changes to both investment settings and, in some cases, rollovers. Notwithstanding their status as the watchdogs of the financial services industry, regulators such as APRA and the Australian Securities and Investments Commission should not be above scrutiny as to their own performance. Indeed, it is worth remembering that in the immediate aftermath of the collapse of major insurer HIH, there was substantial change at the highest levels of APRA. The collapse of Trio Capital was no less significant than that of HIH, and admissions such as those made by APRA in response to Senator Bushby's question suggest it is time for those running the regulator to reflect upon their own performance. – Mike Taylor

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2 — Money Management June 7, 2012 www.moneymanagement.com.au

Print Post Approved PP255003/00299

Vol.26 No.21 | June 7, 2012 | $6.95 INC GST

The publication for the personal investment professional

www.moneymanagement.com.au

GOVERNMENT’S SUPER MUDDLE: Page 10 | HEART ATTACK TERRITORY: Page 18

Graph:

Dealer Group Poaching

Proportion of planners approached to change dealer groups

Turf war hits nearly half By Mike Taylor

Not Approached

44%

50%

Approached

Don’t Know Forty-four percent of planners report that their practice has been approached in the past few months by a rival dealer group asking them to join them. Source: Wealth Insights

MULTI-MANAGER FUNDS

News

Young planners ‘only see upside’ with C & D clients By Tim Stewart YOUNGER financial planners are snapping up C & D client lists from established practices and treating them as a referral source, according to NAB Financial Planner Banking national manager Daniel Lowinger. The onset of the new regulatory regime is motivating older planners to restructure their businesses by selling off their lower value clients, Lowinger said.

While commission arrangements entered into with clients before the Future of Financial Advice commencement date look set to be grandfathered, “eventually that will fall away anyway, because clearly [planners] don’t have a relationship with those clients”, he said. Most lower-value clients tend to provide practices with only $100 a year, “so it just doesn’t make sense to have them onboard”, Lowinger said.

Books of C & D clients are receiving attractive multiples of 3-3.2 times recurring revenue, driven by demand from planners in their early 30s who are “ready to go out and run their own business”, Lowinger said. “They realise that these clients would never have been touched before, and all of a sudden they can start to provide them service – get in contact with them, build a relationship and so on,” he said.

“They only see upside. They’re almost buying it as a referral source. It takes a long time to get 1,000 referrals – whereas you can buy a [C & D] client base that’s ready-made,” Lowinger said. “We’ve seen it in practice. There are certain groups that are selling down the C & Ds. AXA did it well through the Discovery program, and [NAB-owned] MLC are doing it particularly well at the moment with the Connect for Growth program,” he said.

ASIC ticks relief on super advice

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4 — Money Management June 7, 2012 www.moneymanagement.com.au

By Mike Taylor THE Australian Securities and Investments Commission (ASIC) has confirmed in its latest overview of relief decisions the degree to which it has freed up superannuation trustees to provide retirement forecasts. The latest overview points to both Regulatory Guidance 229 (RG 229) and Class Order 11/1277, both of which go towards super trustees providing superannuation forecasts and retirement estimates. It said RG 229 was designed to assist super trustees in providing their members with superannuation forecasts. It said that to fall within the relief a retirement estimate had to include certain mandatory content; be calculated taking into account all of the required variables, and using the default assumptions; and be given at the same time as the periodic statement and be included in, or accompany, the statement. It said the class order relief had been granted to the trustees of superannuation entities so that they do not have to comply with the requirement to hold an Australian Financial Services licence for any financial product advice they give in providing members with a retirement estimate. It said that without relief, providers of retirement estimates might need to hold an AFS licence with a personal advice authorisation and comply with the personal advice requirements of the licensing regime. It said the relief was aimed at facilitating superannuation fund trustees providing members with retirement estimates for their planning.

News

RI Advice backs in-house review, targets growth By Chris Kennedy

RI Advice Group’s (RI) in-house proprie to r s a d v i s o r y c o u n c i l ( PAC ) h a s endorsed the outcomes of the group’s recent business review, which included the restructuring of practice agreements to remove conflicted remuneration structures. Outcomes of the review, which commenced in the middle of last year,

included new adviser agreements, pricing and fee structures and an updated administration platform solution, according to RI chief executive Paul Campbell. The PAC, which is a representative body of all RI practices across Australia, consulted with group management throughout the review. PAC chairman Brett Schatto stated the work of the PAC led to greater support from RI management for practices.

“RI management has listened to our concerns and worked with us on solutions. We now see ourselves as a cooperative of small business people in a joint venture for the benefit of our clients,” he said. RI Advice head of practice management Peter Ornsby said a key consideration was getting the group ready for Future of Financial Advice changes. Practices now operate on a fee-for-serv-

ice basis not only in terms of clients but also the fee paid to the licensee, which is now a flat fee rather than a percentage of revenue. The group had seen a new business join or be acquired at the rate of one per month since 1 October last year, with three more set to join in the next eight weeks, meeting the one-per-month target the group had set for the year up to September, Ornsby said.

Jeff Bresnahan

Average pension account exceeds $200,000 By Milana Pokrajac

THE average pension account has exceeded $200,000 for the first time across the superannuation industry, according to data collected by research centre SuperRatings. Furthermore, this figure is more than six times larger than the average accumulation account balance of $32,800. SuperRatings chairman Jeff Bresnahan said growth in pension accounts is significant and might change the dynamic of the competition in the superannuation industry. “Whilst the membership of the overall industry only grew 0.7 per cent last year, pensions actually grew by 17 per cent,” Bresnahan said. “It is quite clear that, while the battle has always been fought around the accumulation members, the real battleground going forward is the fight for the pension dollars.” As a result, pension products across both non-for-profit and retail super funds were constantly improving, Bresnahan said. “Historically, a lot of the nonfor-profit funds in particular had very inflexible structures that didn’t really suit a lot of people,” Bresnahan said. “They’re becoming aware that you can’t build a one-size-fits-all pension product.”

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www.moneymanagement.com.au June 7, 2012 Money Management — 5

News

Reason for switching has been lost: BT By Chris Kennedy

Mark Spiers

IN all the “noise” around how many Count practices have transitioned over to BT groups and under what arrangements, the reasons practices switch licensees at all seem to have been lost, according to BT’s general manager of advice Mark Spiers. Money Management recently week reported on rumoured “sign-on fees” being paid to Count practices that switched to BT. However Spiers later contacted Money Management to say the transitions were simply part of the overall picture. Financial planners had recently experienced a “perfect storm” of disruption due to events such as the GFC and ongoing European contagion wreaking

havoc with markets, as well as significant regulatory overhaul, he said. “That has created a level of dislocation and the fracturing of markets and many relationships. What we’re doing in terms of our growth strategy, we’ve been building out and delivering our capabilities, products, services and our offering to planners in order to have them in a position to be able to best serve their clients,” Spiers said. “There’s been a lot of focus on Count, but our strategy is to grow in the marketplace,” he said. Spiers said that as an industry leader, BT had received enquiries from a significant number of practices. “Many planners and practices are proactive themselves and do their own due diligence on

markets and players,” he added. “As things change in practices – as over time if the business is not growing at the rate they want it to grow – then they come back into the market to look at how they can best align themselves for a partner to help them,” he said. Spiers said so far eight Count practices had switched to BT, and the only money BT paid to those practices was transitional. “We don’t take an equity position or invest in practices, we don’t want to erode the owner driver and shareholder incentive to grow the business, so any support we provide businesses has purely been of a transitional nature – that’s consistent with what’s in the industry,” he said.

Incoming planners can retain every client: Kenyon Regulator has no By Tim Stewart WITH appropriate transition arrangements in place, the purchase of a planning practice should see 98 per cent of the client base retained, says Kenyon Partners director Alan Kenyon. Most of the succession deals Kenyon oversaw in the last month involved an upfront payment of 70 per cent to the retiring adviser, with the remaining 30 per cent tied to revenue or client numbers. “We’ve just done one [transaction] with 65 per cent upfront … They’ve just paid a bit less upfront to make sure that in the six months they’ve got the retiring adviser that the transition’s done,” said Kenyon. A typical arrangement might see the high-net-wealth clients transitioned in the first six months, followed by the outgoing planner doing some marketing “a few days a week”, said Kenyon. “The [retiring planner] can say to

Alan Kenyon clients: ‘I’m not going to be responsible for your day-to-day stuff, but we can still play golf’,” he said. But not every deal Kenyon is involved in ends as happily. “Where you don’t have a proper transition – like in a couple of forced sales we’ve done for the banks – you hope to get at best 60-70 per cent of the clients, but in reality it might be 50 per cent,” Kenyon said.

As for the state of the market, demand for planning practices continues to outpace supply – particularly in capital city CBDs where a new practice up for sale will attract 15 enquiries, Kenyon said. “For regional areas [the demand] is slightly less. And if a business has to stay in a dealer group – say a Genesys business staying in Genesys – it’s probably less than that,” he said. On the regulatory side, Kenyon welcomed the increased certainty about the grandfathering of commissions contained in the recent draft legislation as “a step in the right direction”. “We’ve quarantined some of the transactions we’ve done if there was perceived to be a high risk of FOFA implications,” he said. The surety about grandfathering has done a lot to ease some of those concerns, although the way the final legislation will be interpreted is still “a bit cloudy”, he added.

Cormann pays tribute to AFA and reiterates FOFA opposition SHADOW Assistant Treasurer and Opposition spokesman on Financial Services Senator Mathias Cormann has repeated his party’s opposition to the “bad” aspects of Future of Financial Advice (FOFA) reforms, while giving credit to the role the Association of Financial Advisers (AFA) played in FOFA negotiations. Speaking at an AFA event, Cormann thanked the leadership team of the AFA “for standing strong on good public policy in the financial services space”. “I can understand that when pressure comes on from government it can actually be quite difficult to continue to make judgements about what is ultimately in the long-term interests of the public, consumers and business, but the AFA has done that,” Cormann said. Cormann said while not everything was wrong with FOFA, “the bad bits are really bad” and fail to strike a balance between consumer protection and ensuring that access to high quality advice remains affordable. “The bad bits unnecessarily increase complexity, unnecessarily increase red tape, unnecessarily increase costs for little to no additional consumer protection benefits,” he said. “The bad and contentious bits of FOFA are there because the Government is preferring an ideological vested interests agenda – not because they’re pursuing a

genuine attempt at improving consumer protection mechanisms,” he said. “You all know what I’m talking about – this Government is particularly close to one segment in the financial services market and they’re pursuing their agenda in order to give them a leg-up in what is a competitive marketplace.” The Coalition remains committed to the 16 recommendations it made to the Parliamentary Joint Committee enquiry into FOFA, he said. “That includes a commitment to remove opt-in. No ifs, no buts, we will remove opt-in because we think it adds unnecessary complexity, unnecessary red tape and unnecessarily increases costs for both consumers and for small business financial advisers,” he said. “We will seek to streamline the additional annual fee disclosure requirements which continue to get messier and messier. We will improve the definition of the best interests duty, we will ensure there is clarity around the provision of scaled advice, we will further refine the ban of the commissions on risk insurance in superannuation,” he said. “It is one area where collectively the AFA, the FSC (Financial Services Council) and [other bodies such as] the CSSA (Corporate Super Specialists’ Alliance), we have been able to get Bill Shorten and the Government to back down quite significantly already, but there is still further to go.”

