Money Management (March 22, 2012)

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Vol.26 No.10 | March 22, 2012 | $6.95 INC GST

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MARGIN LENDING: Page 18 | SMSF ASSET ALLOCATION: Page 22

We’re not CBA captives – Count chief

By Mike Taylor COUNT Financial chief executive David Lane has strongly denied the dealer group has become a captive of the Commonwealth Bank’s size and product set.

In an interview with Money Management ahead of the dealer group’s national conference last week, Lane announced a series of enhancements to members of the group. These include cheaper platform fees and, crucially, expanding the benefits of Commonwealth Bank ownership and employment to the dealer group’s authorised representatives, as well as to selected small-tomedium enterprise clients.

Lane said Count would be providing the authorised representatives and the owners of its member companies with “the exact same suite of services that you would get if you were a CBA employee”.

“So things like 70 basis points off your

home loan, like a 20 per cent reduction on general insurance,” he said. “ They are things that as a CBA employee I know I use and I know that all my colleagues use, Lane said.

However, Lane strongly denied suggestions that the leveraging of products and servicing offerings from within the CBA had served to confirm that Count Financial had merely become a subset of the big banking group.

“I would absolutely deny that,” he said. “I am committed to maintaining an independent Count with an independent brand, with an independent location, with an accounting focus and with an open-architecture approved product list.

“What it now has behind it is significantly more support than it ever had,” Lane said. “And having options and having choice is very different to not having choice.”

David Lane He said that while he may be talking about a suite of CBA services, this did not preclude Count members from talking to every other bank in the marketplace.

“We encourage it and we expect it of them because that’s the type of advisers they are,” Lane said. “But we’ve now put in front of them a very attractive package that we think is going to be very competitive with all the other financial institutions in the marketplace” Lane said.

Among the other benefits outlined by Lane to the Count conference was that the dealer group would be providing its member firms with lending packages which would enable them to finance the sale of planning practices.

“As an accounting firm, if you want to buy out one of your partners who wants to retire and you want to fund number two person into that role or you want to go out and buy another business, we have a set package,” Lane said.

Count would also be able to act as a conduit via which small-to-medium enterprise clients could also access CBA products and facilities.

Platform review wins wide support Industry fund complaints

By Chris Kennedy and Bela Moore

THE Australian Securities and Investments Commission’s (ASIC) platforms review has drawn support from a range of stakeholders for proposing providing additional consumer protection via capital adequacy and for placing the spotlight on other gatekeepers in the financial advice chain.

ASIC last week announced Consultation Paper 176, which will examine the regulatory approach to investor-directed portfolio services, and proposes “additional requirements for platform operators to enhance investor rights associated with investments made through platforms”.

Chief executive of independent platform provider OneVue, Connie McKeage, was highly supportive of the paper and said it was an area that required further attention.

One of the greatest areas of conflict is between platform and manufacturer, she said. Some of the controversies that have afflicted the industry have been levelled at the advice part of the value chain – but the manufacturing component is also to blame, McKeage said.

Ian Knox “We’re absolutely supportive in understanding why certain products get on a platform menu and others don’t,” she said.

“When platforms have manufacturers underneath or product providers, we would be looking for a consistent, level playing field for all manufacturers, with a common methodology by which someone can arrive at an outcome. Very much like a manufacturer needs to demonstrate their investment philosophy and process, I think the platforms should have to justify, as we do, the decisions they come by” McKeage said.

ASIC said the proposals aimed to strengthen operating requirements for platform operators, ensuring they have adequate resources to conduct their financial services businesses. Managing director of independent service provider Paragem Ian Knox said the consultation seemed to be an across-the-board effort to ensure appropriate capital backing was behind the industry, which would inevitably favour large institutions and publicly listed entities.

Knox predicted that major changes would not be required for well-resourced institutions.

He said the emerging challenge would be for third party entities and industry bodies like the Association of Independently Owned Financial Planners (AIOFP), which might be forced into providing capital adequacy requirements in their own products. The AIOFP last year launched a private label eWrap platform via its member-owned administration business, Personal Choice Management.

Financial Planning Association general manager policy and government Dante De Gori also Continued on page 3

up, retail down

By Tim Stewart WRITTEN complaints to the Superannuation Complaints Tribunal (SCT ) about industry funds increased by 25 per cent last year, while complaints about retail funds decreased slightly.

According to the 2010-11 SCT annual report, there were 509 complaints about industry funds – up from 400 in 2010-09.

While retail funds continue to receive the most complaints, with 735 in 2010-11 (down from 758 in 200910), over the last five years the trend has been clear: complaints are increasing for industry funds and decreasing for retail funds.

Corporate Super Specialist Alliance president Douglas Latto said the different models employed by each sector helped to explain the trend.

“Industry funds are very much a reactive model. They’re not out there providing personal advice in a proactive manner,” Latto said.

On the other hand, financial advisers at retail funds are going out into the workplace to increase education and financial literacy, he said.

The decrease in complaints at retail funds is likely because their members are better educated than their industry

Pauline Vamos fund counterparts, Latto added.

Association of Superannuation Funds of Australia chief executive Pauline Vamos said the lack of a “middle man” in industry funds could result in members going directly to the SCT. “One of the obvious differences is that most people deal with their industry fund directly, and with retail providers there is usually an intermediary like an adviser,” she said.

Continued on page 3

Editor

Reed Business Information Tower 2, 475 Victoria Avenue Chatswood NSW 2067 Mail: Locked Bag 2999 Chatswood Delivery Centre Chatswood NSW 2067 Tel: (02) 9422 2999 Fax: (02) 9422 2822 Publisher: Zeina Khodr Tel: (02) 9422 2198 zeina.khodr@reedbusiness.com.au Managing Editor: Mike Taylor Tel: (02) 9422 2712 mike.taylor@reedbusiness.com.au News Editor: Chris Kennedy Tel: (02) 9422 2819 chris.kennedy@reedbusiness.com.au Features Editor: Milana Pokrajac Tel: (02) 9422 2080 milana.pokrajac@reedbusiness.com.au Journalist: Tim Stewart Tel: (02) 9422 2210 Journalist: Andrew Tsanadis Tel: (02) 9422 2815 Journalist: Bela Moore Tel: (02) 9422 2897 Melbourne Correspondent: Benjamin Levy Tel: (03) 9527 7392 ADVERTISING Senior Account Manager: Suma Donnelly Tel: (02) 9422 8796 Mob: 0416 815 429 suma.donnelly@reedbusiness.com.au Senior Account Manager: Jimmy Gupta Tel: (02) 9422 2239 Mob: 0421 422 722 jimmy.gupta@reedbusiness.com.au Adelaide Agent: Sue Hoffman Tel: (08) 8379 9522 Fax: (08) 8379 9735 Queensland Agent: Peter Scruby Tel: (07) 3391 6633 Fax: (07) 3891 5602 PRODUCTION Graphic Designer/Production Co-ordinator – Print: Andrew Lim Tel: (02) 9422 2816 andrew.lim@reedbusiness.com.au Sub-Editor: Marija Fletcher Sub-Editor: Daniel Winter Graphic Designer: Ben Young Subscription enquiries: 1300 360 126 Money Management is printed by Geon – Sydney, NSW. Published every week, recommended retail price $6.95 Subscription rates: 1 year A$280 incl GST. Overseas prices apply.

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FOFA finale: the odds shorten

A

llowing for the current Federal Parliamentary schedule, it seems entirely probable that by the time this editorial is published our readers will know the final shape of the legislation which will shape the financial planning industry for at least the next two years.

They will know whether the independents in the House of Representatives joined with the Federal Opposition to push through amendments to the two-year optin, annual fee disclosure and the nature of the client best interests criteria. However planners should not have allowed themselves to become too optimistic.

An analysis conducted by an ardent watcher of events in the Federal Parliament last week told Money Management that independents Tony Windsor and Rob Oakeshott had voted to support the Government on no fewer than 86 per cent of occasions during the life of the current Parliament. That suggests the odds of achieving significant amendments are long indeed.

However the good news from last week was that the Minister for Financial Services, Bill Shorten, has taken the sensible option of extending the implementation of FOFA by 12 months.

“

The financial planning industry has campaigned hard over FOFA. It may need to continue that campaign through to the next Federal Election.

”

Shorten said the reforms would commence from 1 July this year, but compliance would be voluntary until the changes were formally implemented on 1 July, 2013.

In truth, the Government had little option but to grant the 12-month implementation period in circumstances where the processes around the drafting and implementation of the FOFA bills had become so bogged down that a 2012 date had become impractical.

Financial planners should strongly welcome the delayed implementation because it suggests that no matter what the

legislation looks like when it emerges from the House of Representatives and then the Senate, they will have had time to get their houses in order.

Further, if the legislation is not to be formally imposed until 1 July, 2013, then it will be only a few short months before the next Federal Election and the Government's policy position and performance can be judged at the ballot box.

Of course, financial planning is never likely to be a big issue in the context of a full-blown Federal Election, but it represents one of the few areas in which the policy positions of the two major parties have been fully spelled out.

The Opposition has made its position abundantly clear in the context of the amendments it has moved in the House of Representatives. It has flagged its intentions with respect to superannuation and, particularly, the role of industry superannuation funds in the context of union influence, and their perceived monopoly with respect to default funds under modern awards.

The financial planning industry has campaigned hard over FOFA. It may need to continue that campaign through to the next Federal Election.

– Mike Taylor

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2 — Money Management March 22, 2012 www.moneymanagement.com.au

News

Platform review wins wide support

AIST defends industry fund board structures

Continued from page 1

By Mike Taylor

supported a review. He said that with all the focus on planners through Future of Financial Advice reforms, it was important to look at past failures not only from an advice point of view but from a product and fraud perspective.

He added it would be interesting to see what implications the new regulatory guide had for planners and the advice process, noting the ASIC guidance indicated consumers would need to be equally protected whether they invested on a platform independently or through an adviser.

MLC investment platforms executive general manager Michael Clancy said MLC and NAB Wealth were supportive of efforts to further improve investor confidence and looked forward to reviewing the proposals in greater detail and working with ASIC through the consultation period.

An IOOF spokesperson said IOOF welcomed in principle the ideas that had been raised but questioned the timing, saying the industry might not be able to respond by the dates outlined. The April 20 cut-off is less than six weeks after the initial announcement.

AMP and CFS both indicated it was too early to provide a full response. Macquarie said it would not be able to provide a response by Money Management’s deadline. ANZ and BT did not respond to requests for comment by Money Management’s deadline.

THE Australian Institute of Superannuation Trustees (AIST) has sought to hit back at criticisms of the trustee board structures of industry funds raised by the Federal Opposition leader, Tony Abbott.

AIST chief executive Fiona Reynolds said Abbott’s view on superannuation seemed to be driven by ideology rather than what was really going to benefit Australians in retirement.

Dealing with the question of representation on trustee boards, Reynolds said it was ludicrous to label not-for-profit funds as being “union controlled”.

“This is just plain wrong as, by law,

Industry fund complaints up, retail down Continued from page 1 But for Financial Planning Association general manager for policy and government relations, Dante De Gori, financial planners could in fact be the reason behind the increase in complaints about industry funds.