6 — Money Management June 7, 2012 www.moneymanagement.com.au

‘best practice’ on super rollovers By Mike Taylor THE time taken by some superannuation funds to rollover member deposits may annoy many financial planners, but the Australian Prudential Regulation Authority (APRA) does not collect data on how long it takes and has no view on what represents ‘best practice’. That is the bottom line David Bushby of an answer provided to the Parliament in the past few weeks to a question from Tasmanian Liberal Senator David Bushby. Bushby had placed a question on the Senate notice paper asking about the status of the requirement for superannuation funds to take less than 30 days to roll money over into a different fund. He asked what was regarded as best practice and whether industry funds “generally take significantly longer than the retail fund sector in arranging and administering rollovers?” APRA responded that a rollover ought normally to occur within 30 days of a request being received but claimed there were some exceptions to this requirement, such as when a trustee had applied for and received relief from APRA. However the regulatory body said it did not routinely collect data which would allow the collation of all cases of non-compliance. It said that “anecdotally, there is limited evidence of non-compliance across the industry”, adding “sometimes delays are due to members not initially providing all the necessary information that will enable a trustee to process the request”. The APRA answer said that, typically, trustees had service standards built into administration arrangements “which are much lower than the legislative requirement”. “These will vary from fund to fund, but may be as low as five or ten working days for a rollover to another APRA fund, and slightly longer to a self-managed superannuation fund where there are additional processing steps,” it said. “The time taken to process rollover requests can vary for many reasons,” the regulator said. “APRA’s focus is on the trustee’s process, including monitoring compliance with firstly service standards, and second the legislative requirement, and APRA has not formed a view as to ‘best practice’.”

News

Good advisers keep clients realistic By Mike Taylor FINANCIAL advisers can be crucial to keeping their clients engaged in their superannuation and from over-reacting to market gyrations, according to Bendigo Bank senior manager technical and research Julie McKay. Addressing a Melbourne conference last week, McKay pointed to customer satisfaction with advisers being owed to “how their adviser kept them on track and stopped them from over-reacting to market gyrations”.

Patrick Snowball

Suncorp announces simplification push QUEENSLAND-BASED Suncorp has announced a $275 million simplification program aimed at driving greater efficiencies in the business and focusing employees on highvalue activities. The program, announced by Suncorp chief executive Patrick Snowball, will cost $275 million but is forecast to deliver the insurance and financial services group annualised benefits of $200 million from the 2016 financial year. Outlining the program to an Investor Day event, Snowball said it would see an organisational redesign, together with the decommissioning of 14 legacy policy systems and a consolidation of the company’s general insurance licences. As well, he said there would be a staged investment to improve Suncorp’s core banking platform and a focusing of employees on highvalue activities. Snowball said Suncorp’s businesses were performing strongly and were broadly on track to deliver the growth targets outlined by the company in May 2010. He said the underlying general insurance business had improved ahead of expectation in the second half and would now be targeting an underlying margin of 12 per cent for the full year.

“You might not be happy with a declining superannuation balance but you might make informed and less emotional decisions if you believe you are still broadly on track to meet your goals,” she said. However McKay said customers had a very different view of what constituted advice to that held by the lawyers and regulators. “Customers have a very different view of advice,” she said. “It ranges from what the regulations call factual information or general advice – basically a FAQ about

a particular and usually immediate topic or concern such as life insurance, and also covers prognostication – basically forecasting when markets will turn good or bad. “Advice is like a free option; when an investor misses a market turn or opportunity the easiest person to blame is their financial adviser,” McKay said. “To be blunt, on the whole clients were also aware that many advisers were simply selling their employer’s products,” she said. “Why would you pay for the privilege of

being sold to - even if the product is useful?” McKay claimed a customer’s expectations about advice matched a basic pyramid approach to finances: • You need a platform made up of budget discipline and insurance to protect the family’s principal income stream. • Then you can focus on saving for essentials such as a home, children’s education and a sustainable retirement. • Finally you can add aspiration targets such as a more comfortable retirement and bequests for the next generation.

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www.moneymanagement.com.au June 7, 2012 Money Management — 7

News ‘Churning’ should be addressed at the underwriting stage By Andrew Tsanadis UNDERWRITERS should exercise the whip hand when it comes to dealing with churning in life insurance. That is the analysis of Synchron, which has claimed that in order to address the issue of ‘churning’ the responsibility should fall on the underwriter to determine whether to continue with an insurance policy. “When an existing policy is to be replaced, and the replacement is within a specified time – say five years – we propose it should fall to the underwriter to request a copy of the statement of advice (SOA), determine whether the advice is appropriate, and if not, decline the case on the basis of a moral hazard,” said Synchron director Don Trapnell. “It would ensure that the consumer is not impacted in any way and would actively protect the interests of the consumer.” Trapnell said Synchron had put forward the proposal to a number of life insurers but some of them had argued that underwriters could not be expected to assess SOAs. He said this was “a nonsense” and that the insurers were not sold by Synchron’s proposal because it did not help them with the “unrealistic” lapse rate assumptions they made in their premium rating structures. Trapnell also criticised the Financial Services Council’s (FSC’s) policy to address churn, saying that it put blanket restrictions on all advisers, rather

Govt urged to delay MySuper implementation By Mike Taylor

Don Trapnell than targeting those financial advisers who were not working in the best interests of their clients. “In a market where products are constantly being reviewed, benefits enhanced and premiums revised, it could be argued that it would be negligent for an adviser not to review their clients’ existing cover and recommend replacement (business) within five years, where appropriate,” he said. “In our opinion, despite its protestations of innocence, the FSC is jumping on the churning bandwagon in order to grasp the opportunity to redirect the industry’s remuneration model to suit their own members’ ends.”

THE Federal Government has been urged to amend the first tranche of its MySuper legislation to give employers more time to get their houses in order. At the same time as some financial planners have expressed concern that the Government has not legislatively formalised the one-year transition to the Future of Financial Advice (FOFA) arrangements, the Association of Superannuation Funds of Australia (ASFA) has called for a one-year transition to be applied to MySuper. In a submission filed with the Treasury, ASFA claims it supports the Government’s 1 July 2013 commencement date, but then argues “there is an urgent need for the Government to amend the original, first tranche MySuper Bill to extend the date by which employers make ‘default’ contributions in compliance with the Superannuation Guarantee … from 1 October 2013 to 1 July 2014”. It said it strongly believed that this employer compliance date had to be extended to 1 July 2014, “as to do otherwise will place superannuation

trustees under undue pressure to have a MySuper offering in place by 1 October 2013”, giving rise to complex and costly system changes. “Compliance with these reforms will necessitate considerable changes being made to a mature and complex superannuation system,” the submission said. “The FOFA, SuperStream and APRA reporting reforms also have a significant impact on a number of superannuation funds,” it said. “Trustees need a degree of certainty to make the threshold decision whether to provide a MySuper offering, as well as the many consequent strategic and implementation decisions necessary to produce a MySuper offering.” The submission said that, to date, only the first and second tranches of the MySuper legislation had been introduced into Parliament and neither had been passed, and it was unlikely the industry would see the final legislation until well into the second half of this year. “The time available to make all of the necessary decisions and implement the changes is reducing,” it said.

REITs beat index despite poor performance By Bela Moore ALL but one Australian REIT manager has beaten the index over the past 12 months despite global economic uncertainty and a slow improvement in REIT fundamentals negatively impacting on active global REIT manager performance, according to Zenith’s latest research. Zenith investment analyst Quan Nguyen said a trend towards passive portfolio construction had emerged over the past 24 months due to global economic uncertainty and

sovereign issues in Europe. This is the reason most active global REIT managers underperformed the Vanguard International Properties Securities Index Fund (hedged) for the third consecutive year, he said. However, Nguyen said the Australian REIT sector was well positioned compared to the broader equity market because low demand was being offset by rental growth improving or at least matching inflation, and interest rates were coming down. “Over the last 12 months, the Australian REIT sector has more than

8 — Money Management June 7, 2012 www.moneymanagement.com.au

comfortably outperformed the broader Australian stock index,” he said. He also said correlations between global property funds and other sector benchmarks were low, which indicated the continuing diversification benefits REITs offered in a portfolio. From 53 property funds, Zenith rated five “highly recommended” including BT Wholesale Property Securities Trust, UBS Clarion, Zurich Investments and Resolution Capital Global Property Securities funds, and a further 13 were rated “recommended”.

SMSF Weekly

Detail of Govtâ&#x20AC;&#x2122;s super tax questioned By Mike Taylor

THE Federal Opposition has called on the Government to clarify who is or is not covered by its Budget changes reducing the concessional superannuation tax treatment for those earning over $300,000. The call follows on from Senate Estimates hearings last month during which it was claimed statements by a senior official within the Department Mathias Cormann of Finance and Deregulation had

clouded the issue. The Opposition spokesman on Financial Services, Senator Mathias Cormann, said clarity was needed in terms of how the changed superannuation tax arrangements would be applied, and therefore how much they would raise. Cormann said that the confusion around the revenue implications of the changes had been heightened by contradictory statements made by the Minister for Finance, Senator Penny

CFD companies push their case By Damon Taylor MORE self-managed super fund (SMSF) trustees are using the power of contracts for difference (CFDs) as hedging tools within their funds to protect their core portfolios, according to Capital CFDs. This is particularly the case after years of extreme volatility in local and world markets, with the Australian market experiencing its worst weekly performance in 2012. Since 2007, SMSFs have been allowed access to CFDs, a change which Ashley Jessen, head sales trader for Capital CFDs, believes has given trustees a cost-effective and efficient tool for hedging as opposed to traditional methods such as options. â&#x20AC;&#x153;If an SMSF holds 2,500 ANZ shares, then an options hedging strategy would require 25 separa t e o p t i o n s c o n t ra c t s t o b e written [options over Australian shares are written in 100-share contracts],â&#x20AC;? he said. â&#x20AC;&#x153;Whereas, a single CFD trade could protect the ANZ shares on the downside, which is essential during market downturns such as recently when

ANZ fell just over 12.5 per cent in 13 days.â&#x20AC;? Jessen said that instead of being exposed to a 12.5 per cent drop in ANZ, an SMSF investor positioned via hedging could have positioned itself to limit that downside for minimal outlay. â&#x20AC;&#x153;This explains the growth of CFD trading by SMSF trustees to â&#x20AC;&#x2DC;shortâ&#x20AC;&#x2122; their own portfolios to protect the value of the core portfolio in case of a market slide,â&#x20AC;? he added. And instead of using CFDs to speculate, Jessen said that smart investors could use them for risk protection measures and to reduce exposure to local stocks that have since fallen out of favour in the market. â&#x20AC;&#x153;Experienced investors who understand leverage and who are looking to use CFDs for r isk protection are well advised to consider this technique further,â&#x20AC;? he outlined. â&#x20AC;&#x153;Eurozone announcements that spook investors and drive markets down are all too common nowadays, so investors need to consider all the tools available to limit their downside and lock in profits.â&#x20AC;?

Wong and the Minister for Financial Services, Bill Shorten. He said this confusion had escalated as a result of evidence to Senate Estimates by the secretary of the Department of Finance and Deregulation, David Tune, that the tax might not apply to some judges who were members of constitutionally-protected super schemes. â&#x20AC;&#x153;If Mr Tune is right, then both Penny Wong and Bill Shorten have got their own Governmentâ&#x20AC;&#x2122;s policy

wrong,â&#x20AC;? Cormann said. He said Tune had also suggested the necessary legislation might not be in place by 1 July 2012, which is the proposed starting date of the new tax. â&#x20AC;&#x153;The confusion over who is likely to pay and who isnâ&#x20AC;&#x2122;t puts into question Treasuryâ&#x20AC;&#x2122;s projected revenue estimates for this new tax and raises serious doubts about Laborâ&#x20AC;&#x2122;s ability to deliver its promised Budget surplus in 2012/13,â&#x20AC;? Cormann said.

Strategy changes claimed justified post-Budget WITH one month to go until the end of this financial year, investors would do well to review their superannuation strategies and maximise their super savings before new laws announced in this yearâ&#x20AC;&#x2122;s Federal Budget kick in, according to Hewison Private Wealth. Chris Morcom, director and adviser at Hewison Private Wealth, said that the Governmentâ&#x20AC;&#x2122;s election Budget was not surprising but was a disappointing outcome for higher income earners, who will face increases to the contributions tax and restrictions on superannuation contributions. â&#x20AC;&#x153;June represents a golden opportunity for higher income earners to turbo charge their retirement savings before a suite of new superannuation laws come into play,â&#x20AC;? he said. â&#x20AC;&#x153;But investors will need to plan accordingly.â&#x20AC;? Morcom suggested three specific super strategies for investors to consider pre-June 30 â&#x20AC;&#x201C; but for self-managed super funds (SMSFs), the most important is the transfer of in-specie assets. â&#x20AC;&#x153;Time is running out to take advantage of inspecie asset transfers, a popular strategy for reducing exposure-to-market risk, with the enddate for in-specie contributions 30 June 2012,â&#x20AC;? he said. â&#x20AC;&#x153;Investors should take advantage of weaker investment markets by transferring personallyowned listed assets or business real estate property to their super fund, as a contribution that can be made â&#x20AC;&#x2DC;off-marketâ&#x20AC;&#x2122;.â&#x20AC;? Morcom said that if someone was a highincome earner, it made sense to transfer their

assets into their super fund in order to shield themselves and their assets from market risk. â&#x20AC;&#x153;It can be a very tax-efficient way to build a retirement base,â&#x20AC;? he said. Hewison Private Wealth emphasised that inspecie and off-market asset transfers were transactions whereby SMSFs could transfer assets, in lieu of cash, to or from fund members or their related entities. According to Morcom, as of July 1 this year investors will have to sell their assets on the market first, contribute cash to their SMSF, and then rebuy the assets, exposing themselves and their assets to the chance of market fluctuations during the transaction. â&#x20AC;&#x153;When in doubt, investors should seek the professional help of their financial adviser to ensure they are eligible to utilise various strategies and arenâ&#x20AC;&#x2122;t in breach,â&#x20AC;? he concluded.

...AFTER YEAR. THATâ&#x20AC;&#x2122;S PERPETUALâ&#x20AC;&#x2122;S DIVERSIFIED INCOME FUND. -+ /0 'É&#x201E; )1 ./( )/.Ć&#x2013;É&#x201E; $3 É&#x201E; ) *( É&#x201E;!0) .É&#x201E; $(É&#x201E;/*É&#x201E;+-*1$ - '$ $'$/4É&#x201E; 4É&#x201E; '$1 -$)"É&#x201E;- "0' -É&#x201E;$) *( É&#x201E; ) É&#x201E; +$/ 'É&#x201E;./ $'$/4Ć&#x2020; # É&#x201E; $1 -.$Ĺ¨ É&#x201E; ) *( É&#x201E; 0) É&#x201E;$)1 ./.É&#x201E;$)É&#x201E;,0 '$/4É&#x201E;$) *( " ) - /$)"É&#x201E; .. /.É&#x201E;.0 #É&#x201E; .É&#x201E; 0./- '$ )É&#x201E; *-+*- / É&#x201E; *) .Ć&#x2021; #4 -$ .É&#x201E; ) É&#x201E; )&É&#x201E;$..0 É&#x201E; *) .Ć&#x2021;É&#x201E; ) É&#x201E;'**&.É&#x201E;/*É&#x201E; *( $) *).$./ )/É&#x201E;$) *( É&#x201E;2$/#É&#x201E;/# É&#x201E;+*/ )/$ 'É&#x201E;!*-É&#x201E; *1 É&#x201E; .#É&#x201E;- / É&#x201E;/*/ ' - /0-).Ć&#x2020;É&#x201E; $.$/É&#x201E;222Ć&#x2020;+ -+ /0 'Ć&#x2020; *(Ć&#x2020; 0Ć¤Ĺ¨3 $) *( É&#x201E;/*É&#x201E;Ĺ¨) *0/É&#x201E;(*- 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; $-./ - + Ć&#x152;É&#x201E; Ć&#x152;É&#x201E; ,0 -$ 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. www.moneymanagement.com.au June 7, 2012 Money Management â&#x20AC;&#x201D; 9

InFocus FINANCIAL PRODUCTS SNAPSHOT Capital-protected product market since December 2011.

45,500 < 50,000 Investors using capitalprotected products fell 9% since December 2010.

23% Number of investors who cited “inappropriate market conditions” as a barrier to using capital products.

72%

Number of investors who seek a financial adviser for capital-protected products.

CBA Highest brand awareness among investors.

Macquarie Highest brand awareness amongst financial planners. Source: Investment Trends

WHAT’S ON FSC/Deloitte Leadership Series 2012 14 June Sofitel, Melbourne www.ifsa.com.au/

ACFS Bank Regulation and the Future of Banking 11 July City Convention Centre, Melbourne www.australiancentre.com.au/ acfs-events/

AFA National Roadshow Hobart 17 July Wrest Point, Hobart www.afa.asn.au

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

Meddle, muddle – more toil and trouble The dust has well and truly settled on the Federal Budget but, as Liz Westover writes, the Government needs to accept that its actions have served to confuse Australians and harked back to the days of the superannuation surcharge.

s the dust settles over another Federal Budget, a review of a number of superannuation measures and their real impact is warranted. Going into Budget lockup on 8 May, I was certain that some aspects of superannuation would be addressed by the Government (as they inevitably are), and naturally, I was not surprised. There were two measures announced by Treasurer Wayne Swan this year that caused a big stir within the superannuation industry. Details on the first issue, around the introduction (or some say, “reintroduction”) of a higher tax rate on superannuation contributions for those people earning more than $300,000, were released prior to budget night, so it provided no great surprise. The other announcement on the deferral of the higher concessional contribution cap for those over 50 came on the night. The question a lot of people will be asking is: why do some of these measures matter? Why should the average working Australian saving for retirement care? Unfortunately, while some of the measures seem to impact only a small group of people, the ramifications will be felt by all Australians who contribute to super.

Higher tax rate on contributions from very high income earners Interestingly, the Government refers to this measure as a “reduction” of tax concessions, rather than an increase in the tax rate! In reality, the Government announced an additional 15 per cent tax would apply on contributions to superannuation made by those people with incomes of more than $300,000. The definition of income is a little confusing and includes taxable income, concessional superannuation contributions, adjusted fringe benefits, total net investment loss, target foreign income, tax-free government pensions and benefits, less child support. If all this adds up to greater than $300,000, then a 30 per cent tax rate applies to all of your super contributions. However, if it is only your super contributions that cause you to go over the $300,000 threshold, then the 30 per cent tax rate will only apply to those contributions which exceed the threshold. Fortunately, the additional 15 per cent tax rate will not apply to any contributions that are otherwise subjected to excess contributions tax. The rationale for this is that these people have not received any tax concession on excess contributions to which a reduced tax concession would apply. The new rules are not straight-forward and show all the hallmarks of another confusing super regime that is reminiscent of the old surcharge days. In all likelihood, there will not be a lot of public concern for very high income earners caught up in these measures, so why then have so many people come out criticising it? This measure is

10 — Money Management June 7, 2012 www.moneymanagement.com.au

number of excess contributions tax assessments being issued by the ATO as a result of this announcement.

Funding for regulators

somewhat concerning for the entire Australian public for two reasons. Firstly, the Government should be ensuring that those who can afford to fund their own retirement are able do so, in order to lower the reliance on aged pension down the track. While this decision could offer the Government short-term savings, it may have a detrimental impact long-term if it results in more pressure on public funding because more people require the aged pension. The second concern relates to the costs of administering such a complicated regime. Previous attempts at similar measures (a superannuation surcharge tax was imposed on high income earners for superannuation contributions made between 20 August 1995 and 30 June 2005) were administrative nightmares, costing vast amounts of money for regulators and superannuation funds. This is where everyone pays. Those administration costs will be dispersed across the greater membership and consumer base, and not just imposed on the very high income earners. This affects everyone’s superannuation savings.

Deferral of higher concessional contributions cap The other big announcement on Budget night involved the deferral of the higher concessional contributions cap for those aged over 50 with super balances of less than $500,000. Effectively what this means is that for the next two years all Australians, including those over 50, will only be able to contribute $25,000 to superannuation per year. Those over the age of 50 were expecting the $50,000 cap would continue to apply to them, albeit where their super balances were less than $500,000. This measure is quite disappointing, particularly as it leaves many people doubting whether the higher concessional contributions cap, now set to come into effect on 1 July 2014, will actually take place. Aside from the obvious concerns – that individuals nearing retirement may struggle to save enough – many people will now find themselves at a greater risk of contributing too much super, and facing the excess contributions tax. When the rules keep changing, many people have to keep changing their retirement saving plans, and it’s not surprising if they find they can’t keep up. It is likely that there will be an increase in the

Some of the other announcements likely to impact on retirement savings were included under the banner of extra funding for various regulators across the superannuation and financial services sectors. The Government announced it would provide additional funding to regulators and government departments to implement a number of new reforms in the superannuation and financial services industries. While this sounds like a sensible approach given the vast amount of reform these industries are undergoing, the fine print in the Budget included an increase to the fees and levies required within superannuation and financial advisory services. (The Government was clearly a lot quieter about announcing this.) The reality is that all the funding to the regulators is on a cost-recovery basis, and it is ultimately the consumers who will be paying for it, either directly or as costs passed on by service providers. For example, funding for the implementation of SuperStream is to be recouped via a temporary levy on Australian Prudential Regulations Authority-regulated super funds (which will ultimately be passed on to members). Funding for the Australian Securities and Investments Commission (ASIC) and the Australian Taxation Office for self-managed super fund (SMSF) auditor registration is to be paid for with an increase in the SMSF levy and fees for auditors; and funding to ASIC for the implementation of the Future of Financial Advice reforms is to be paid for by increases (in some cases by as much as 420 per cent) in Australian Financial Services Licence (AFSL) application and annual lodgement fees. This final measure is particularly concerning if accountants are soon to fall under the AFSL regime, as part of the proposed replacement to the accountants’ exemption. As is always the case, it is only when these measures are implemented that will we see their actual impact. The behavioural impact of these measures, which are often intangible calculations at this time, will likely be significant – confidence will be eroded, and further disengagement of people with their super should be expected. The goal of superannuation is to help people save for a comfortable retirement. The Government should be encouraging this to mitigate the long-term impact of government support of Australians in retirement. Constant meddling with super laws sadly seems to be a government imperative. Liz Westover is head of superannuation at the Institute of Chartered Accountants in Australia

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05/12 – ADV1152MM

Multi-manager funds

Taking a fresh look Multi-manager funds might have done well on the inflows front, but the dispersion between returns across the sector has been at its widest for a number of years. This could be a direct result of some but not all multimanagers taking a fresh approach to investing, writes Janine Mace. IN an industry where the old investment certainties are no longer looking quite so certain, many product manufacturers are taking a fresh look at their wares, and multimanagers are no different. With investors stubbornly refusing to re-enter investment markets in great numbers and conventional investment approaches under attack, many multimanagers are responding with new investment strategies and approaches. It’s out with strategic asset allocation (SAA) and growth/defensive labels for assets and in with flexibility and dynamic responses. All this bending and reshaping means the traditional view of pre-packaged multi-manager funds being based around selecting the best managers across and within asset classes is no longer an accurate one. As a result, Scott Fletcher, head of strategic wealth solutions at Russell Investments, believes many investors and advisers have the wrong idea about this increasingly broad universe. “There is an outdated view of what multi-management is. You can’t throw a blanket over all of them anymore,” he says.