“People don’t know what the SCT is, and most people would accept the decision of the trustee. Some of the extra cases may be because financial planners know the complaints process and take that extra step,” De Gori said.

SuperRatings managing director Jeff Bresnahan was quick to point out that the number of complaints to the SCT was “incredibly low” given there are “33 million accounts out there” – and particularly low compared to the banking sector.

He said the GFC would explain an increase in complaints about investments, but it was likely that

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Dante De Gori improved insurance offers from industry funds had played a role as well.

“The sums involved in [group] insurance are a lot higher now. Industry funds have negotiated improvements of 30-40 per cent with the insurers,” Bresnahan said.

The result is that clients are less likely to walk away from a total and permanent disability claim now – they are more likely to go to the SCT, he said.

industry funds must have equal numbers of employer and employee directors on their boards and, by law, they must act solely in the interests of their members, not in the interests of banks or organisations which are seeking to make profits out of the super system,” she said.

“Furthermore, all board decisions require a two-thirds majority of the board, which does not allow one side to dominate the other,” Reynolds said.

Mr Abbott earlier this week was reported as telling Coalition parliamentarians that super funds could be turned into “gravy trains” for union officials.

The Federal Opposition financial services spokesman, Senator Mathias

Fiona Reynolds Cormann, has previously called for stronger rules around superannuation fund governance, particularly multiple directorships on trustee boards.

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www.moneymanagement.com.au March 22, 2012 Money Management — 3

News

Macquarie managed accounts added to over 30 APLs

By Chris Kennedy

MACQUARIE Private Portfolio Management has announced that its managed accounts have been added to the approved product lists of more than 30 financial advisory dealer groups during the past 12 months, saying this is evidence of the clear growth of the managed accounts industry.

Macquarie Private Portfolio Management has also recently signed white label

and co-branded product agreements with two large groups to provide individually and separately managed accounts to the clients of those groups, the group stated.

Macquarie Private Portfolio Management said the take-up represented significant growth, given it has only recently extended its managed accounts offering externally. It has more than 80 not-for-profit organisations as clients, while self-managed superannuation funds (SMSFs) make up 40 per cent of its total client base, with a total of $1.1 billion in

funds under management.

The growth is linked to the increasing interest in managed accounts in Australia, according to Macquarie Private Portfolio Management head of distribution Adrian Stewart, who said the trend is likely to continue.

Managed accounts provide more visibility to investors who are asking for more transparency and value in the current volatile environment, he said.

“Managed accounts are also popular among SMSF clients, and with the SMSF

industry continuing to grow, it makes sense to expect that managed accounts will increasingly gather interest from investors – especially among those who are planning for retirement,” he said.

Tax efficiency is another factor behind the current interest in managed accounts, according to head of Macquarie Private Portfolio Management Damian Graham.

This is especially important for SMSFs, particularly with regard to the likely after-tax outcome of an investment decision, he said.

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4 — Money Management March 22, 2012 www.moneymanagement.com.au

Michael D’Ascenzo

ATO catches 1200 tax and super offenders

By Milana Pokrajac ALMOST 1200 people were prosecuted and convicted for tax and superannuation offences last year, according to figures released by the Australian Taxation Office (ATO).

The ATO figures reveal 48 people were prosecuted and convicted of serious tax crime offences.

Close to 1,150 people and 370 companies were charged with providing false and misleading information, failing to lodge a tax return or receiving a fee for preparing an income tax return when not being a registered tax agent.

Serious offenders received sentences ranging from three months to almost 10 years, with six of these convictions having occurred under Project Wickenby.

Tax Commissioner Michael D’Ascenzo said tax evaders were often caught by the sharing of information between government departments and other third parties.

“The ATO also undertakes risk profiling to identify people and businesses that may have not declared all their earnings or overinflate their deductions,” D’Ascenzo said.

“We can see how personal and business claims compare to other tax payers; if alarms are raised the ATO investigates those claims and taxpayer records more closely,” he added.

News

FOFA flaws outlined in FPA letter to independents

By Mike Taylor THE Financial Planning Association (FPA) has written to the key independents in the House of Representatives seeking their support for key amendments to the Future of Financial Advice (FOFA) bills.

The letter, a copy of which has been obtained by Money Management, warns the independents that “some of the

BT strongest in poor year for retail managed funds

By Chris Kennedy

BT was the least damaged provider across a retail managed funds sector that was battered by market volatility in 2011, with overall funds under management (FUM) dropping 5.1 per cent to $486.9 billion, according to Plan For Life data.

BT shrunk 2 per cent in 2011 and is still the largest provider with 19.1 per cent market share or $93.2 billion FUM. The next smallest losses were reported by Mercer (-2.1 per cent), AMP (-3.9 per cent) and Commonwealth/Colonial (-4.7 per cent).

The biggest losses were seen at Perpetual (-11.8 per cent), Macquarie (-7.9 per cent), OnePath (-7.7 per cent) and IOOF (-7.4 per cent). Perpetual and OnePath were the only major providers not to recover ground in the December quarter, down 1.9 per cent and 0.2 per cent respectively.

Total fund inflows of $165.5 billion represented a 2.1 per cent decrease on 2010, with BT receiving about one quarter of all inflows – up from one fifth in 2010.

All retail funds excluding cash trusts actually grew 11.6 per cent for the year, led by Challenger (up 85.6 per cent to $2.2 billion) and BT (up 26.1 per cent to $42.5 billion), while Macquarie (down 27.5 per cent to $5.9 billion) saw significant outflows.

Retirement incomes grew by 1.7 per cent during the year, led by Challenger (19.9 per cent) and Colonial (8.1 per cent). Despite a 21.4 per cent drop in inflows, the sector finished 2011 19.3 per cent higher than in 2010.

Cash management trusts stabilised in 2011 following dramatic falls in 2009 and 2010, but still shrunk by 10 per cent during the year.

proposed measures are flawed, and when viewed in total, the FOFA reforms are insufficient in achieving significant inroads to boost consumer trust and access to financial advice”.

The letter, signed by FPA chief executive Mark Rantall, says the current legislation and the Parliamentar y Joint Committee’s recommendations “do not deliver on the goal of improved access to financial

advice, particularly in respect to the following four weaknesses: 1. Start date and transition period.

2. Clar ity and cer tainty regarding how scaled advice works with best interest legislation.

3. Consumers continue to face greater risk with the optin renewal notice requirement, as the key protection mecha-

nism regarding advice and their options to access dispute resolution schemes will be removed for many who unwittingly neglect to opt-in.

4. Additional fee disclosure statements for both existing (retrospective) and new clients are redundant. Fee disclosure obligations already exist for advisers and product providers in disclosing fees to the client.”

The letter tells the independ-

ents it is intended to bring to their attention “the critical points of the respective bills that are before Parliament and which, if not addressed, will result in the FOFA reforms failing to achieve their objectives”.

“We seek your support to ensure that the FOFA reforms are appropriately developed to ensure tangible and beneficial outcomes for all Australians,” it said.

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

News

Count announces platform savings

Enact end-of-year plans now

By Mike Taylor

By Tim Stewart

COUNT Financial’s new management has fully leveraged the power of Commonwealth Bank ownership to offer its adviser members key improvements and incentives to remain within the dealer group. These include platform discounts, openarchitecture approved product lists, improved technology support and the same privileges and discounts afforded to bank employees.

The package was announced by Count’s new chief executive officer, David Lane, to its dealer group conference last week and came in the wake of recent reports of some members of the dealer group having left to join other planning groups.

Speaking to Money Management ahead of the dealer group conference, Lane acknowledged the loss of some planners, but said the management was determined to maintain Count as the accountant-driven business it had always been, “We’ve lost a few advisers and each and every member is important to us – we hate to lose even one,” he said.

“At the same time, and in a funny way, I’d be disappointed if they weren’t attractive to other dealer groups. We have some of the best in the business.”

At the core of Lane’s announcement to the dealer group conference was the addition of Colonial First State’s low-cost platform, First Choice Wholesale, which he said would provide savings of 20 basis points and sometimes higher.

As well, Lane pointed to the implementation of an additional 20 basis point reduction attaching to the first $1 million in the Star Portfolio.

However, in answer to the suggestion that the use of First Choice Wholesale and other Commonwealth Bank vehicles had simply fulfilled the warnings of critics that Count would lose its identity, Lane insisted that this was more than o f f s e t by a n o p e n - a rc h i t e c t u re approved product list (APL) and a “product agnostic” approach.

Further, he said that Count would be seeking to negotiate a lowering in costs on other products on the APL. Where planning technology was concerned, Lane said Count would be moving to be beef up support around XPlan Voyager, as well as ramping up technical services support by drawing on the substantial resources of the First Tech team.

He said that Count would also be moving to return to an in-sourced approach to paraplanning, with the

6 — Money Management March 22, 2012 www.moneymanagement.com.au

David Lane introduction of a pilot program to bring it back in-house.

Count would also be looking to provide licensing arrangements sufficient to handle the Government’s approach to the accountants’ exemption – something that would not only be offered to accountants within the Count network, but more broadly, In dealing with the Future of Financial Advice changes, Lane said Count would be working hand in glove with its planners to make sure they were ready with respect to both client segmentation and client pricing, and utilising Voyager with respect to opt-in.

FINANCIAL planners need to act now to put their clients' end-of-year tax strategies into place, according to OnePath head of technical sales strategy Andrew Lowe.

Salary sacrificing arrangements must be prospective in nature – that is, they must be put in place before the income is received, said Lowe.

"Proactivity around salary sacrificing arrangements at this time of year is really important. The longer you leave this, the fewer payments you've got to direct into superannuation," he said.

When it comes to bonuses, the client can only direct the employer to salary sacrifice the money before the amount is known, Lowe added.

"If the employer was sitting down and saying 'we're about to pay you $3,000', at that point it would not be possible to deal with that amount other than to receive it as an assessable income payment in that [financial] year," said Lowe.

He said another strategy that financial planners should address now was concessional superannuation contributions, especially considering the uncertainty about the concessional contribution limits in future years.

"We don't have legislative certainty about what happens with concessional contribution limits for over 50s from 1 July this year. At the moment the law simply drops those contributions from $50,000 to $25,000 from 1 July 2012," Lowe said.

With that uncertainty in mind, clients should be directed to take advantage of the $50,000 limit for this year, he said.

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News YBR growing and spending aggressively

By Chris Kennedy ONE-STOP-SHOP wealth management company Yellow Brick Road (YBR) has announced a one-third jump in total revenue while more than doubling branch-generated revenue – but increased expenses led to a significant overall loss for the half year to 31 December.

YBR’s half-year results to 31 December 2011, originally posted on the Australian Securities Exchange on 28 February, revealed branch revenue increased from $1.47 million in the prior corresponding period to $3.12 million, and overall revenue climbed 31 per cent to $6.7 million.

However a massive jump in marketing and other operating costs from $3.6 million to $6 million resulted in a loss after income tax of $3.4 million, up from $0.5 million in the prior corresponding period.

Funds under management grew by a third to $154 million, while wealth management and investment revenue was also up one third to $1.135 million.