Key points z

The costly nature of actively-managed funds might be out of favour with financial advisers and their clients, but the revised structure of multi-managers might make for a perfect product in current market conditions. z Multi-manager funds have done comparatively well in recent years, with FUM almost levelling the pre-global financial crisis (GFC) peak. z The dispersion of returns amongst multi-asset funds has been at its widest for a number of years. z Market volatility still affects investor sentiment towards this sector. “People disputing the multi-manager approach need to reconsider what a multi-manager is now, as there are many types.” These changes were highlighted in Lonsec’s recent Multi-Asset Class Sector Review, which now groups diversified, multi-manager, multi-asset real return and multi-asset income funds together. Fletcher believes advisers need to take a close look at the approach being taken

12 — Money Management June 7, 2012 www.moneymanagement.com.au

by individual multi-managers in light of new thinking about asset allocation. “We draw a clear distinction between traditional multi-managers and the newer multi-asset approaches. The crisis showed who is still stuck in the 1980s-90s approach and who has moved o n a n d e m b ra c e d n e w i n v e s t m e n t approaches,” he says.

Right time, right product? In f a c t , m a n y m u l t i - a s s e t m u l t i managers believe their product is the right one for the current uncertain investment market conditions. Stephen Roberts, Asia-Pacific regional business leader in Mercer’s investment management practice, believes the environment makes the multi-asset multi-manager concept even more appealing – particularly given that most manufacturers offer a range of multimanager options stretching from capital stable to high growth. “This genre is increasingly applicable today due to the changes in market conditions,” he says. “The sorts of things [assets] that are coming online are lending themselves more to the multi-manager approach.

Single manager portfolios returns have been very bifurcated.” Sa m Ha l l i n a n , M LC In v e s t m e n t Ma n a g e m e n t’s g e n e ra l m a n a g e r product, agrees the revamped multimanager approach suits the times. “Since the GFC, the argument has shifted back to risk and this is a bread and butter issue for multi-managers,” he explains. In light of this, Hallinan believes investors and advisers are increasingly embracing multi-manager funds. “The market share of multi-managers has been growing over the last five to 10 years and is continuing to grow.” Multi-manager funds clearly are

Multi-manager funds

popular – particularly in the institutional market. “The bulk of the super industry is invested this way,” explains Warren Chant, director of consulting firm Chant West. “Mu l t i - m a n a g e r i s h e re t o s t a y. Nothing has changed in recent years to say it is not continuing to be seen as the superior approach.” The latest Plan For Life data shows multi-managers have done comparatively well in recent years. They have at least seen inflows – something many other sectors of the retail market would kill for. At the end of December 2011, Plan For Life data showed retail funds under

management (FUM) in the multimanager space totalled $121.7 billion, which is almost level with the sector’s p re - G F C p e a k o f $ 1 2 1 . 9 b i l l i o n i n September 2007. However, the December figures were down from their $127.1 billion level in March 2011, and inflows in the quarter were only $5.9 billion – which is around the same level as through the worst of the GFC in 2008. According to Lonsec’s Sector Review, most of the flows into multi-manager products are coming from other styles of multi-asset fund – particularly diversified funds, which are losing ground to their larger cousins.

“Multi-managers on the other hand, have noted a steady increase in FUM including Advance, Optimix, CFS and Russell. IOOF (previously United Funds Management) has recorded a significant uptick in FUM following the merger of the United and IOOF Fund ranges. AXA/ipac have recorded declines in FUM on corporate uncertainty following the merger with AMP Capital,” the report noted.

Disappointment and investor sentiment Despite the continuing inflows, most multi-managers believe ongoing market volatility has had a significant impact

on investor sentiment towards their actively managed products. Some investors felt let down in the aftermath of the GFC, explains Lonsec senior investment analyst, Deanne Fuller. “Many traditional multi-asset class funds disappointed during and after the GFC. They experienced significant drawdowns brought about by being structurally required to hold as much as 70% in equities,” she explains. Fletcher acknowledges this was an issue. “We saw some disappointment with the broad multi-manager universe Continued on page 14

www.moneymanagement.com.au June 7, 2012 Money Management — 13

Multi-manager funds Continued from page 13 after the GFC as returns fell more than people thought they might. This led to a reappraisal.” Multi-managers argue strongly their performance should not be judged on short-term, post-crisis results. “With multi-managers, it is wrong to consider one to two-year performance. Multi-managers are not designed to be first quartile on short-term performance. They are about no surprises and n o s t u f f - u p s – t h e y p r ov i d e r i s k controlled exposure to the market,” Fletcher argues. “Multis need to be judged on their performance in the medium to longterm. It is important to ask what they are there to do in the portfolio. They are there to deliver stable long-term returns in the portfolio centre.” Hallinan agrees: “Multi-managers always perform reasonably well – not in the first quartile or the bottom quartile either – that is where they should be.” Investor concerns about cost have also had an impact. “When the market declines, there is a shift in focus to questions around fees for active management and whether it is cheaper to do it through indexing, etc, so this leads to sentiment towards multi-managers declining. We have seen it decrease a little, but much of this is cyclical,” Fletcher says. While more costly active management may be somewhat out of favour with investors, multi-managers reject the idea that passive investing is the solution. “Post-crisis, you get a lot of dispersion in stock values and it becomes a market for stock-pickers. You see a market driven by fear and macro events – not underlying stock values,” Fletcher argues. “There is a lot of evidence to show index options are setting up investors for medium to long-term disappointment.”

Multi-manager, multi-asset or what? Despite the arguments in favour of a multi-asset multi-manager approach,

Table:

not all fund managers are the same. “There is definitely a gap opening up between those still taking the traditional approach and those taking a wholeof-portfolio approach,” Fletcher says. This so-called ‘whole-of-portfolio’ approach reflects another factor reshaping the multi-manager market, which is the ongoing debate surrounding asset allocation and the use of growth and defensive labels for assets. Since the GFC, there has been a much greater emphasis on asset allocation. As Dr Shane Oliver, AMP Capital’s head of investment strategy, explained in an investor note last year: “Conventional constraints around asset weights, the move to sector specialist models and/or the focus on picking managers has meant that there is too little focus on asset allocation in many cases. However, in a world of shorter and more extreme investment cycles, and more negative correlations between equities and bonds, asset allocation is becoming critically important.” This is a well-accepted view in the i n s t i t u t i o n a l m a rk e t . “Ev e r y a s s e t consultant sees that the majority of value-add comes from asset allocation,” Chant notes. The renewed emphasis on asset allocation has resulted in changes to some multi-manager funds. Many are now broadening their asset allocation ranges and rebranding themselves as multiasset funds. Some are going further and embracing new outcomes-based or real return approaches, rather than emphasising traditional strategic asset allocation benchmarks. This group includes managers such as AMP, Schroder and Select. According to Lonsec’s Fuller, diversified and multi-asset multi-manager funds have traditionally been managed with reference to a SAA framework with some tactical asset allocation (TAA) tilts. Following the GFC, several managers such as Mercer, MLC and Russell have widened their asset allocation ranges to opt for a more dynamic approach to asset allocation. “While SAA is typically long-term and TAA shorter-term, dynamic asset allo-

Retail Multi-Manager Funds Under Management Flows FUM $m

FUM Inflows $m

FUM Outflows $m

Warren Chant

Growth and defensive “labels are not necessarily helpful, and multimanagers need to be better at helping advisers to understand the component building blocks used in constructing our portfolios. - Sam Hallinan

”

cation (DAA) aims to take positions over the medium term when markets are extremely over or undervalued,” she explains. “We see this approach to be particularly beneficial when used as a risk management tool used to protect on the downside when markets are extremely overvalued, rather than used to generate alpha from the process (market timing bets).”

Dec 2011

121,773

5,914

5,375

Sep 2011

119,913

7,125

6,851

Seeking out the best

Jun 2011

126,995

8,397

6,147

Mar 2011

127,117

6,281

5,425

According to Fletcher, the best multimanager funds are now not just about the best managers, but about the best a s s e t s, s t ra t e g i e s a n d p o r t f o l i o construction. “The multi-asset approach is about looking at all the building blocks and toolkits you have to build the portfolio and selecting the most appropriate,” he explains. Hallinan agrees: “With multi-managers, traditionally there has been a concentration on manager selection. This is part of the reason why we are not keen to use the multi-manager term or manager-ofmanagers, as it is too limiting.” He argues asset allocation is a central task for multi-managers. “When all asset classes are rising, asset allocation is not as important, but since the GFC, portfolio

Dec 2010

124,375

6,180

5,143

Sep 2010

120,737

7,848

6,840

Jun 2010

115,889

5,859

4,886

Mar 2010

119,749

5,288

4,003

Dec 2009

112,950

8,719

3,887

Sep 2009

105,548

5,107

4,394

Jun 2009

93,943

5,179

3,762

Mar 2009

86,711

3,614

3,749

Dec 2008

91,468

5,391

5,464

Sep 2008

106,396

6,394

5,773

Jun 2008

109,415

6,514

5,380

Mar 2008

111,189

5,788

5,540

Dec 2007

120,892

8,034

6,664

Source: Plan For Life

14 — Money Management June 7, 2012 www.moneymanagement.com.au

construction has become an increasingly important skill.” From this, the best portfolio can be created, Fletcher says. “It is no longer manager research just on the best active stock-picker – now it is about researching across all types of active and passive manager exposure. Manager research and bringing them together is at the heart of the investment approach.” Ro b e r t s b e l i e v e s m a n y m u l t i manager funds are now much more sophisticated in their approach. “Before the GFC, for multi-strategy funds 80-85% of total return came from strategic asset allocation and 15-20% from the implementation of dynamic asset allocation. The GFC taught us the value of DAA and led us to value that better,” he says. Chant agrees there has been some rethinking going on about the value of DAA, but emphasises the difficulty of doing it well. “ T h re e y e a r s a g o t h e b i g a s s e t consultants were of the view strategic tilts in the medium-term did not add value, but two years ago they changed their tune,” he notes. “The big players went back to the drawing board and convinced themselves medium-term tilts can add value – but it is very hard to achieve.”

Death of growth/defensive split According to Hallinan, another big issue for both advisers and multi-managers is the breakdown of simple asset categorisations such as growth and defensive. “Growth and defensive labels are not necessarily helpful, and multi-managers need to be better at helping advisers to understand the component building blocks used in constructing our portfolios,” he explains. “Portfolio construction has to be the core value proposition of any decent multi-manager. It is hard to do consistently, but for multi-managers this is the ultimate differentiator. This is where the value is added.” Fl e t c h e r b e l i e v e s q u a l i t y m u l t i m a n a g e r s a re n ow t a k i n g a m o re thoughtful and complex approach to portfolio construction. “When we construct a portfolio it is about determining the level of risk you want to take – risk budgeting – and then working out where and how you want to spend that risk budget,” he explains. The decisions are not as simple as active versus passive, Fletcher notes, but are about “where to invest actively and where passively that will give the best result, and then put that together in a portfolio that achieves the outcome you are seeking”. He says multi-asset portfolios help manage the portfolio more tightly for desired outcomes.