In the market update, YBR described itself as being in an “aggressive build phase” and said it was suited as an emerging challenger to the current economic environment.

The group said it was moving into a phase where it would look to build on its initial spend and further leverage its partnership with Channel Nine, which invested $13 million into the group last year via shares and free advertising. The partnership also sees YBR executive chairman Mark Bouris appear on Nine’s reality show Celebrity Apprentice, the second season of which is due to air in April and May of this year.

The group said it would be looking to grow its branch numbers to 125 by 30 June this year after passing 100 in January , and was targeting further growth in wealth management products and selectively moving further into product manufacturing.

YBR also outlined plans to increased its branch advice capability as branches move up the “advice curve” by upgrading their individual advice capability, partnering in the branch, meeting regulatory requirements and referring to YBR specialists.

Financial services salaries – not how much but why

By Mike Taylor

AUSTRALIA'S financial services prudential regulator is not interested in how much the nation's top financial services executives are being paid but how and why they're receiving such large amounts.

That is the analysis of Australian Prudential Regulation Authority (APRA) general manager David Lewis, who has told a forum that the regulator is "not interested in remuneration in and of itself".

"What we are concerned about is risk management," he said. "So, when we see remuneration policies that encourage risky behaviour – yes – we get very interested."

Lewis said that despite all the public angst about the size of bank executive pay packets, "we’re ambivalent about that".

"What APRA looks at is not the ‘how much’ of executive pay, but the ‘why’. Our concern is to make sure that the remuneration practices adopted by regulated financial institutions are sound and do not imbed ‘risk time bombs’ in the balance sheet which could undermine the future viability of the firm," he said.

Lewis said that what APRA looked at were the performance hurdles that underpinned these pay structures.

"Are these performance hurdles consistent with the prudent risk management of the firm?

Or do the performance indicators used to reward executives promote short-term profits at the expense of the firm’s long-term sustain-

ability? Is too much emphasis being placed on revenue growth today and insufficient regard being paid to the quality of assets being brought onto the firm’s balance sheet?"

Lewis said that overall Australian financial institutions had measured up well to APRA's scrutiny, especially when compared to their overseas counterparts.

However he said that there were some concerns around performance measurements relying too heavily on generic measures such as share price, market share or earnings per share. "Metrics such as these are too high level to provide a reliable measure of individual performance and risk-taking," Lewis said.

He said better practice was to adopt a balanced scorecard approach incorporating a mix of individual performance metrics and qualitative assessment.

PIS senior staffers join new Robbie Bennetts venture

Sentry rolls out a new referral process

PROFESSIONAL Investment Services (PIS) chief information officer Shannon Overs has joined his former managing director Robbie Bennetts at his new Gold Coast based start-up Robbie Bennetts Enterprises (RBE) as chief information officer, along with several other long-term PIS employees.

Other appointments from PIS include longtime PIS senior executive Greg Whimp, former PIS conference coordinator and personal assistant Melanie Sharpin, and former PIS national conference manager Mark Dwyer.

RBE has also recruited fourtime Olympian and Beijing gold medal winner, rower Duncan Free, who will perform a business development role while still training for the London Olympics.

Overs will be responsible for the development and implementation of cloud computing solutions for accounting firms, financial planning practices, and small to medium-sized dealer groups, RBE stated.

By Bela Moore

Greg Whimp Whimp was one of the original PIS employees in 1997, and was eventually appointed managing director before leaving in 2007, later returning as acting chief executive for six months in 2011. He has also worked at AMP, Suncorp, and Pearl Assurance in the UK. He has joined RBE as a consultant responsible for developing opportunities in direct sales of products and services, in conjunction with insurance companies and fund managers, RBE stated.

8 — Money Management March 22, 2012 www.moneymanagement.com.au

Dwyer has been appointed chief operating officer at RBE, and has over 30 years experience in corporate communication, professional development, conference organisation and management roles, and has also worked for the Institute of Chartered Accountants, RBE stated.

Bennetts said he was delighted to be working with people he has known over many years.

“We’ve been overwhelmed by the number of people and businesses wanting to know more about what we’re doing. With the staff and consultants now working for us, we can start tapping into the astonishing number of opportunities that have come knocking at our door,” he said.

“At a time when the financial services industry is pretty much treading water, the products and solutions we’re developing will offer smarter ways for these businesses to deliver their services to clients and achieve greater efficiencies as they do so,” Bennetts said.

SENTRY’S life risk insurance advisers will soon have access to a new structured referral process that it says will benefit customers as well as provide growth opportunities.

T h e Re a l E s t a te to R i s k Referrals structured referral system provides a new opportunity for cross-sales between the financial services and real estate industry, Sentry stated.

Under the arrangement, real estate agents can offer their clients free complimentary 60day life insurance cover and refer them to Sentry advisers.

The adviser activates the cover and recommends an appointment to discuss and address their financial and risk protection needs.

“Sentry advisers that participate in the program will have a new source of referrals that will provide them with substantial business growth prospects,” Sentry Group advice chairman

Murray Hills and chief executive Murray Hills said.

Sentr y said it is of fering other life risk insurance advisers an opportunity to capitalise on exclusive referral bases in locations around Australia under Sentry’s licensing arrangements.

News

ETF Consulting tips more market diversity

Lonsec unsure about UBS small caps team

By Chris Kennedy

By Milana Pokrajac

A RANGE of new exchange-traded funds (ETFs) will be released this year to the Australian market and there will be an increase in the number of ETF providers, according to ETF Consulting.

More than 20 new ETFs are likely to be released to the Australian Securities Exchange (ASX) this year on top of the current 61 on offer in what will be a very active year for the industry, with a shift away from the focus on equities-based ETFs, the firm stated. “We expect to see more dramatic growth and change, with stiffer competition, lowered fees, more product launches, consolidation, and the potential for more regulatory influence,� ETF Consulting chief executive Tim Bradbury wrote in an ETF outlook report.

BlackRock’s iShares last week released three fixed income ETFs, and ETF Consulting said a large selection of fixed interest ETFs will hit the market in a flurry of activity soon, with each major issuer planning to introduce a selection of bond-backed ETFs. “This will fill the last big gap in asset classes offered and spark renewed interest in the ETF sector,� Bradbury said.

There will be more commodities offerings, which could pose an issue for regulators as

THE UBS small caps fund might have lost its competitive edge with the departure of its previous managers John Campbell and Jeremy Bendeich, according to a report published by Lonsec.

In its small cap sector review, the researcher has announced a downgrade from a ‘fund watch’ to an ‘on hold’ rating for the UBS Australian Small Companies Fund. “Lonsec considers the fund’s major competitive edge to be its disciplined and robust investment process,�

Lonsec’s investment analyst Steven Sweeney stated. “However, the investment team has experienced persistent year-to-year personnel change in recent years and is untested as a combined entity, with Victor Gomes only joining Stephen Wood in mid 2011,� Sweeney said.

The fund’s previous managers Jeremy Bandeich and John Campbell made a sudden departure from the company in April 2011, announcing the launch of their own small cap boutique – Avoca Investment Management.

The only remaining member of the

many commodities require a derivative-style ETF, he said.

Fund managers with traditional managed funds outside the ETF sector are likely to make use of recent ASX rule changes to bring new styles of funds to market, he added. “As pooled fund managers watch asset flow trends internationally, and as they seek ways to tap the significant self-managed superannuation fund market, they will realise recent ASX developments are worth investigating,� he said.

For a locally domiciled asset manager with much of the required infrastructure already in place, the barriers to entry are even lower, Bradbury added.

previous three-person team, Stephen Wood, almost immediately took over, with Victor Gomes having been appointed to co-manage the fund in late April.

However, the UBS acquisition of ING Investment Management further added to the instability, according to Lonsec. “While perhaps impacting less on the small caps team than it has on the large cap team, this still has the potential to add further instability,� the report stated.

Lonsec acknowledges that the move

by UBS to “boutique� the equity teams, while still in its early days, may assist in addressing this issue and enhance the managers’ alignment of interest with investors.

Furthermore, the recent hire of a resources analyst to this small caps team could prove beneficial in providing insight into a key small cap sector, Sweeney said.

However, Lonsec concluded by saying it currently believed “there are a number of more attractive opportunities in the small cap sector� and that it will be looking for a period of stability and cohesion in the new structure.

Rafael Calhau Bike Mechanic

What can we learn from a bike mechanic about life insurance?

More options provide more exibility.

A bike might simply be a frame and two wheels, but if you talk to a bike mechanic, they’ll tell you there are countless ways of customising it to suit the rider.

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www.moneymanagement.com.au March 22, 2012 Money Management — 9

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SMSF Weekly ATO could help on SMSF auditor information

By Mike Taylor THE Institute of Chartered Accountants in Australia (ICAA) has indicated the Australian Taxation Office (ATO) could help the selfmanaged superannuation funds (SMSF) industry by identifying accountants undertaking SMSF audits.

ICAA superannuation specialist Liz Westover raised the usefulness of the ATO providing such data amid reporting around auditors failing to include some material in their audit reports.

She said assistance from the ATO in identifying those accountants auditing SMSFs would be useful in targeting education and resources to the sector. “One of the key drivers of audit quality is the ability to target communication and education to those operating in the area,� she said.

Liz Westover “With a list of those conducting SMSF audits, the Institute could assist in delivering relevant information to SMSF auditors in an efficient and effective manner, to help members in meeting their professional obligations,� Westover said.

She said this would be in the best interests of the SMSF industry and the wider community.

SMSFs continue Gen Ys positive on incomes, to dominate less on super SELF-MANAGED superannuation funds (SMSFs) continue to dominate the Australian superannuation funds landscape in terms of both assets and growth, according to the latest data released by the Australian Prudential Regulation Authority (APRA).

The APRA data revealed that in the December quarter 2011, total estimated superannuation assets increased to $1.31 trillion, while over the 12 months to December there was a 1.2 per cent increase in total estimated superannuation assets.

It said that during the quarter, SMSF assets increased by 2.2 per cent, public sector funds’ assets increased by 2.1 per cent, industry funds’ assets increased by 2.0 per cent, retail funds’ assets increased by 1.6 per cent and corporate funds’ assets actually decreased by 0.7 per cent.

The APRA data revealed that, as at 31 December 2011, self-managed superannuation funds held the largest proportion of superannuation assets, accounting for 30.6 per cent of assets, followed by retail funds with 27.4 per cent of total assets.

It said industry funds accounted for 18.9 per cent of total assets, public sector funds 15.7 per cent and corporate funds 4.1 per cent.

As well, it said small APRA funds held 0.2 per cent of total assets.

AUSTRALIAN Gen Ys appear to be under no illusions about how hard they will have to work to achieve a comfortable retirement, according to new research released this week.

The research, conducted by industry fund REST, found that two-thirds of Australian Gen Ys think they will work as hard as their parents, if not harder, to achieve their desired lifestyle.

The research found that despite common perceptions of the laziness and poor work ethic of the demographic, Gen Ys are prepared to put in the hard yards in terms of building their careers and securing their lifestyles.