The performance question When it comes to results, the ongoing lurches occurring in many asset values have had a significant impact on multimanager fund performance. S&P Fund Services analyst, Michael Armitage, highlighted this point recently when releasing new S&P Fund ratings Continued on page 16

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Multi-manager funds Continued from page 14 f o r t h e m u l t i - a s s e t s e c t o r. “Fu n d p e r f o r m a n c e s ov e r 1 2 m o n t h s t o December 2011 were mixed, depending upon a strategy’s equity market correlation. Strategies with more long equity market exposure exhibited positive performance in the fourth quarter of 2011 in line with general equity market performance.” According to Lonsec, the dispersion in returns amongst multi-asset funds has been at its widest for a number of years, ranging from -6.9% (Maple-Brown Abbott Diversified Investment Trust) to 3.9% (Schroder Real Return Fund). Among multi-manager growth funds (6180% growth assets), the average return over the 12 months to December 2011 was -3.5%, with the average for five years to that date only 1.3% pa – well below the cash rate return. Hallinan agrees performance results have been dispersed. “The more active you are in manager selection and asset allocation has definitely equalled better performance,” he says. The recurr ing declines in equity markets have made life very difficult. “Performance has been very asset allocation specific. For example, it has been very difficult for equities based funds recently. It has been a tough time for active management generally,” Roberts notes. “In most managers, we have seen a reduced reliance on core equity strategies and a shift to other assets such as alternatives or commodities.”

Shane Oliver Hallinan agrees: “Alternatives have been very important in terms of returns. MLC has been a big user of alternatives for many years, especially private equity and other assets such as catastrophe bonds and private debt, and this has shown in our performance.” According to Lonsec’s Sector Review, multi-manager funds have generally invested more in alternative assets than their diversified fund cousins, resulting in better performance. Fletcher believes this allocation shift re p re s e n t s a n i m p o r t a n t c h a n g e. “Unlisted asset investments have been successful, and this raises questions about the role of alternatives in a portfolio. Alternatives did what they are supposed to do in a portfolio during the GFC – and we will see an increased role for them in the future.”

In the fourth quarter of 2011 and the first quarter of “2012, we saw a continuation of redemptions across the industry, with some being more than in the depths of the GFC. ” - Scott Fletcher

Facing the challenges Like all managed funds, the major challenge for multi-manager funds at the moment is the lack of new FUM flows. “It is difficult for investors to filter out the negative noise in the market and all managed funds providers are finding FUM difficult,” Hallinan admits. Roberts does not mince his words about the difficulties. “It is not unreasonable to say 2011 has been the worst year ever in terms of FUM flows all around the world,” he says. “In Australia, there is also added uncertainty due to regulatory change, such as MySuper and Simple Super, etc.” Fletcher agrees the going is tough, with investors becoming increasingly cautious. “Generally what we are seeing is where money is not being redeemed, it is being moved into the more conservative end of the fund market such as bonds, cash and more conservative growth funds,” he says. “In the fourth quarter of 2011 and the first quarter of 2012, we saw a continuation of redemptions across the industry, with some being more than in the depths of the GFC.” Despite the difficulties with fund flows, most multi-managers believe they are better placed than many single strategy or asset class managers. “We invest across different styles and so are less likely to see investors ‘chop a n d c h a n g e’. T h i s i s m o re l i k e l y t o happen in the non-core parts of the portfolio,” Fletcher claims. Investor concern about costs represents another challenge for multimanagers in the immediate future, says Hallinan. “The key risk is fee pressures and

16 — Money Management June 7, 2012 www.moneymanagement.com.au

there is a risk – which will be exacerbated by MySuper – that investors will focus too much on headline costs, and this will lead to inferior results,” he cautions. According to the Lonsec report, the average wholesale management fee paid by an investor in a multi-manager fund has remained relatively steady at 88 basis points over the past five years. “This is a good result for investors, with competitive pressures keeping costs down despite a general trend towards the inclusion of more ‘expensive’ diversifying assets such as alternatives.” Hallinan also flags issues for multimanagers around the impact the current raft of regulatory change will have on advisers’ business models. “In a post-FOFA world, advisers will be looking to retain margin, and so they may look at areas where they currently outsource – such as investment solut i o n s. T h i s m a y m e a n t h e y l o o k t o insource that again to maintain their margins.” He believes advisers considering insourcing their investment activities may find the task more difficult than they anticipate. “To do it well – and consistently well ov e r t i m e – re q u i re s s i g n i f i c a n t resources, which is hard for advisers to do,” Hallinan says. “O u r a r g u m e n t h a s a l w a y s b e e n advisers should be concentrating on their natural skills – which are relationship building – and not on investment management.”

Opportunities ahead W h i l e a c k n ow l e d g i n g t h i s r i s k , h e believes FOFA-induced pressure on advisers to improve their efficiency and

deepen client relationships may see some advisers decide to outsource their investment activities for the first time. “So m e w i l l d e f i n i t e l y l o o k t o outsource, so it is two sides of the same coin,” Hallinan says. Un s u r p r i s i n g l y, Fl e t c h e r a g re e s outsourcing can be sensible for many advisers. “With multi-managers, this is often the approach the adviser takes with clients. They are not looking for top quar tile per for mance and they are advisers who recognise that investment skill is not their key skill.” He believes the regulatory change sweeping the financial planning industr y makes multi-management even more appropriate, and sees it as a valuable opportunity for advisers. “With FOFA, there will be more interest in multi-managers as the more investment decisions you make as an adviser, the more resources are required and the more administrative and legal risk you take on, so there is less time to focus on a small business’s bottom line,” Fletcher argues. “With the multi-manager approach, you don’t have to worry about which manager is hot. If an adviser recognises investing is not their core skill, then with multi-managers you can focus on what is – strategic advice and relationship skills.” Roberts agrees regulatory risk is a consideration which may make the multi-manager approach appealing for many advisers. “A single manager return profile can be enchanting, but it also represents a significant risk,” he says. “For advisers, you have got to get the strategy right and also establish risk and return criteria. However, the nuanced difference between then implementing that – or using a multi-manager approach which automatically evolves and which includes DAA – is limited.” Market participants believe there are also other promising prospects available to multi-managers. “The biggest opportunity for multimanagers remains taking the sophistication of the portfolios we have and extending it to the high net worth market,” Hallinan says. “There is incredible sophistication in our multi-manager portfolios, and we need to be able to connect that to high net worth clients – not just low balance clients.” He b e l i e v e s m o s t a d v i s e r s h a v e continued using multi-manager funds mainly with smaller clients as manufacturers have been poor at explaining to them what is happening in the underlying portfolio. However, Hallinan says this is changing, and manufacturers are looking at new ways to make multi-manager funds more appealing to higher balance clients. “ We h a v e d o n e a l o t o f w o r k t o unbundle the sophisticated knowledge in our funds and repackage it for new markets such as the high net worth group,” he says. This involves using MLC’s private investment consulting skills as a bridge between its institutional asset consultant teams and high net worth clients to create more tailored portfolios for these clients. MM

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Opinion Risk

The heart of the matter

Col Fullagar looks at the recent changes to heart attack definitions and considers possible impacts on the advice process.

rauma insurance was conceived in South Afr ica around 1983 and from there it was transported to Australia, first appearing in the risk insurance market here in the late 1980s. Initial take-up rates were low as advisers came to grips with whether the purpose of the product was to address a real need or whether it was simply a passing fad. The former prevailed: the purpose was ratified and trauma insurance started playing an increasingly important role in the risk insurance advice process. It is well documented that initially policies only covered a small number of insured events, typically the main four of heart attack, stroke, cancer and heart surgery, together with several others such as paralysis, major head trauma and multiple sclerosis. Over the years, however, many more insured events have been added, the definitions of existing insured events have been altered and partial payments

have been introduced. Today’s policies would be considered materially different to those of 25 years ago. To the extent that policies are so different to those first conceived, it is valid to ask whether the contracts of today are still serving the same purpose or whether the positioning of the product has altered. The question has fundamental importance, because if financial advice is based on the original purpose – but the insurance solution has moved on from that – then either the advice or the product has to change. There are other ramifications as well, most obviously: • If the purpose has changed then so must the basis of advice quantification within the recommendation; and • If contractual changes lead to an increase in the claims experience, this may impact on premium rates and the insured’s ability to afford the necessary level of cover. The question is timely given recent

18 — Money Management June 7, 2012 www.moneymanagement.com.au

changes to one of the key trauma-insured event definitions, which arguably could be the catalyst for a review. The definition in question is for the insured-event heart attack.

The original purpose The question being considered is whether the purpose of today’s trauma insurance policies is the same as that which led to the initial development of these contracts. The immediate temptation is to respond that policies are absolutely still ser ving the same purpose: ie, they provide for the payment of a lump sum when an insured suffers a major medical trauma such that the financial exposure associated with the cost of medical treatment and rehabilitation, together with the cost of required lifestyle changes, can be mitigated. There is merit, however, in digging deeper because the advice process itself goes deeper in how it approaches the provision of a financial solution.

From time to time, product managers within insurance companies will be asked the question, “What constitutes a trauma?”; ie, what criteria do you use to assess whether or not a particular event warrants being included in a trauma insurance policy? The cynical answer is of course: “A trauma is when a competitor sells more policies than us so the criteria is keeping up with what others do.” Moving past that and pressing the point with the product manager may result in an initial blank stare followed by, “Ah yes, well the event is…ah…traumatic.” But how is “traumatic” assessed? For example, any self-respecting man will tell you how highly the male flu virus rates on the trauma scale but, as yet, it has not found its way into any trauma policies. The answer lies in the initial product design – and going back in time provides the necessary insight. Term life insurance provides protection against the financial needs arising when death is certain; ie, the life insured

is either dead or within 12 months of dying. Term insurance serves this purpose well, so trauma insurance did not need to duplicate it. Trauma insurance policies were thus designed to provide financial protection if a serious medical event occurred: • Which might lead to death, but death was by no means certain; and/or • Which carried with it a high medical and rehabilitation cost; and • Which gave rise to a level of psychological or physical impact that could well lead to the life insured seeking a change of lifestyle. Effectively this was the mission statement for the product, and it was the presence of this philosophical guiding light that provided the initial clear and consistent focus. Having established the purpose of the product, the next step was to identify what conditions would be covered and, as indicated, initially it was cancer, heart attack, stroke and the like. It was obvious that these ter ms covered the full range of severity from very slight to very severe; therefore in order to have the policy conditions aligned with the policy purpose it was necessary to have definitions of insured events such that claims would only be paid if the event was of the requisite severity. The benchmark criteria generically used was to define the insured events such that they approximated a five-year survival rate for insureds of around 80 per cent. Thus the initial definition of heart attack was almost universally consistent with the following: “Heart attack is defined as the diagnosis of the death of a portion of the lifeinsured’s heart muscle as a result of inadequate blood supply. The diagnosis will be based on: - A history of typical chest pain; - New electrocardiography (ECG) changes; - Elevation of cardiac enzymes above standard laboratory levels of normal” (Norwich, Critical Illness Security Plan, 1992).” By requiring elevation of enzymes above normal levels, the definition ensured that only indicatively serious heart attacks were covered. Claim proofs similarly ensured that only heart attacks at the appropriate level of severity were covered; the need for chest pain meant that so-called silent infarctions were excluded, as were minor technical heart attacks associated with surgical procedures. The relative simplicity of the definition enabled the adviser to explain to the client what was and was not covered in a way that could reasonably be understood, which in turn facilitated clarity of contractual intent. The consistent focus of definitions enabled the adviser, by undertaking research, to quantify the need and provide advice accordingly – and because pricing was aligned with a product that compensated for a genuine loss, appropriate levels

The issues need to be “recognised, considered and debated so that the quality, clarity and safety of advice are maintained.