It found that more than 75 per cent of Gen Ys expect to live a comfortable or very comfortable lifestyle, with 15 per cent expecting they will be rich.

Of those who thought they would earn a $100,000 salary at some stage, nearly 70 per cent said it wouldn’t be until they reached 30, while some 32 per cent said they thought they would never earn that much.

Commenting on the research, REST chief executive Damian Hill said it indicated that although Gen Y had high aspirations, a “super reality check� was required to help some to realistically achieve these goals. “Gen Y should be applauded for their desire to build a bright future for themselves, and for demonstrating a healthy savings mentality,� he said. “However many are already carrying debt and they risk falling short of their longer-term aspirations if they don’t act early to ensure they have the money to fund them.�

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www.moneymanagement.com.au March 22, 2012 Money Management — 11

InFocus ASSET CLASS RETURNS SNAPSHOT S&P/ASX Fixed interest index

S&P/ASX 200

-0.23%

6.22%

The price of success

1 January – 27 February 2012

12.14%

-10.54%

Year to 31 December 2011

7.65%

-2.31%

5 years to 31 December 2011

6.65%

4.46%

7 years to 31 December 2011 Source: Standard & Poors’ Indices

WHAT’S ON

SMSF Essentials 2012 27 March Doltone House, Sydney www.moneymanagement.com.au/eventlist

AFA Corporate Social Networking Event 30 March European Bier Cafe, Melbourne www.afa.asn.au/profession_events.php

Leveraging Technology in Finance: Strategy and Innovation 11 April Sofitel Melbourne www.finsia.com/Events

SMSF Investment Strategies 24 April Intercontinental, Melbourne www.finsia.com/Eventlist

2012 Money Management Fund Manager of the Year Awards 10 May Four Seasons Hotel, Sydney www.moneymanagement.com.au/events

Economist Matt Drennan says it’s time for Australia's political leaders to acknowledge that our relative economic good fortune is attributable as much to luck as good management.

A

ustralia is widely regarded as the poster boy of world economies, especially when compared to many of its OECD (Organisation for Economic Co-operation and Development) benchmarks (basket cases). Hell, Wayne Swan even won the Stephen Bradbury Treasurer Award or something, didn't he?

My view – the success we have enjoyed relative to most of the rest of the world comes down to pure luck. Luck that we had resources China needed, luck that our banks had not ventured offshore in a big way after getting their fingers burnt up to the elbows during the last cycle, and luck that we entered the global financial crisis (GFC) with no net Commonwealth Government debt – thanks to John Howard's paranoia about the issue. Yes the lucky country concept is alive and well.

Our resilience had very little to do with the Government's stimulus measures following the GFC, and equally little to do with the role of our various regulators.

Seeing Bob Carr announced as the replacement senator and minister for foreign affairs after several denials confirms you can't believe everything the politicians say. So why should the reasons touted as our salvation from the GFC be any different?

Unfortunately, our pollies and institutions have been so busy bragging about our success, they have failed to protect the economy from the inevitable impacts flowing from it.

Think about it – our short-term success has sowed the seeds for the next cycle.

Australia offers much higher interest rates than elsewhere in the world as a result of our hither to strong economy. That

12 — Money Management March 22, 2012 www.moneymanagement.com.au

attracts investors, and because they need to buy Aussie dollars to invest, forces up the exchange rate.

Now that's great if you are travelling overseas or buying stuff in the US; but lousy if you run a traditional retail business, are in inbound tourism, or are trying to compete with imported manufactured goods. Throw a carbon tax on top which is over double what they pay in Europe and you really get business worried. By the way, see if you can find anyone in China or India that knows when they are planning to introduce one.

You get the picture.

Meanwhile much of the union movement has been running around maximising salary increases and minimising productivity offsets under the debacle that goes under the misnomer of The Fair Work Act 2009. Problem is, no one planned on business calling a sub from the bench.

When profitability is threatened and work relations become untenable, business adapts wherever possible. Where it can't, you go out of business.

So how do you adapt? The first cab off the rank is to substitute capital for very expensive labour. Ask the train drivers in the Pilbara how good they feel about their high wages when Rio is scheduling to replace them with driverless trains in the next two years.

Why did Qantas ground its entire fleet, establish Jetstar and pursue its now defunct Asian based airline strategy?

Because the outdated award conditions in this country force them to if they want to compete. (They even codenamed the Asian airline project "Darwin"!)

Apart from capital substitution, we are also witnessing country substitution. No, I am not talking about the long established

practice of outsourcing, although the banks are pursuing that much more aggressively now. I am thinking more about investors and buyers of our exports.

Already, Indian and Swiss mining companies are flagging that Australia's carbon tax is making investments in our mining industry less attractive than Asia and Africa. It won't stop investment, but over time we will increasingly miss out.

The high dollar has also seen foreign student enrolments in universities drop 20 per cent this year. Do you think that's an isolated result rather than the beginning of a trend?

So what, if anything, does this mean for our future?

Well, for starters the real unemployment rate is well above the published 5.2 per cent (watch this shoot up over coming months). More importantly, if an administration focuses solely on how the economic pie is divided rather than spending equal time encouraging it to grow, productivity plummets, industry shrinks, and the economy loses its ability to remain self-sustaining. Can't happen here? I bet that's what the Greeks said.

Already, the number of days lost to industrial disputes has doubled during 2011. Not a great harbinger for future productivity growth.

Don't misunderstand me: I am not forecasting Armageddon for Australia. It is just another boom-bust cycle in resources which occurs every 30 years or so. The problem is, not only do we manage Not to take advantage of the bounty, but through bad policy and short-sighted ambitions we actually consciously machine gun ourselves in the foot.

Matt Drennan is an economist.

FSC Life Insurance Conference 2012

It’s a team effort

Underinsurance is a concern for the Australian community. However, Financial Services Council chief John Brogden believes the combined government and industry efforts could reduce the so-called “insurance gap”.

TAKING out sufficient life and income protection insurance is one of – if not the most – important financial decision a person can make. Life insurance is at the heart of every individual’s financial health.

Increasingly, this is being recognised by the community, the Government, and the wider financial services industry.

At the same time as the industry is becoming more prominent, it is also undergoing significant change driven by the market, demographics, government reform and industry self-regulation.

Getting these reforms right and adjusting to change is important if the goal for life insurance is to be achieved – that is, more people having adequate cover.

Australians are chronically underinsured, with research confirming just 5 per cent of Australians have the right amount of life insurance cover. However, research by KPMG has also shown that Australians who receive financial advice are at least four times more likely to hold

any life insurance cover than those who do not receive advice. They are also more adequately insured, holding on average more than two and a half times the level of cover than those who do not receive advice.

Changes to improve confidence in financial advice, such as requiring planners to act in the best interest of their clients, will go a long way to improving the take-up of life insurance.

The industry is also responding to changes to the market to meet consumer demand. Changes in distribution channels that are already underway will continue in 2012. Group insurance continues to mature, with levels of cover increasing significantly. This is a highly competitive segment and will only become more competitive as MySuper brings with it an obligation on trustees to develop an insurance strategy that addresses the insurance needs of their membership.

The direct channel has led to innova-

tion in the industry. It has seen strategic partnerships between companies such as AIA and Priceline, Swiss Re and Woolworths, and the launch of creative campaigns such as Million Dollar Woman.

With the regulatory headwinds facing other channels, competition in this segment is expected to intensify further.

However, there is no doubt that claims experience is tightening. Managing this shift will be critical to the industry’s capital position and profitability and the affordability of insurance.

The industry is also taking action to address underinsurance in Australia. The Lifewise campaign was launched in 2009 to engage with consumers and raise awareness of life insurance. This campaign is not designed to sell insurance – rather, it promotes awareness among consumers and also assists advisers to communicate and calculate “how much is enough?”.

Lifewise has been embraced by the general public, and in particular, young

families and mothers through a presence at parenting shows across Australia.

Australia’s high level of underinsurance is reflected through the average results for those using the Lifewise calculator, where the average existing cover was just $130,000 compared to the average suggested level of cover of $582,000.

Australia’s high level of underinsurance is a concern for the community, the Government and the industry. Through reforms to improve confidence, changes to group insurance through Stronger Super, the growth in the direct-toconsumer channel and support in raising consumer awareness through the Lifewise campaign, the ‘insurance gap’ can be reduced. If the financial services industry and the Government can get this right it will be good for business, but more importantly, good for the community.

John Brogden is the chief executive officer of the Financial Services Council.

www.moneymanagement.com.au March 22, 2012 Money Management — 13

FSC Life Insurance Conference 2012

When the lines are blurred How do you keep a clear picture when the lines of life insurance are blurred?

Damien Mu predicts that the distinctions that life insurance companies draw between group and retail insurance will increasingly lose relevance with the introduction of the proposed regulatory reforms.

LIFE insurance companies have traditionally divided their products and offers by channel – either group, retail or direct. In the case of master trusts and wraps, group insurance arrangements have traditionally been used to distribute life insurance. This has allowed trustees and insurers to lower the cost of insurance solutions, improve access for consumers and has allowed advisers to structure their customer’s insurance inside superannuation.

However, recent CoreData Life Market research has shown up to one third of advisers are writing individual retail policies through master trusts and wraps.

It is our view that this trend will only accelerate with the proposed regulatory reforms, and as a result the distinction that life insurance companies draw between group and retail insurance will increasingly lose relevance when advisers are discussing insurance options with their customers.

The proposed reforms allow commissions on individual insurance through super as an appropriate charging mechanism and one likely consequence of this will be for more and more trustees making retail risk products available through their platforms.

So what exactly does the blurring of these lines mean for advisers and dealer groups wanting to stay ahead?

Category consolidation may equate to increased competition The consolidation of traditional life insurance categories will trigger increased competition and presents opportunities for advisers to grow their businesses. We are already seeing group insurance offers coming to market which are targeted at advisers specialising in the self-managed superannuation fund sector, and many trustees have taken the step of offering life companies retail insurance products on their master trusts and wraps.

This increase in competition may also lead to complex servicing models – eg, a client that is insured through a group insurance contract will have a different experience from the client that purchases a retail insurance product through the platfor m. Ultimately, differ ing service levels will mean that advisers will have to navigate through this c o m p l e x i t y, a n d a s a re s u l t t h i s complexity will lead to higher costs on the adviser’s business.

As advisers increasingly use master

14 — Money Management March 22, 2012 www.moneymanagement.com.au

trusts and wraps for their clients’ insurance, it will be important for life companies to deliver consistent and high levels of service, irrespective of whether the product is structured as retail or group.

Life insurers need to look at the market and the customer experience as one integrated model rather than the current group/retail split.

Pricing and service Pr icing is also a key component to consider. While the retail and group market already provides a number of products offering good value to clients, retail products tend to be more feature rich, whilst group products generally provide less features at lower prices. As the offers begin to merge, it is important for life insurance companies to continue to develop offers that target different needs and prices. If the blurring of the lines leads to a single product with one premium series, then the industry would have failed to take into account different customer needs and segments.

Technology is the enabler of life insurance category consolidation We are already seeing innovations from

the retail market find their way into group offerings, particularly in the technology space as electronic applications and eclaims facilities gain wider usage and acceptance. Technology is essential to help the industry improve efficiency and reduce costs.

Life insurers need to respond to adviser demands for better administrative processes, more support in coping with a complex business environment and assisting advisers to promote the value of their service. Through our group funds, we have been able to achieve auto-acceptance rates of 50 per cent, demonstrating the importance in technology drawing improved service levels.

Looking ahead There are many positive aspects and opportunities for advisers in the increased blurring of the lines between group and retail insurance offers, but as an industry we need to find ways to deliver consistent levels of service that don’t increase the costs for the adviser and are easily understood by the end consumer.

Damien Mu is general manager for life insurance at AIA Australia.

FSC Life Insurance Conference 2012

Direct insurance goes for gold Direct insurance is on the rise. Peter Smith discusses the ways in which advisers can adapt and stay relevant.

THERE is no denying it – direct insurance will continue to grow.

Consumers are buying online. They are buying everything online – clothes, holidays, car insurance, even the kitchen sink.

They are buying life insurance online and as a new generation enters adulthood, we will see even more unique approaches to selling life insurance. Consumers are driving insurance companies to change the way they market, distribute and design their products.

The life insurance industry in Australia has been designed predominately on the adviser model. Life insurers in Australia have viewed advisers as the customer and as a result, value propositions have been aligned to the adviser’s needs and wants. The products designed have often been unnecessarily complex, making obtaining cover onerous and understanding coverage difficult.

The change is coming. As with other industries or companies, life insurance companies and advisers are rising to the challenge but we still have a long way to go when it comes to simplicity and access.

The major factors affecting the success of direct insurance globally have been centred firmly on advancement of technology, the active role of legislators and regulators, the overall attitude of consumers towards insurance and the perceived value of using a financial adviser. In Australia, insurance technology is now as advanced as in most developed countries, and the industry has various legislative reforms proposed with the Future of Financial Advice changes – but attitudes to life insurance still remain low-key.

So is the industry doomed to be the new Kodak, or will insurance companies emulate an Apple Inc philosophy and drive a new way for the future?

The need for insurance remains the same – the change is in how customers will experience the purchase and delivery of that product. The value proposition needs to be designed for the individual, so life insurance companies need to become more familiar and engage the customer. What does this mean? In short, simple and easy-to-obtain products that provide value to the customer.

That is the challenge.

Customers are taking and will continue to take a more active role in purchasing their life insurance. Ernst & Young research report, ‘Voice of the Customer: Time for insurers to

rethink their relationships’, suggests that while customers are still sold life insurance, there is an increasing ownership of the process them. This research highlights that Australians are already conducting their research online but that the products are too difficult to understand, and product information is generally obtained by the adviser on specialist comparator services not available to the public. This will change.

As consumers drive providers of many products and services online, the information demanded by this informed audience will force insurance companies to simplify the product and provide a fast and easy purchase experience – or they will miss the boat.

The winners will be those companies who can shift their focus to the customer who is actually the one to whom they have made the promise. That is, if the unexpected happens, the insurer is there to mitigate the concerns – both financially and psychologically. If you understand as an insurance company who your customer is and what needs they are trying to address, you must provide a way for them to both easily access the product, and provide quick fulfilment that will deliver the peace of mind they ultimately seek.

The two most important components here will be education and technology. Successful marketing campaigns will be those that have effectively addressed the consumer’s hunger for more information about what levels of cover they need and what products are available. Those campaigns will also highlight how technology can be used to easily access both the information and the cover itself! In addition, the use of analytics to help insurance companies offer the right product to the right customer base will continue to be an emerging and powerful tool in connecting with customers.

The life insurance industry is changing as direct insurance continues to develop and evolve. As an industry, we must start to think from the customer’s perspective because there is a massive shift in their buying habits.

Who would have thought 20 years ago that Apple would be the biggest distributor of music? Will Google be the biggest distributor of insurance in the next decade?

Peter Smith is head of distribution at MetLife.

www.moneymanagement.com.au March 22, 2012 Money Management — 15

FSC Life Insurance Conference 2012

CONFERENCE PROGRAM Time 8.30am

Session Registration Arrival tea and coffee

9.00am

Conference welcome and introduction • John Brogden, CEO – Financial Services Council (5 mins)

9.15am (45 mins)

Plenary 1 Rethinking consumer attitudes to advertising and engagement strategies for life insurers • Adam Ferrier, planning partner / consumer psychologist, Naked Communications Chair: Adam Spencer, presenter – ABC 702

10.00am (45 mins)

Plenary 2 Longevity research and mortality risk modelling – the latest on global developments • Daniel Ryan, head of research and development, life and health – Swiss Re Chair: Geoff Summerhayes, CEO – Suncorp Life

10.45am (15 mins)

Morning Tea

11:00am

Plenary 3

(45 mins)

The amazing science of nanomedicine, and the implications for life insurance • Professor Maria Kavallaris, program head tumour biology and targeting programs – Australian Centre for Nanomedicine • Dr Bill Monday, chief medical officer – CommInsure

11.45am

Plenary 4

(45 mins)

Capital and customers – how is the new regulatory environment changing the life insurance market in Australia?

PANEL DISCUSSION • Ian Laughlin, Member - APRA • Duncan West, Head of Life Insurance - MLC • Scott Fergusson,Australia Insurance Leader - PwC Chair: Pauline Blight-Johnston, managing director – RGA Reinsurance Company of Australia Limited

12.30pm (1 hour) 1.30pm (50 mins)

Lunch Evaluating the Mamamia/Lifewise partnership Mia Freedman, editor & publisher, mamamia.com.au Concurrent Session A1 – Consumer expectations of life insurance

Concurrent Session B1 – Group insurance claims experience - key trends

• Gary Limbet, division director, Macquarie Bank

• Hoa Bui, partner,Actuarial Services – KPMG

• Stephen Mitchell, head of wealth management – CANSTAR

• Eddy Fabrizio, managing director – General Reinsurance of Australia

• Justin Delaney, head of insurance and platforms – Macquarie Bank • Clive Levinthal, business development manager – Clearview Wealth Limited • Tim Browne, general manager, retail advice – Comminsure

2.20pm (50 mins)

Concurrent Session A2 – Stronger Super – challenge or opportunity?

Concurrent session B2 - The Evolution of Direct Distribution

• Megan Beer, general manager group insurance – MLC

• Peter Smith, head of direct distribution – MetLife Insurance Limited

• Melanie Evans, head of superannuation and platforms – BT Financial Group

• Mark Prichard, executive director – NMG Consulting

Chair: Brett Clark, CEO Retail Life - TAL Limited

3.10pm (20 mins) 3.30pm (50 mins)

Chair: Sean Carroll, executive general manager life risk – Suncorp Life

Chair: Jennifer Lang, partner – KPMG

Light refreshments

Bernadene Gordon, director, underwriting & claims policy – AMP

Concurrent Session B3 – Enhanced requirements for advice – what does it mean for new and replacement business?

Dawn O’Neil AM, mental health expert

• Greg Martin, chief actuary & risk officer – Clearview Wealth

Concurrent Session A3 – Mental health and life insurance – the way forward

• Damien Mu, chief distribution and marketing officer – AIA Australia Chair: Petar Peric, head of business development, General Reinsurance Life

4.20pm (40 mins)

Chair: Martin Codina, director of policy – FSC

Plenary 5 Predictive Modelling: a US Underwriting Perspective • David Wheeler, senior vice-president, head of global mortality markets underwriting – RGA Reinsurance Company Limited, USA Chair: Mark Smith, general manager – insurance – BT Financial Group

5.00pm

Closing Remarks Pauline Blight-Johnston, managing director – RGA Reinsurance Company of Australia Limited

16 — Money Management March 22, 2012 www.moneymanagement.com.au

OpinionEquities Fair shares that bring home the bacon Tom Stevenson discusses the concept of investing in equities – not cash – for income.

R

ecent economic and market developments are forcing investors to re-evaluate investment strategies. For example, in today’s world of lower economic growth, low bond yields and falling interest rates and bank deposits, investors are looking at other ways to meet their need for income.

One solution, investing in dividendpaying shares, is supported by historical evidence that shows dividends account for a substantial proportion of total returns, and that consistent dividend-paying companies also tend to be good stock market performers.

Dividends become strategically more important in uncertain times. In tough macro and market conditions, investors begin to adopt a more defensive approach by favouring those companies with stable earnings, which have a proven ability to produce good results regardless of the ups and downs of the economic cycle.

Companies whose earnings are reliable and which have a consistent record of paying out and growing dividends therefore become particularly attractive. Investing in such firms not only gives investors the comfort of an attractive income stream in an otherwise low yield environment; the dividend payouts also provide a cushion against possible price declines.

Compound growth on reinvested dividends accounts for a good part of returns.

The power of reinvesting dividends grows exponentially over time and the compounding effect of dividend payments kicks in sooner than many investors might think. It takes an average holding period of only five-to-six years for income to overtake capital growth as the primary driver of a stock’s total return. For example, a Barclays study in 2011 showed that $100 invested in the US stock market in 1925 would have grown to $9,524 by the end of 2008 without reinvesting dividends – but to $302,850 if dividend income was reinvested throughout that period.

Also, investing when dividend yields are high has historically been a good time to invest as it is often followed by a period of appreciation in equity markets.

Proven dividend-payers are also good performers There is a presumption among many investors that high-dividend paying companies tend to be lower earnings growth companies. On the contrary, a study by academics Robert Arnott and Clifford Asness reached the opposite conclusion: expected future earnings growth is fastest when current dividend payout ratios are high and slowest when payout ratios are low.

The fact that many dividend-paying companies also have a proven track record of growing earnings helps to explain why their share price performance is also comparatively better. Importantly, this is

true across market cycles. Owing to their defensive qualities, it is perhaps not so surprising that dividend-payers outperform in bear markets. But more surprising may be the evidence that suggests that this is also true in bull markets, providing investors with over 3 per cent more every year during the past 10 US bull markets.

There are some great examples of companies with outstanding dividend paying records, such as Procter and Gamble (P&G) – a company which has a 55-year history of sequentially increasing its dividend. P&G shareholders have been well rewarded over the years and dividends have played a huge role in providing that exceptional total return. The facts are at odds with the view of some investors that P&G is a relatively uninspiring consumer staples

In the current “environment of lower growth and lower interest rates, the forgotten value of investing in incomegenerating stocks reasserts itself emphatically.

”

company. It may not be a ‘glamour stock’, but few investors would argue that these total returns are not glamorous.

Companies that have proven track records of paying and growing dividends over long periods typically possess characteristics that appeal to investors. These include: • The ability to pay consistent dividends is often (though not always) an indicator of good cash flow and strong balance sheets. In today’s environment of challenging borrowing conditions, this is of particular value and a source of comfort to investors.

• A good number of dividend-paying companies tend to be mature, well-established blue chips that sell products that benefit from instant brand name recognition. To a great extent then, reliable dividends can be seen as a good indicator of quality, well-managed, cash-generative companies.

Taking a longer-term point of view, it is also possible that demographic developments will support the case for equity income strategies. The increasing number of older people, especially in more developed countries, should support demand for reliable and relatively safe incomepaying stocks.