”

of cover were affordable. The purpose of the product, the product itself and the advice process were in alignment.

The current position In the years since the 1992 definition was drafted, a number of social and market forces have worked together to create a subtle but critical shift which can best be appreciated by considering recent changes to the definition of heart attack in some trauma insurance policies. The new 2012 definition is along the lines of: “Heart attack means myocardial infarction evidenced by the detection of the rise and/or fall of cardiac biomarkers with at least one value above the 99th percentile of the upper reference range together with one of the following: - Signs and symptoms of ischaemia consistent with myocardial infarction; or - ECG changes indicative of new ischaemia; or - Development of pathological Q waves; or - Imaging evidence of new loss of viable myocardium or new regional wall motion abnormality. If the above tests are inconclusive, other appropriate and medically recognised tests will be considered.” The change in definition has an impact in each of the areas referred to previously:

Extent of cover The last 25 years has seen significant changes in the testing regime for heart attacks. The introduction of imaging in order to identify a heart attack did not exist when the product was first introduced. Also, as medical testing became increasingly sophisticated and precise, heart attack indicators such as Troponin were able to be identified at much lower levels than was previously the case. Whereas previously for a claim to ensue, enzymes needed to be above laboratory standard levels – for example, Troponin elevation to 600ng/L (in terms of older measures) – the criteria reflected in the 2012 definition is aligned to a detectable elevation which is as low as 14 ng/L. Whilst the number of severe heart attacks was decreasing by virtue of improved health standards, the number of statistical heart attacks was increasing as a result of changes in the testing regime. Because the 2012 definition focussed on the statistical rather than the severe, it became possible for very minor events (for example, arising from extreme exertion) to technically satisfy the definition whilst clearly falling outside the original purpose of the product. Reduction in claim proofs Competitive pressure has led to a gradual but obvious reduction in the proofs necessary to generate a claim payment. In the1992 definition, ‘death of…a portion of heart muscle’ required proof by each of chest pain, ECG changes and raised cardiac enzymes. By 2012 only one of these was necessary. For example, by not requiring a history of chest pain, the definition now potentially opens the door for silent infarcts and peri-procedural heart attacks; ie, relatively innocuous heart attacks occurring during surgical procedures. Once again, the number of claims potentially being paid increases; however, the increase is not aligned to the original policy purpose. Definition clarity Whilst previously an adviser might reasonably be able to refer to the definition of heart attack and understand and assist the client to understand what was and was not covered, this is clearly no longer necessarily the case. Advisers should not, however, feel alone if they exper ience difficulty coming to grips with the new definition; insurers also in some cases have been forced to attend technical workshops in order to appreciate the whys and wherefores of the changes. Benefit amount recommendation The above change in the definition of heart attack means that it is no longer appropriate to simply represent these contracts as covering the needs that ar ise if an insured suffers a major medical trauma. How in fact the contractual purpose

could be represented is challenging: if the previous representation is made, clients may view with cynicism the payment of a large benefit amount for a very small heart attack. If, however, the contract is represented as covering the financial impact of a minor heart attack through to a major heart attack, the quantification of the benefit amount becomes difficult. If a simplistic approach is taken, ie, “what the client can afford?”, this may run foul of the requirement to know the client and provide tailored advice. Product pricing and affordability The net effect of the 2012 definition is a lowering of the bar as to what constitutes a heart attack within the confines of a trauma insurance policy. As a result, more claims will be paid and claims costs will increase under the heading of heart attack, with estimates putting the increase at up to 65 per cent. The impact on product pricing is not inconsequential, with estimates placing the increase to maintain existing profitability levels at between 10 and 15 per cent for males and up to 5 per cent for females. The concer n is that this will put premiums out of range for some clients, such that the product either cannot be afforded or cannot be afforded in sufficient amounts to cover what is needed to protect against the financial impact of a severe heart attack. If the changes flow onto existing policies by vir tue of the guarantee of upgrade, overall premiums will inevitably increase, leading to higher attrition rates.

The way forward A review of the above impacts would suggest that the purpose of the product, the product itself and the advice process are no longer in alignment. This article has only focussed on one area of change in trauma insurance since it was introduced 25 years ago; ie, the definition of heart attack. There are of course many others which potentially impact on the advice process. The way forward is neither obvious nor easy. Should there be a return to insuredevent definitions that have a consistent and quantifiable standard, such that advisers are better able to represent the contract to clients? Should the changes be embraced and more work done on identifying and solving the issues arising? The issues need to be recognised, considered and debated so that the quality, clarity and safety of advice are maintained. By the way, why hasn’t the male flu virus been installed as a trauma-insured event? ( The assistance of Geetha Singam, actuarial analyst, life – research and development division, Munich Re, Australia in researching this article is gratefully acknowledged). Col Fullagar is principal of Integrity Resolutions Pty Ltd.

www.moneymanagement.com.au June 7, 2012 Money Management — 19

Managed Funds In search of a supermodel In order to bring back the appeal of managed funds, Australia needs to comply with the newly created international standards on managed fund structures, according to Harvey Kalman.

hile financial ser vices reform has been a priori t y ov e r t h e p a s t f e w years, little work has been done on the actual investment products themselves to make them more attractive for investors both here and overseas. Indeed the recently released Parliamentary Joint Committee review of the Trio fiasco has done little to instil confidence in Australian collective investments. Not so long ago, our collective investments regime was considered to be at t h e f o re f r o n t o f w o r l d s t a n d a rd s ; however, the lack of continual improvem e n t s, p a r t i c u l a r l y i n p r o d u c t enhancement and investor protection, has left us behind. There is now a new global standard in collective investments, the Undertakings for Collective Investment in Transferable Securities (UCITS), developed by the European Commission, which is seen as more attractive than the products now offered to Australian investors. T h e p a ra d ox i s t h a t t h e Fe d e ra l Government is devoting a great deal of time, effort and money to improving the view of Australia as a global financial centre. Recent initiatives include the white paper Australia in the Asian Century and government support of a Centre for International Finance and Regulation. At the same time, the Australian Securities Exchange (ASX) is seeking to offer a way of improving the tradabilit y o f d o m e s t i c m a n a g e d f u n d s by launching Aqua II, which will allow fund managers to quote managed funds, exchange-traded funds and other products on the ASX. Despite all this, the simple fact is that Australia will never be a truly attractive destination for overseas investors as long as our investment funds do not meet what are generally regarded as international standards. This â&#x20AC;&#x2DC;non-complianceâ&#x20AC;&#x2122; means that Australian investment vehicles are off the radar for investors from other countries. In my view, it is imperative that the managed funds offered in Australia come into line with the Collective Investment Vehicles (CIVs) approach now being used internationally, particularly in Europe. Such a reform would bring benefits across the board to the financial services industry, as well as the investors t h e y s e r v e . It w o u l d m e a n m o r e protection for investors, greater 20 â&#x20AC;&#x201D; Money Management June 7, 2012 www.moneymanagement.com.au

investment choice and flexibility, and would broaden the domestic investment pool, adding flexibility. Recent financial services ministers have all claimed to understand these benefits, and have even gone so far as to promise a review of the system, but so far little has been done. By mirroring UCITS for domestic investment funds, we could take advantage of the decades of work already put into their development, significantly re d u c i n g t h e w o r k a n d l e a d t i m e needed to develop a vehicle that international investors would instantly recognise and be comfortable with. UCITS have now been adopted by all members of the European Community as the preferred CIV structure. They have already made significant inroads internationally and are well regarded by the global investment community. The key to their success is that they can produce a new share, or ownership, class within a CIV, which may have a different base currency, or be hedged or unhedged for currency. This quarantines the effects of the different currencies to that share class and is in addit i o n t o o t h e r e n h a n c e d i n v e s t o rprotection qualities. CIVs allow domestic investments flexibility in investing in international asset classes and give international

“

We are already missing out on international investment – despite having what is recognised internationally as a healthy domestic economy.

”

investors the same flexibility in investing in Australian assets. So, for example, depending on where an international investor is based or what their own preferences are, they could invest in an Australian bond fund in either an Australian dollar share class, Euro share class, or Hong Kong dollar share class, and receive performance in their base currency. In v e s t o r s i n o t h e r s h a re c l a s s e s would not wear the effects of currency movements that are unrelated to their own investments. It would make Australian funds as

easy to use by overseas investors as a European CIV. As a result, we could expect less Asian investment money to go to Europe and more to be invested into Australian funds, thus creating greater e c o n o m i e s o f s c a l e, w h i c h c a n b e passed onto investors. With the continued growth anticipated in the Asian region over the coming decades, we need to take steps now to ensure we are in a position to benefit from it, before it also passes us by. We are already missing out on international investment – despite having

what is recognised internationally as a healthy domestic economy. This is not just because of the recent strength of the Australian dollar, and to blame it on this is just deceiving ourselves. At the moment, Australian financial services development and improvement is mostly focused on advice and superannuation regulations, with less attention being given to developing better investment fund models. New models are needed to improve investor protection, maintain our leadership position, meet international standards, and, as a result, attract more investors. It takes time to bring around the kinds of changes needed, and if we don’t make a move soon we will miss out, particularly on the much-anticipated Asian savings boom. We need to adapt our investment vehicles so that they align with what is considered international best practice, even if it means introducing “me too” structures that will support Australia’s hoped-for leadership role in financial services in the Asian region. By doing so, we will strengthen our financial services sector, resulting in more Australian jobs, as well as adding to our own investors’ confidence. Harvey Kalman is head of EQT corporate fiduciary and financial services at Equity Trustees Limited.

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www.moneymanagement.com.au June 7, 2012 Money Management — 21

Opinion Equity markets In search of excellence sustainability The insistence of policymakers on intervention in free markets is a worry, writes Martin Conlon.

trend which could well become more powerful within equity markets showed the early signs of emergence during April – the search for yield. This trend is an outcome of financial repression, as central banks pursue policies which transfer wealth away from the prudent in an effort to rescue the less prudent and the intermediaries (primarily banks) which facilitated them. This trend is simultaneously logical and worrying. Financial repression through manipulation of interest rates and financial markets is no different to increasing taxation. It is merely an alternative form of subterfuge. Just as tax is rarely paid willingly, investors don’t have to willingly provide funding to governments at an unfairly low cost. Would you lend money to the Spanish Government at 6 per cent or the Japanese Government at 1 per cent when they almost certainly can’t repay it? The search for alternative sources of income is eminently logical. The worry stems from the pervasive insistence of policymakers on intervention in free markets. The possibility that accumulated intervention may be a cause of the problem, rather than the solution, remains disregarded. How this search for yield manifests itself and which sources prove to be reliable rather than ephemeral, is a more difficult question. The trends to date have been haphazard. A number of traditionally defensive sectors with strong yield support have performed exceptionally well. Telecom New Zealand and Telstra continued to build on strong gains over the past year, while REITs such as Westfield, Mirvac and CFS Retail saw support which has, to date, been more elusive. Supermarket retailers such as Woolworths and Wesfarmers remain ignored. We continue to focus on two factors: the sustainability of, and the price being paid for the ungeared cashflows. Yield must be funded by cashflow in the longer run and leverage significantly increases risk. Our concern with REITs remains one of valuation. The absence of tax and depreciation combined with high payout ratios renders yield a distorted measure when compared with traditional businesses. These factors will not matter to some in the short run – they will in the longer run. The abovementioned questions of

ue for some time yet, and as it does, there is little doubt that perceived safety will become substantially overpriced and perceived risk substantially underpriced.