Traditionally, retirees have always been

encouraged to achieve their income needs by increasing their allocations to bonds.

However, the credit crunch has changed the landscape of the bond market. With some government bonds subject to an unexpectedly high degree of credit risk and many of the safest government bond yields at record lows which make them expensive, it is reasonable that retirees and their advisers will increasingly see the value in high-quality, dividend-paying stocks.

Assessing the sustainability of dividends is key A high yield can indicate that a stock is trading at a discount to its intrinsic value; however good stock selection can identify the best equity income opportunities in order to avoid ‘value traps’.

For instance, the earnings and dividend payments of some multinational companies can occasionally be boosted by currency movements, or simply a temporary peak in earnings potential that is unlikely to continue. More importantly, a high yield can also reflect the fact that a company’s earning prospects have deteriorated significantly so that the fall in its share price has increased the yield ratio.

A high level of research due diligence is therefore required to ascertain which stocks can sustain and grow their dividends.

During the recent financial crisis, earnings dropped sharply, by such a degree that dividend payments were no longer sustainable for many companies.

This was very much the case for European and US banks. At first, the share prices of these banks fell sharply – for a while they signalled very attractive dividend yields, but any investor buying into this false signal would have been sorely disappointed because the dividends of many banks were subsequently scrapped.

The key then is to select those high-yielding companies whose financial condition is strong and who have few risks on the horizon that might compromise their ability to keep paying their dividends. Even more valuable are those companies which not only continue to pay, but also continue to grow their dividend payments.

In the current environment of lower growth and lower interest rates, the forgotten value of investing in income-generating stocks reasserts itself emphatically. Stocks, globally, are currently yielding well above their 15-year average income return.

The extra returns from dividends can provide a valuable margin of safety against any price declines if volatility continues.

Tom Stevenson is the investment director at Fidelity Worldwide Investment.

www.moneymanagement.com.au March 22, 2012 Money Management — 17

Margin lending

Goodbye boom times Boom years are long gone for the margin lending sector.

Given that the improvement in the share market is one of the main catalysts for using margin loans, the sector is likely to find the going tough for a while yet, writes Janine Mace.

Key points z

The margin lending sector is a long way from the boom times it experienced before the global financial crisis. z Product providers seem determined to improve its image in the eyes of the public by way of innovation. z Industry experts claim the real key to seeing margin lending pick up is the improvement in market conditions. z The regulatory changes have resulted in an uplift of client requirements, which could further lead to improved sentiment.

THERE is an old saying that if you put lipstick on a pig it is still a pig.

While the margin lending industry may have heard the saying, it is determined to prove it wrong.

After the debacle of Storm Financial and the negative perception around gearing created by the collapse of Opes Prime and Lift Capital, the industry has been busy giving itself a makeover.

With a fresh emphasis on customer service, more education, and new ways of looking at traditional product features,

18 — Money Management March 22, 2012 www.moneymanagement.com.au

“

Take-up is lower than in boom times. But you would not expect to think of margin lending given market expectation and interest rates.

- Julie McKay

”

the industry is ready to once again begin wooing clients.

A new regulatory regime that has tightened the rules and made the loan application process tougher hasn’t hurt either.

All this reinvention and repositioning is necessary because margin loans have been in the doldrums.

As the latest Reserve Bank statistics show, the total value of margin loans in Australia at the end of the December 2011 quarter fell to just over $15 billion from a peak of $42 billion in December 2007. From its top of 268,000 in Decem-

Margin lending ber 2009, the total number of client accounts was down to 212,000 at the end of December 2011.

No more boom It’s a long way from the boom times when a margin loan was the essential accessory for every barbeque conversation.

Julie McKay, senior manager technical and research at Bendigo Wealth (whose offshoot Leveraged Equities is one of the major players in the space), admits times have changed.

“Take-up is lower than in boom times.

But you would not expect people to think of margin lending given market expectation and interest rates,” she says.

According to McKay, the reduction in client numbers highlighted in the Reserve Bank statistics is not unexpected. “There has been a lot of housekeeping going on over the past few months.

For example, some people had two margin loan accounts and have reduced it to one,” she says.

“In our business, most of the account closure was around people rationalising their accounts.”

McKay believes this reflects a new prudence when it comes to investment.

“People are becoming more sensible about their total balance sheet and are rationalising it and doing housekeeping,” she says.

“When it comes to gearing, people are now doing it very cautiously through things like dollar cost averaging or regular instalments. We are not seeing insane levels of gearing,” McKay says.

Over at Core Equity Services (CES), general manager Pete Steel agrees boom times will not be returning anytime soon to the margin lending business. “Certain pockets of the industry have been hit quite hard in recent years,” he notes. “ There will not be a retur n to the previous heights.”

Adrian Hanley, head of margin lending at NAB Equity Lending, believes the slowdown in credit growth in Australia is also taking its toll on the margin lending industry.

“Margin lending straddles both equity markets and lending, so the bank commentary that lending has slowed is reflected in margin lending figures. It is not just equity markets tracking sideways, it is also the influence of client deleveraging,” he says.

Deleveraging is clearly a factor, with average gearing levels reducing sharply as clients pay down debt. The average gearing level peaked at 52 per cent in 2003, Hanley says, but by December 2008 it had fallen to 51 per cent, and in 2012 it is currently 35 per cent.

“The yields generated from investment portfolios are creating positive cashflows for clients, so most margin lending clients are now positively geared, not negatively geared. This means they can retire debts, and we are seeing clients retire both types of debts – deductible and non-deductible,” he notes.

Sentiment changes Although client deleveraging is hurting, Hanley is optimistic. “Clients are retiring debt, but many have left their facilities open and available for use later.”

He says the Reserve Bank statistics provide a snapshot of how the whole industry is tracking, but that the NAB Equity Lending business is “quite different”. “Volumes have dropped, but not to the same extent as in the RBA stats.”

According to Steel, CES has not been badly hit either. “We have done well from a market share point of view,” he says.

“The share market remains fairly subdued and we have seen several years of clients moving to lower their gearing levels, but we have also seen signs of clients regearing and we have gained some new clients,” Steel says.

Steel believes client and adviser views on margin lending are beginning to change. “We are seeing early signs of a tur naround in interest in margin lending.”

But everyone agrees the real key to seeing margin lending pick up is market conditions.

“Per for mance in the next 12-18 months depends on sentiment about markets in Australia. For financial planners, the key to margin lending usage is volatility in equity markets and client demand,” Hanley explains.

This view is bolstered by data in the December 2011 Investment Trends Margin Lending Financial Planner Report. According to Investment Trends analyst Trent Hardy, the latest report highlights the importance of interest rates and share market conditions to the margin lending business.

It found the main catalysts for using margin lending are an improvement in the share market (60 per cent of respondents), an improvement in interest rates (60 per cent), and increased client demand (50 per cent).

McKay agrees: “Interest in ‘good debt’ depends on expectations of where the market is going and where interest rates are heading.”

Given these factors, the margin lending market is likely to find the going tough for a while yet.

The Investment Trends report found return expectations among advisers were much higher than those of clients at 7.5 per cent (including dividends), while client return expectations were only 2-3 per cent. “This is rock bottom,” Hardy notes.

Hanley is unsurprised by these findings. “The attitude towards margin lending is reflective of attitudes towards equity markets,” he says.

“Market volatility has not gone away and has come in waves, and that causes uncertainty about markets and subsequently margin lending.”

Steel agrees market conditions have taken their toll. “A lot of financial planners and clients have been burnt by the market, so part of the issue around sentiment towards margin lending is applicable to the market itself, and that will turn around when market conditions improve.”

Interest rates also affect the propensity to write a margin loan and advisers

are expecting interest rates to rise by 40 basis points over 2012. This is significant because interest rates have “a very asymmetrical influence on margin lending interest”, Hardy explains.

The report found if interest rates go up 1 per cent, the average number of new margin loans falls by half. If they go up 2 per cent, new loans go down 65 per cent. “However, if interest rates fall 1 per cent, you will only see a 16 per cent increase in new loans,” he says.

where interest rates are going, so this may encourage interest.”

Although some advisers and clients see opportunities, they are unlikely to move quickly, according to Hardy. “The vast majority (90 per cent) of financial planners see stocks as being undervalued, but they also do not expect them to rise significantly in the near future,” he says.

“For those financial planners on the fence about using margin lending, 96 per cent said market conditions would need to improve before they will move,” Hardy says.

Regulatory changes

Adrian Hanley

The rules are working “reasonably well, and if not, we wouldn’t have seen the new volumes coming through.

- Adrian Hanley

”

Despite this, some clients appear ready to take the plunge.

“They see the market as an opportunity, given its current levels. There are people that are interested in taking a position as yields are seen as being attractive and valuations good,” Hanley says.

“We have clients who are retiring debt, but also others who believe the market is undervalued. In 2011, new activity was 15 per cent of the average loan book.”

McKay agrees clients are slowly coming around.

“People are thinking about big financial goals such as retirement, so interest will return. Cash is good, but people are starting to think about how to achieve their goals,” she says.

“Now there is less concern about

While investment markets may hold the key to renewed client and adviser interest in margin lending, when they do get back in the water they may find conditions a little different.

Since the GFC-related controversies, the regulatory system around margin lending has shifted significantly. The changes to margin lending were part of the Corporations Legislation Amendment (Financial Services Modernisation) Act 2009 (the Modernisation Act) and for med par t of the new national consumer credit regime.

While there was considerable handwringing prior to its introduction, now the system is fir mly in place, most providers are fairly upbeat about its impact on their business.

“It is not really a dramatic change for the reputable players,” explains McKay. Hanley agrees the regulatory changes “have not really had an impact on those operating in this space the way the legislation currently operates”.

“The way the legislation operates is the way our business always operated, so NAB could absorb the changes relatively easily. Suitability testing for clients was already being done, so we have been able to absorb it. We had to work on it, but it wasn’t too much of a problem,” he says.

The picture appears similar from the adviser perspective.

The Investment Trends report found the Modernisation Act and regulatory changes have not had a huge impact on adviser usage of margin loans.

According to Hardy, the survey found the key barriers to usage nominated by advisers were market conditions, which was cited by 85 per cent of planners. In addition, 44 per cent cited risk, while only 27 per cent mentioned regulatory conditions as a hurdle when it came to using margin loans.

Tighter assessments Although advisers may not be overly concerned, the new regime has had an impact. As Steel explains, the regulatory changes have led to an “uplift” in client requirements.

“Some banks have considered the new rules mean that assessing a margin loan application needs the same level of assessment as a home loan. This has led to more work for margin loan providers and for the client it is not as easy. The barrier to entry for a margin loan has been lifted significantly,” he says.

Continued on page 20

www.moneymanagement.com.au March 22, 2012 Money Management — 19

Margin lending Continued from page 19

Good margin loan providers have taken the “change as an opportunity to improve areas such as customer service. ” - Pete Steel

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20 — Money Management March 22, 2012 www.moneymanagement.com.au

“The changes will have had an impact for some clients, but that is not necessarily bad. Greater convenience is not always a good thing.”

Steel believes the new regulations are working well. “The application process is more onerous, but overall, the regime is going well. The main thing is the client’s best interest is now first and foremost.”

McKay agrees the changes have had an effect, but she believes the new responsible lending rules are not really delaying the process for suitable clients.

“They have not slowed down the lending process because the infor mation required is not new or intrusive for clients.”

Hanley is also pleased with the new regime. “The rules are working reasonably well, and if not, we wouldn’t have seen the new volumes coming through.

They have afforded both clients and lenders a level of protection they have not had before.”

The regulatory changes – particularly the rules around margin calls – have generated a more intense focus on client servicing, but Steel explains most in the industry have adapted quickly.

“Good margin loan providers have taken the change as an opportunity to

improve areas such as customer service, how they access a client’s loan and how they do a margin call,” he says.

McKay agrees: “The big scare for the industry was around the margin call process, but for us as a high service provider, we were already doing it.”

She believes this highlights the importance of service when it comes to selecting a margin loan provider. “There is a strong emphasis on price when it comes to any form of loan, but service is vital when you are approaching your buffer levels with a margin loan.”

Steel agrees provider service levels are important. “We are working to ensure greater integration with financial planning tools. It is increasingly important for margin loan providers to provide streamlined processes to busy advisers.”

Hanley also emphasises the service aspect. “It is important on the delivery side as financial planners want tools that allow them to deliver products to clients easily, such as cashflow tools, easier application processes and monitoring tools.”

It is little surprise customer service is now so important.

Hardy says it is one of the key pieces of advice his firm gives to providers. “We tell lenders the main thing they can do to increase usage is to improve the ease of use of margin loans products through things like better application processes.”

MM

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Margin lending

Can you imagine a margin loan without a margin call? Janine Mace finds the sector has been busy innovating.

Say the word ‘margin lending’ and you think margin calls. Right?

Wrong.

How about a margin loan with no margin call? Or a margin loan that acts as a cash management tool?

Welcome to the new world of margin lending and geared solutions.

A s e v e r y s t u d e n t o f p o p c u l t u re knows, today’s world is all about reinvention and after several years in the wilderness, the margin loan market is about to stage a comeback – complete with a whole new look.

“The past few years have been a challenging time for the margin lending industry, as it has been reinventing itself,” explains Pete Steel, general manager of margin loan provider Core Equity Services (CES).

This fresh look is even taking negatives and turning them into positives.

Don’t think margin call, think risk management tool.

Don’t think leverage, think liquidity.

As Adrian Hanley, head of margin lending at NAB Equity Lending, explains: “Traditionally when you speak about margin lending it is talked about in terms of gearing and to improve the client’s footprint in the market, but it is also a liquidity tool – not just a leverage tool.”

He points out that in the US margin lending has a long history of being used for liquidity purposes as well as leverage.

“It is a way to take advantage of investment opportunities clients see without having to sell another investment,” Hanley explains. This avoids triggering a capital gains tax event or using existing funds. “It can be used as a tool for cash flow purposes instead of using the client’s own cash balance.”

Steel agrees this is a whole new area for Australian margin loan providers. “We are placing a big emphasis on cash flow management. A margin loan is about gearing, but it is also about cash flow management,” he explains.

“CES is launching a product later this year that will offer a Commonwealth Bankbranded product like the Macquarie cash management account (CMA). We think the uptake will be significant.”

The new product will offer a range of

tools for advisers designed to streamline the process and provide better integration with desktop tools. According to Steel, it is about making the client’s cash perform. “Cash is just another asset class that needs to be made to work harder.”

Marketing magic Even margin calls are getting a makeover, with some providers rolling out vehicles being marketed as ‘no-margin-call’ products.

No-margin-call products fall into two general categories, according to Steel. “The first group is home equity type products where the underlying asset is not valued very often, so there is no margin call.”

CES’s CALIA+ product is an example of this, as it offers a portfolio-style credit facility for home, investment and personal loans in a single loan facility.

“CALIA+ has been getting a lot of traction. It is about using home equity and it provides a loan to invest in the market,” Steel explains.

“A house has a lot of equity in it and by using it, we can provide an umbrella lending facility that clients can use elsewhere. It provides flexibility as the underlying asset is not regularly re-valued.”

The other alternative being touted as a no-margin-call loan uses structured products.

“These can help clients place an upfront cap or collar on their investment and avoid a margin call, but the price is baked in upfront and they are usually costly. They tend to be three- to -five year products due to the cost for the provider,” Steel says.

According to Julie McKay, Bendigo Wealth and Leveraged Equities senior manager technical and research, no-margin-call products are simply a new name for an existing product. “No-margin-call products are called capital-protected or limited recourse loans.”

She believes the idea of no margin calls is simply good marketing. “People borrow to buy assets all the time but the name used is only marketing – essentially it is only borrowing with different features.”

McKay is sceptical about the need for complex, capital-protected, no-margin-call products. “For assets such as Australian

equities and managed funds, I’m unsure why you would implement that level of complexity when there are cheaper ways to manage risk and the emotion attached to a margin call,” she says.

“This is an emotional response rather than a sensible response.”

McKay points out that capital protection does not eliminate risk, but simply pays someone else to take the risk instead. “I am wondering why you would pay someone to take away a risk that shouldn’t be there if you are doing gearing properly.”

Despite the doubts, no-margin-call products are likely to find fertile territory with advisers. According to the Investment Trends December 2011 Margin Lending Financial Planner Report (which is based on responses from 731 advisers), 56 per cent of advisers do not currently have access to all the products they would like in this space.

“The top product they would like is a nomargin-call product or automatic rebalancing loan,” explains Investment Trends analyst Trent Hardy.

He says interest in these products has increased over the past three years, with 25 per cent of all advisers saying they would like access to no-margin-call products.

Other desired products include geared superannuation (24 per cent) and limited recourse products (15 per cent).

Over at NAB, Hanley says they are keeping their options open and are considering launching a no-margin loan product.

“If we believe there is sufficient demand and the product is viable, we will deliver it.”

Howe v e r, h e b e l i e v e s a d d i n g complexity to a product is not always the best approach. “Margin lending is a fairly simplistic product and is not financially engineered, which is one of its attractions.”

McKay also has doubts. “Innovation is needed in the way you use the product, not the margin lending product itself,” she says.

“It is all about how you use the tool called margin lending, not about tinkering with the product. It is like a hammer – it is about how you go about using it that matters.”

Cheaper alternatives McKay believes there are “cheaper and easier ways” to avoid margin calls than

using capital-protected products dressed up as a no-margin-call loan.

“For example, instalment warrants are an old but good product and the new ones capture the dividends. That makes them even more attractive,” she says.

“We are seeing a return to the basics with an increased interest in instalment gearing.”

McKay points to Leverage Equities’ Investment Funds Multiplier (IFX) product as an alternative for clients frightened of receiving a margin call.

“The biggest fear about margin lending is when you have a margin call and the size of it is unknown. Our IFX product has a slow margin call process. Repayment is set at 1 per cent of the loan amount, so you can budget for it if you get yourself into that situation,” McKay says.

While they sound great for nervous clients, Steel warns no-margin-call products do need to be handled carefully.

“They are appropriate for some clients, but any type of gearing without a margin call is an issue, as a margin call is a circuit breaker for the client and draws their attention back to their investment. You would not want a client to ignore the importance of careful risk management.”

While believing clients and planners need more education around margin calls, Steel argues they actually play a valuable role.

“Margin calls have a certain taint in the industry, but people need to understand they are a valuable tool. They are about helping you to manage your loan better,” he explains.

“Some financial advisers are very averse to receiving a margin loan call, but actually it is good, as it is a call to action and draws attention to the investment and the underlying assets.”

McKay agrees margin calls only become an issue if the loan is not monitored carefully.

“With no-margin-call products you are paying the provider for comfort about a bogey, but if you geared appropriately and monitored the position appropriately, it is not an issue,” she says.

“Problems only come if you are not servicing clients appropriately and are not monitoring loans regularly. You can’t set and forget a margin loan.”

MM

www.moneymanagement.com.au March 22, 2012 Money Management — 21

OpinionSMSFs

Pathwayto There is considerable asset allocation bias with self-managed super fund trustees. This is likely to lead to disappointing performance at best, and widespread disasters at worst, according to Dominic McCormick.

I

n recent years there has been considerable gloating from supporters of selfmanaged superannuation funds (SMSFs) that their investment performance has, on average, been better than retail or industry funds. While it is hard to find definitive data to confirm this, it is true that some major asset allocation biases of SMSFs – as revealed in administration platform and the Australian Taxation Office statistics – have likely assisted their relative performance through much of the past decade.

These major biases are: - A very high weighting to cash, term deposits, and to a lesser extent, other fixed interest; - A major bias to Australian shares (and very little in international shares); and - A large and increasing exposure to Australian direct residential and commercial property (increasingly through geared arrangements).

The latest survey from SMSF administrator Multiport reports that the average asset allocation at 31 December 2012 was 35.4 per cent Australian shares, 38.3 per cent cash, term deposits and fixed interest, and 17.6 per cent property (mostly direct). That leaves just 8.8 per cent in everything else – global shares, alternative investments, collectables, etc.

To these biases, could be added a generally static approach to asset allocation and a rather passive approach to security selection – especially in Australian equities, where the top 10 stocks by market capitalisation dominate holdings. Arguably, the most prominent asset allocation decision lately has been to let cash/term deposits build up further as received from contributions and dividends/distributions – especially post global financial crisis (GFC).

Gearing arrangements mainly into direct property have also recently become more popular.

So far, these allocation biases have left many SMSFs relatively well placed through the difficult years of the early to mid 2000s, and to some extent through and since the GFC. However, it is time to raise some challenging questions: 1. Have these allocation biases been the result of apathy, luck or purposeful and well thought through design?

2. As a result of the relative outperformance, have SMSF trustees become complacent and overconfident in their own

abilities or have they become apathetic?

3. How well do these biases position members for the future?

4. Will these portfolios meet the retirement income needs of each SMSF member?

My view is that the historic asset positioning of the average SMSF has been driven by inherent behavioural preferences and therefore any resultant outperformance is due to luck. Trustees have clearly focused on the assets they know best and those that best reflect the “control” element that is a driver to setting up many SMSFs. Cash and term deposits from well known financial services groups, “brand name” Australian shares and particularly “bricks and mortar” that they can touch and feel – all provide this feeling of familiarity and control.

Indeed, I suspect many SMSF trustees have little idea about the basic principles of sensible asset allocation and portfolio construction. In one industry roundtable discussion conducted in 2010, an industry professional was quoted as saying “one of the marketing strategies we’ve always adopted when talking to SMSF investors’ directors is you never talk about asset allocation because their eyes just glaze over”.

This relatively successful positioning to date and the focus only on what trustees are most comfortable with has contributed to a dangerous complacency regarding investment issues amongst many SMSF investors. If new contributions are being directed to cash and term deposits, a few blue chip shares, or tied-up in servicing geared property arrangements, there is hardly any scope to consider asset allocation/portfolio construction properly, or the potential wisdom of adding other investment areas.