Outlook

intervention and sustainability were also at the forefront of our minds on a recent trip to China. Years of bludgeoning by commentators assuring us that urbanisation and industrialisation guarantee China many more years/decades of strong growth have not wearied us. We are paid to challenge assumptions – not blindly accept them. Unsurprisingly, the property market was the subject of much attention. It is important for many reasons. With local governments deriving around 50 per cent of their revenue from land sales, and those land sales driven in turn by the profitability of developers, flat to falling property prices are a concern. That was exactly the message the developers gave us: affordability is rotten in most areas, credit is not as plentiful as it was, and social housing makes no sense for developers as it’s not profitable. The other dimension is supply, and it is in this area that we disagree more vehemently with the popular wisdom. Let’s look at some rough numbers (they’re the only kind available in China). On official numbers, China completed some 1 billion square metres of residential housing space in the past year. Given units are on average 70-80 square metres, this equates to housing starts of some 12-14 million. To put this in context, the US is currently developing around 600,000, the UK around 200,000, and Australia around 140,000. Housing starts per head of population for developed economies are therefore somewhere around 0.2 per cent to 0.6 per cent, whilst China sits at about 1 per cent. So what does this mean?

22 — Money Management June 7, 2012 www.moneymanagement.com.au

Relative to starts in mature economies with superior demographics, starts per head in China are well beyond these levels. The difference can obviously be attributed to urbanisation. Assuming 1.5 per cent of the population move into cities every year, 20 million people may therefore require perhaps 7 million more housing units. Additively, assuming starts in a mature economy at a level of around 0.4 to 0.5 per cent of the population, and an assumption of urbanisation at a relatively aggressive 1.5 per cent per annum only leaves required housing starts at or around current levels. Once the urbanisation process matures, the number will need to fall sharply. This does not sit comfortably with an assumption of consistently increasing steel production and iron ore demand. Whilst acknowledging our limited insight on the propensity of local and central governments to persist with white elephant projects to bolster short-term demand, we feel confident that the laws of supply and demand will eventually assert themselves. As Herbert Stein said, “If something is unsustainable, it will stop”. The combination of domestic economic weakness, rotten weather and ongoing currency strength saw earnings continue to move in the wrong direction during April, aiding the trend towards safety and yield. Downgrades from Boral, Bradken, JB Hi-Fi and Seven West Media are indicative of margins and returns across most domestic businesses which are above normal levels and are being driven back towards equilibrium. We would expect this process to contin-

From a stock perspective, we find the current outlook quite perplexing. Despite an extremely cautious view on longer term growth, the anticipation of an extended period of deleveraging and a roundly sceptical view on the sustainability of Chinese growth, our valuations (which are always based on longer term sustainable earnings) are already pointing us towards industrials, banks, and large resource businesses as offering far superior prospective returns than REITs, infrastructure stocks, and the similarly defensive cashflow streams which investors would normally be seeking out in such an environment. As always, there is a risk that we are still suffering from over-optimism in our earnings forecasts on more cyclical businesses, however, we are doing our utmost to ensure these are grounded in reality. Most importantly, in this environment, we are seeking businesses in which management are realistic about the structural changes and challenges that are confronting their businesses. Most industries have excess capacity, and the environment we envisage will not call for more. Remembering fondly the days of 15 per cent credit growth, doubledigit sales growth and waiting for their return isn’t going to cut it. The more these challenges are acknowledged and profits are redeployed in providing better income returns to shareholders rather than investing in “growth” and new capacity, the better we feel. The large resource companies arguably have most to gain from this change in direction. The increasingly scarce businesses which have genuine growth prospects (not through acquisition) and pricing power should also become increasingly valuable. They are the equivalent of long duration bonds. In an increasingly scarce environment for yield, we are very confident they will produce sharply better returns than their short duration counterparts. Martin Conlon is head of Australian equities at Schroder Investment Management Australia.

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Opinion Insurance Let the customer help drive innovation For insurers to survive and thrive, they must pursue a program of continuous and customerled innovation, writes Duncan West.

hen Eastman Kodak filed for bankruptcy earlier this year, many people speculated that it was the legendary camera company’s failure to innovate that led to its demise. Continuous, customerfocussed innovation is crucial in fast-moving industries such as technology, as the Kodak experience shows. It is equally important, however, for the insurance industry. Innovation is paramount in a world where the internet is diminishing the importance of traditional strategic pillars such as distribution and knowledge, and as we continue the inexorable drive towards commoditisation. It’s a way of standing out from the crowd and getting our brands and products recognised by the market. But the most powerful innovations are those that are driven by the customer because they help us to deliver better solutions, which must always be a key priority for insurers. Innovation can be daunting and the pressure of coming up with that great ‘light-bulb’ idea overwhelming. But as renowned business strategist Gary Hamel explains in many of his books, it doesn’t have to be. The power is not in the theory behind the innovation and the talking about it – it is in actually doing it. Some insurers have historically been good at innovating and that, to a certain extent, makes it easier for them to continue thinking of and implementing new ideas. Innovation pedigree isn’t enough, though. Kodak’s bankruptcy was made more bitterly poignant given the company’s role in advancing photography in the 19th century. It’s important to understand that what worked 100 years ago or even 10 years ago may not work today. Innovation and casting a critical eye on processes and products must be ongoing to ensure they’re still the

best option for customers. A particular area of challenge for insurers, and one that the industry would do well to focus on from an innovation standpoint, is the need to turn the intangible nature of insurance into a tangible outcome for clients. Life insurance (all insurance, in fact), partly depends on the client taking something of a leap of faith and putting their money towards something that hasn’t happened and hopefully won’t happen. The nature of insurance is intangible and its consequences are hard to grasp if you’re not in the industry and you do not see those consequences regularly. There is no silver bullet to changing this way of thinking, because it’s not human nature to assume the worst and act to prevent it. “It’ll never happen to me” is typically the default approach the average person takes to life. But there are things we can do, and there are things that are being done in the market at the moment, to address this issue through product innovation or by developing more sophisticated or intuitive support services to clients. Success in this area is likely to also have the added effect of driving better client engagement for advisers, so it’s a win for everyone involved in the insurance process. Technology innovation is more straightforward. The iRevolution has taken hold, with more than 1.5 million tablets in Australia (a number that’s predicted to double by the end of 2012) and 3.4 million iPhones. In conjunction with this – or because of it – financial advisers are moving towards more flexible working arrangements. They’re organising meetings when and where it suits their clients rather than themselves, and insurance companies need to make it easier for them to do their job from these mobile offices.

24 — Money Management June 7, 2012 www.moneymanagement.com.au

“

The Federal Government is pushing for a simple, lowcost super environment through its draft Stronger Super proposals, and the implication for our industry is that it may lead to further commoditisation of group insurance.

”

Some insurers – us included – have entered the brave new world of mobile applications to support advisers to be able to do the same job while they’re on the go as when they’re in the traditional office. Another benefit of these apps is that they can help the client feel like they’re part of the process. In many cases, they can see what the adviser does and, by making this process transparent, the adviser is able to show the client the value that they provide. This is crucial in overcoming one of the biggest barriers advisers face, which is the intangible cost of insurance. There is also ample opportunity to innovate in the group insurance space. The Federal Government is pushing for a simple, low-cost super environment through its draft Stronger Super proposals, and the implication for our industry is that it may lead to further commoditisation of group insurance. This has prompted innovation in this area through initiatives such as rehabil-

itation and return-to-work strategies. Super members haven’t traditionally been particularly interested in group insurance. In the past, people have taken what they were given. However, over time, trustees have looked to provide more options and flexibility for their members to tailor cover to match their needs. Initial attempts at providing a new group insurance offer to a large group of members resulted in high costs, slow turnaround times for paper applications and low take-up rates. This was exacerbated by the difficulty in articulating to each member what each insurance option cost for them, and allowing them to be in control of the process and decision. All in all, it was just too hard for everyone: insurer, employer and member. But innovation (and persistence) has proven that it’s not impossible to get members engaged with group insurance. For example, MLC looked at insurance selection by members in our group superannuation plans and transformed the process from one that was clunky, offline and largely unsuccessful to one that was paperless, automated, online and that finally achieved real results. Where we’ve applied this new process to our group super funds, take-up of insurance cover is five times higher compared to traditional methods. In a world of uncertainty where customers have lost trust in many financial institutions, people are searching for confidence in the future. The opportunities abound for insurance companies to build that trust through customer-led innovation and to use that to develop solutions that help and protect our clients and ensure for ourselves an equally successful future. Duncan West is executive general manager of insurance at MLC.

Toolbox Super contributions

for HNW clients

David Shirlow looks at the Government’s policy to increase the tax on concessional contributions for those earning more than $300,000 and explains the strategic impact of this change.

Who is affected and how? From 2012/13, concessional contributions made from a client’s relevant income above $300,000 will effectively be taxed at 30 per cent instead of the old 15 per cent. Income for this purpose will include taxable income, concessional contributions, adjusted fringe benefits, total net investment loss, target foreign income, tax-free government pensions and benefits, less child support. As concessional contributions are included in the definition of income for this purpose, the average tax rate moves gradually, from 15 per cent for someone with other income of $275,000 to 30 per cent for someone with other income of $300,000. For example, someone on $285,000 salary and other income for whom $25,000

concessional contributions are made in 2012/13, total income will be $310,000. So they will effectively incur 15 per cent tax on the first $15,000 of concessional contributions and 30 per cent on the next $10,000 – an average tax rate of 21 per cent.

How much of a choice do clients have? Only concessional contributions within the cap will attract the new 30 per cent rate. The concessional contributions cap is $25,000 for all individuals in the 2012/13 year, given the two-year deferral of the higher cap for over-50s which was also announced in the Budget. Additional excess contributions tax rates apply in the same way they have in previous years for excess concessional and non-concessional contribution caps. Clients on high enough incomes with a single employer who is subject to the Superannuation Guarantee (SG) will have no option but to incur this new 30 per cent contributions tax on SG contributions. In 2012/13 the maximum amount of SG contributions an employer is required to make is $16,470 (for earnings from approximately $183,000). Hence, at best, for clients for whom the maximum SG contributions are made, the choice of whether or not to salary sacrifice up to the concessional contributions cap is limited to only $8,530 (ie, $25,000 less $16,470). By contrast, high income-earning clients who do not have employers making SG or other non-discretionary contributions for them, such as selfemployed professionals, face a choice of

whether or not to make up to $25,000 of concessional contributions which may attract the 30 per cent tax.

How do the alternatives stack up? Importantly there has been no change to the concessional taxation on superannuation fund earnings and it will be common for benefits to be derived tax-free (typically when the client is aged 60 or more). Ungeared non-super investment or nonconcessional contributions: This is a straightforward comparison with an obvious outcome if you can ignore benefits tax; while a concessional contribution affected by the change will be subject to tax

at 30 per cent, this rate still compares favourably to a 46.5 per cent marginal tax rate (MTR) which would apply if the remuneration were instead taken as salary and invested ungeared outside of super, or paid into super as non-concessional contributions. Of course, there are circumstances where tax is payable on benefits attributable to the concessional contributions – more on that later. Gearing and home loan repayment: more interesting is the following three-way comparison for an affected client who is in the accumulation phase and is age 50: Continued on page 26

Figure 1 What is the preferred strategy with a 30 per cent concessional contributions tax? 10%

Gearing preferred

9% 8% 10 year gross return pa

he Government’s policy to effectively increase the tax on concessional contributions made from 1 July 2012 for those on income of more than $300,000 received a lot of media attention both before and after Budget night. Plenty has been said about the broader policy considerations, such as the effect “tinkering” has in eroding confidence in saving via superannuation, so we’ve chosen to move on to focus on the strategic impact of the change and explore the relative appeal of making concessional contributions as compared to other options. Here is a snapshot of what we think are the key points for members of typical taxed accumulation funds.

Concessional super preferred

6% 5% 4%

Home loan repayment preferred

2% 1% 0% 4%

10%

11%

12%

10 year home loan borrowing rate pa (Interest rate on geared loan is assumed to be the home loan plus 1% pa) Line to which CCs would be preferred strategy if contribu ons tax were only 15%

Source: Macquarie Group

www.moneymanagement.com.au June 7, 2012 Money Management — 25

Appointments

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

the most significant being the sale of its education arm to Kaplan," Birch said. " T h i s h a s p r ov i d e d t h e organisation and its members with new opportunities and challenges."

Marianne Birch THE Financial Services Institute of Australasia (Finsia) has announced the appointment of Marianne Birch – senior fellow at Finsia – as its new president. Following a recent Finsia annual general meeting, she was elected to replace outgoi n g p re s i d e n t Ma l c o l m McComas. Birch has over 20 years’ experience in mergers and acquisitions, and currently serves as an executive director at Macquarie Capital Advisers. Since 2005, she has been Finsia's chair of the membership advisory committee, and was previously a member of the NSW Regional Council. " We h a v e s e e n Fi n s i a develop through substantial changes in the last few years –

D AV I D Wa p p e t t h a s b e e n named the new head of ThreeSi x t y Re s e a rc h b a s e d i n Sydney. He replaces Lisa Boyle, who has now moved into the position of investment director within the MLC Investment Management team. Wappett has been with MLC for more than 15 years – most recently spending five years as head of product for MLC Wrap. The research team now has 18 members that provide investment, insurance and portfolio construction research to advice businesses aligned with National Australia Bank.

AU S T R A L I A N Et h i c a l h a s appointed equity analysts Mason Willoughby-Thomas a n d Dr Ma r k Wa d e t o i t s e x p a n d i n g Syd n e y- b a s e d equity team. Prior to joining Australian Ethical, Wade worked with L I N WA R S e c u r i t i e s , O rd

Move of the week WILSON HTM Investment Group has announced the appointment of Brad Gale as head of private wealth management and a member of the executive leadership team. He takes over from Andrew Coppin, who had assumed the additional position for an interim period following his appointment as managing director in October last year. Before joining Wilson, Gale spent 11 years in a number of senior executive positions at JBWere and Goldman Sachs JBWere. These roles included partner and managing director for both firms. Prior to this, he held positions at KPMG and Credit Suisse in London. His areas of expertise include derivates, fixed income, capital markets, global solutions and family office.

M i n n e t t a n d In ve s t o r s Mutual, specialising in agricult u re, b i o t e c h a n d e n e r g y sectors. He was responsible for Investors Mutual adopting the United Nations Principles of Responsible Investment, and facilitated the inclusion of e n v i ro n m e n t a l , s o c i a l a n d corporate governance factors into the firm's investment research practices. Wade was most recently a senior equity analyst at ING Investment Management, and i n h i s n e w ro l e h e w i l l b e responsible for international

Opportunities SENIOR FINANCIAL ADVISER Location: Adelaide Company: Terrington Consulting Description: A full-service financial advisory firm is seeking a talented and proven financial advisor to join its team. It is critical that the successful candidate has expertise around superannuation, tax and Centrelink business and individual risk insurance, as well as experience in dealing with HNW clients. In this role you must also have the skills to acquire new clients via your own professional network. 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

equities coverage, focusing on energy stocks. Australian Ethical currently has an equities team of eight that manages both domestic and international equity funds, as well as equity mandates for Australian Ethical Super.

INDEPENDENT investment a d m i n i s t ra t i o n p l a t f o r m p r ov i d e r Pow e r w r a p h a s appointed Maurice O'Shannassy as chairman, and Cormac Herrernan as chief executive.

O'Shannassy is the former Australian CEO of BlackRock Asset Management and He r r e r n a n – w h i l e a l s o serving at BlackRock – was a for mer Na t i o n a l Au s t r a l i a Bank executive. While the appointments will see the departure of current CEO Andrew Varlamo s , t h e p l a t f o r m p r ov i d e r stated that the two new additions are in line with its efforts to build upon the takeu p o f i t s S M A RTw ra p o f f e r amongst independent financial advisers.

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

In this role, you will be the principal compliance resource providing compliance advice across the areas of financial planning, superannuation and lending. These responsibilities include developing compliance strategy and processes, matters concerning licensing and regulation, conducting field audits and reporting. To be considered, the candidate will have a demonstrated background in the financial services or funds management industry in an auditing or compliance capacity. For more information and to apply, visit www.moneymanagement.com.au/jobs, or contact Liz at Lloyd Morgan Australia – (03) 8319 7835, lmedwin@lloydmorgan.com.au

COMPLIANCE MANAGER Location: Melbourne Company: Lloyd Morgan Australia Description: A national financial services company is looking to hire a compliance manager for a 9-month maternity leave vacancy.

Brad Gale

TAX BOOKKEEPER Location: Adelaide Company: Terrington Consulting Description: A boutique accounting and practice advisory firm is seeking junior bookkeepers that have a desire to advance

their career in a business services and practice advisory direction. Your key responsibilities will include bookkeeping, tax preparation, client advisory, budgeting and forecasting. Ideally, the candidate will be a junior bookkeeper and accountant. To find out more and to apply, visit www.moneymanagement.com.au/jobs, or contact Jack at Terrington Consulting – 0499 771 746, www.terringtonconsulting.com.au

ACCOUNTANTS Location: Adelaide Company: Terrington Consulting Description: A number of opportunities are available in Adelaide for talented accountants. To be considered you will need 3-5 years experience in business services, taxation, audit, forensic accounting and insolvency. You must have relevant qualifications and will either have commenced or intend to commence a CA/CPA qualification. 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

JUNIOR ADVISER Location: Adelaide Company: Terrington Consulting Description: A national financial advisory firm is seeking a junior adviser to join its South Australian team. This is an ideal opportunity for individuals looking for their first role in the financial planning industry, particularly those who have recently completed their diploma of financial services. In this role, you will deal with a range of planning strategies including superannuation, retirement planning, risk management, investments and estate planning. An ability to manage your own workload is essential, as is RG146 compliance. For more information and to apply, visit www.moneymanagement.com.au/jobs, or contact Myra at Terrington Consulting – 0499 771 629, www.terringtonconsulting.com.au

www.moneymanagement.com.au June 7, 2012 Money Management — 27

Outsider

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

Are you being purred? NO names no pack drill, but Outsider recently discovered that he lived just a hop, skip and a jump around the corner from the chairman of a well-known dealer group and that, together, they lived in proximity to a shop selling r a t h e r “ i n t e re s t i n g ” w o m e n’s undergarments. Chowing down over a rather succulent steak at one of Sydney’s better nosheries, Outsider and the dealer group chairman found themselves discussing the commercial

rationale for selling “interesting” undergarments/lingerie in a suburb largely inhabited by elderly chaps such as themselves or upwardly mobile inner-city family types. Outsider may be a journalist, but it transpires that the dealer group chairman was a far better investigator than your venerable correspondent. The dealer group chairman offered that while “interesting” undergarments were being sold out of the front of the shop, even more interesting videos were being distrib-

What great portfolios! TO get people more interested in the ins and outs of their finances, it’s best to use beautiful people to sell your brand. It’s a simple enough equation that corporations have been using since time immemorial – sex sells (see Oikus Greek Yoghurt’s Superbowl half-time commercial featuring John Stamos). One financial services firm has incorporated this idea into its own planning solution to attract preoccupied Australians into making the decision to see a planner. Outsider admits that financial services professionals aren’t usually known for their good looks, and that many would much rather engage in jargon-laden discussion on the state of the current economy than hit the gym. So why not send potential clients a short video of a gorgeous young woman – or a strapping fellow – explaining the role of financial planners, and the benefits of getting your investment goals in order. It’s an angle Outsider recently noted was currently being pursued by one financial services company looking for a point of difference. But before clients can even ask “Do you come with the plan?”, your potential client may be left bewildered as to why you don’t look anything like the fine-looking digital figure on the video you sent them. Like any good matchmaking service, Outsider thinks it’s best to be yourself when showing your face in public – it surely saves on embarrassment down the track.

“

Out of context

uted from the back of the premises. How did the dealer group chairman find this out, you ask? Well, apparently he spied a poster on a light pole reporting the loss of a cat. It seems that shortly thereafter, the rather well-proportioned proprietor of the “lingerie boutique” then knocked at his door and asked whether he had seen her pussy? Apparently the infor mation pertaining to video distribution was gained from the ensuing discussion about lost pets.

Get smart. Be a planner! OUTSIDER noted that a recent sur vey of financial advisers conducted by Macquarie Practice Consulting turned up some interesting results. One finding was that across the 300 non-aligned advisers surveyed, the average number of clients per planner was 185 – of whom 128 were deemed to be “active”. Active, for the purposes of the study, is any client who is met with at least once per year. Interestingly, Macquarie Practice Consulting associate director Fiona Mackenzie also pointed to an unrelated study from British anthropologist Robin Dunbar that found a link between “the size of the cortex in the brains of primates and the number of social relationships each species can maintain”. In humans apparently this limit is around 150. Not being a British anthropologist, Outs i d e r i s p ro b a b l y n ot b e s t placed to determine the likelihood that the average financial planner is well ahead of the curve in this department and hence likely to be able to sustain more than the supposed 150-relationship limit.

“It just demonstrates the absolute incompetence, the lack of capacity to manage anything by this Labor administration. They couldn’t organise… anything.” Opposition financial services spokesman Mathias Cormann with a thinly veiled jibe at the presumption that Labor can’t, allegedly, organise the proverbial in a brothel.

28 — Money Management June 7, 2012 www.moneymanagement.com.au

If the findings hold true, however, then this means the average planner only has enough room in their cor tex for 22 friends and family outside of their clients.

“There’s change coming through.Where there’s change, there’s opportunity.” Macquarie Practice Consulting’s Fiona Mackenzie explains the surprisingly optimistic sentiment observed among recently surveyed planners.

Then again, if the average financial planner is as busy as Outsider keeps hearing they are, then even 22 extra relationships may still leave a little wriggle room…

“The very clear message that must be given to the community is: this is an issue for Europe.” Treasury boss Martin Parkinson tells a Senate hearing that Australia is in the clear; Greece is Europe’s problem.