The big concern is that these three key asset biases are resulting in SMSF portfolios that are poorly diversified, inflexible, lacking in many asset areas that currently offer better value/prospective returns, and neglecting assets/strategies that can reduce relevant risks in a portfolio.

Indeed, “risk” is almost certainly widely misunderstood and underestimated by many SMSF members. Because they often have high levels of cash/term deposits, there is an assumption that this must lead to a low risk portfolio. However, risk is not onedimensional, and while a high level of cash may reduce the chance of poor short-term

22 — Money Management March 22, 2012 www.moneymanagement.com.au

dis aster

nominal returns, it may well also increase the risk of not meeting longer term cashplus/inflation-plus objectives, which is what superannuation is ultimately about.

Further, I believe the three major asset allocation biases, despite being different asset classes, are actually all heavily exposed to just the one broad macroeconomic risk – the Australian economy’s dependence on China.

Consider this scenario. A severe slowdown in China sees commodity prices and volumes fall sharply. The Australian economy moves into recession, with unemployment rising significantly. Residential and commercial property falls in value. The

Australian share market, with almost two thirds in resources and financials performs poorly. The Reserve Bank of Australia responds and cuts interest rates aggressively. The Australian dollar falls in response.

The average SMSF would do quite poorly in this scenario, as all three of the above asset biases detract value. The attractive cash/term deposits rates currently available would quickly fade and funds would have to be reinvested at much lower rates. The Australian share market would lag global markets, particularly in AUD terms, as the weakening currency boosts unhedged overseas shares.

Residential property would struggle with

“

Many planners seem to have decided that it is best just to give SMSF investors what they want, rather than what they need.

”

current low yields failing to offset the cost of finance in geared arrangements – even before considering capital losses. Many commercial properties would also be under pressure as the recession bites economic activity.

Meanwhile, the average SMSF would have very little exposure to the areas that could do relatively well in this environment. Global share markets less exposed to China would most likely outperform – especially given the currency boost from a falling Australian dollar. A number of alternative investments could do well in this environment – for example, managed futures and selected hedge funds. More diversified property and infrastructure investments – with less gearing and more liquidity – would be less vulnerable than geared arrangements into single illiquid assets.

Of course, this is only one scenario, but it does highlight how poorly diversified the average SMSF currently is. The relative underperformance of the Australian share market over the past 12-18 months may be an indicator of what is to come.

Further, investors in Australia – having largely escaped a property crash during

Table 1:

the GFC – should not assume that this risk has disappeared.

It is worth focusing more on geared property arrangements, as this is where I believe many SMSFs are most vulnerable to disappointment in years ahead. While there are some technical gearing strategies that can make sense for super, I believe many direct property gearing arrangements will prove disastrous for SMSFs, providing a major policy headache for future governments.

These gearing arrangements are often excessively exposing SMSFs to a single asset that is expensive, inflexible and illiquid, going against basic principles of sensible investment.

Some funds are setting up such arrangements, paying interest at 7-8 per cent per annum while continuing to sit on large cash holdings earning no more than 5 per cent per annum. Again, this fails the ‘investments 101’ test.

I think it is inevitable that the regulators/government will again be forced to constrain such arrangements in the future, but if history is any guide, it will only be after they have proved wealth destroying for enough investors.

Again, the comfort and ‘control’ with bricks and mortar property is a key driver, as well as the ease and aggressiveness with which some property developers, banks, accountants and real estate agents can aggressively spruik gearing into property.

So what, in my opinion, should the average SMSF be doing differently?

1. Holding less in cash/term deposits – especially if members have many years left in the accumulation stage; 2. Being more cautious on the types of fixed interest holdings they do have exposure to, given the historically low bond yields and high debt levels of some of the large constituents of some global bond indices; 3. Investing more in global shares – I believe the current environment is providing good opportunities for global stock pickers, and there will be an additional boost when/if the Australian dollar falls; 4. Reduce the Australian shares component and make it more diversified and value focused – this involves picking stocks or using managers with a reduced focus on only the top 10 stocks which is dominated by resources and banks; 5. Greater exposure to high quality alternatives less reliant on rising equity markets for return – eg, managed futures, selected hedge funds, commodities and precious metals; 6. Avoiding or being very careful with

direct property – especially in geared structures that overly expose funds to one possibly overvalued and illiquid asset.

7. Becoming more active in asset allocation – this is not about active “trading”, but being prepared to periodically adjust the portfolio in a contrarian sense when valuations are attractive and pessimism is excessive, and when assets become overvalued and sentiment overly optimistic.

Financial planners can play a valuable role in assisting trustees to build better portfolios, and I would hope that those SMSFs influenced by advisers are more diversified than the average. Unfortunately, I suspect many advisers involved with SMSFs have become less active regarding investment advice to them in recent years.

Partly, it’s the direct control that the typical SMSF investor seeks, but it’s also partly a response to the challenging environment of recent years where product and asset recommendations by advisers – some along the above lines – would have been seen to have failed, at least to date.

That doesn’t necessarily make these recommendations wrong now, and may strengthen their case, but many planners seem to have decided that it is best just to give SMSF investors what they want, rather than what they need.

This is disappointing, but it’s not too late to adopt more proactive messages to SMSFs when it comes to portfolio construction and asset allocation. The funds management industry in particular needs to do a better job communicating how its offerings can help achieve sensible and more diversified portfolios for SMSFs. SMSFs are clearly here to stay, but their dramatic growth, opportunistic approach, and their “lucky” investment performance historically has resulted in an increasingly ingrained neglect of sensible portfolio construction and diversification.

As typically occurs in the investment industry, this neglect is only likely to be corrected after the flaws in current arrangements are fully exposed – which is typically after they have turned sour.

Meanwhile, there is a valuable opportunity for advisers with the courage to challenge the lazy or apathetic investing habits of many SMSF investors – even if recognition of their value may only come in future years.

Unfortunately, it seems few advisers are currently taking up this challenge. (Refer to Table 1.)

Dominic McCormick is the chief investment officer at Select Asset Management.

SMSF’s have poor diversification and may not deliver future return expectations

Sector

31 Dec 2010 (%)

31 Mar 2011 (%)

30 Jun 2011 (%)

30 Sep 2011 (%)

31 Dec 2011 (%)

Cash and short term deposits

21.9

21.8

22.8

24.7

26.7

Fixed Interest

11.8

11.0

12.3

14.1

11.5

Australian Shares

41.4

41.0

38.9

36.0

35.4

International Shares

7.1

8.8

8.7

7.9

7.7

Property

15.7

16.1

16.0

16.8

17.6

Other (Hedge funds, agricultural funds, and private geared and ungeared trusts)

2.1

1.3

1.2

0.5

1.1

100.00

100.0

100.0

100.0

100.0

Total Source: Multiport Pty Ltd

www.moneymanagement.com.au March 22, 2012 Money Management — 23

OpinionCurrency The rise (and rise) of the Aussie dollar Piers Bolger examines the rise of the Australian dollar and its impact on investment decisions.

T

he Australian dollar (AUD) continues to remain above parity with the US dollar (USD) and is at multi-year highs against other major currencies such as the euro and GBP – levels not seen since it was first floated back in December 1983.

However, the appreciation of the Aussie currency has not been uniform, with the AUD actually declining against the Japanese Yen (JPY) in recent years, highlighting the volatile nature of currency markets.

Therefore, for many investors, whether dealing with a rising or falling currency, the need to consider the impact that the movement in the AUD can have both on investment returns as well as the strategic investment process remains an important element of effective portfolio management.

As Table 1 (opposite page) highlights, the AUD has moved significantly over the last three-year period across all major currencies.

However, while the recent upward move in the AUD has caused a degree of consternation for investors since the floating of the dollar back in December 1983, its performance has indeed been quite variable, and its recent ‘strength’ has not always been the norm. To highlight this point, Figure 1 shows the ‘value’ of the AUD (as a $100 investment) since December 1983. As you can see, the performance of the AUD has indeed been mixed, with an extended

period of underperformance relative to other major currencies through the 1990s.

During this period, global investment returns were actually higher for Australian investors, benefitting from both the return of investing in rising global markets as well as the translation impact of converting global investments back into AUD returns.

It has only been in more recent years that the AUD has moved higher. However, it is a trend that we expect will be maintained for some time given the current global environment. Given the extent of the slowdown in the global economy since 2008, for many investors the question is: ‘What has caused this sudden reversal of the AUD’?

In our view there are a number of factors that can provide some explanation as to the rise in the AUD. Some of these are fundamentally driven, such as the relative stronger economic outlook for Australia, while others have been more technical in nature (i.e, the interest rate differentials between Australia and the rest of the world): • Despite both the global and domestic economic slowdown, the Australian economy continues to grow faster than the rest of the world, and has not suffered to the same extent as other developed markets through the global financial crisis and the painful recovery process. This has resulted in Australia benefitting as a place to invest for both domestic and offshore

24 — Money Management March 22, 2012 www.moneymanagement.com.au

With the AUD having “risen strongly over recent years, there are a number of aspects that investors need to consider in relation to investing globally, and how to manage any currency exposure.

”

investors, resulting in an increased demand for the AUD. • Australia continues to have higher relative interest rates compared to the rest of the world. As Table 2 shows, both the cash rate and 10-year bond yield in Australia is higher than other economies, which makes it attractive for investors seeking ‘yield’ in regard to their investments.

• The ongoing demand for Australia’s mineral and energy resources (i.e, coal, iron ore, gas, etc.) continues at a strong pace.

While these investments are traded in USD, the by-product of the resources demand assists in the ongoing demand for the AUD and its appreciation.

• The demand for real assets (i.e, gold) by global investors has also resulted in the USD falling, and by default the AUD has

appreciated against the USD. There is a strong inverse relationship between the price of gold and the movement in the USD. As concerns about the ongoing stability of the USD as the global reserve currency continue, this has directly benefited real assets such as gold, as well as other commodities.

• The lack of demand for the USD on a global basis has seen the USD depreciate not only against the AUD but other currencies. With US cash rates close to zero (at 0.25 per cent), and the US Federal Reserve continuing to ensure a high level of monetary liquidity in the economy via its quantitative easing (QE) and other programs, this has led to the ongoing decline of the USD, despite the ongoing financial instability across Europe.

Given there are a number of factors that are contributing to the ongoing rise of the AUD, the question remains: what does the higher AUD mean for investors, and how should they seek to manage their AUD exposure within their investment portfolios?

Firstly, it’s important to note that when making any decision to invest in offshore markets, there will be a ‘currency impact’ on the return from that investment. That is irrespective as to whether an investor seeks to either increase (i.e, buy AUD) or decrease (i.e, sell the AUD) the amount of AUD exposure they have within the investment portfolio. This is due to the fact that when investing in global markets an

Table 1 Currency Pair

3 months (%)

1 Year (%)

3 Year (%)

AUD/USD

5.5

2.8

14.9

AUD/GBP

5.7

6.0

47.0

AUD/EUR

9.0

8.6

31.0

AUD/JPY

5.3

-3.4

-16.9

Source: Bloomberg. Data as at 31st December 2011

the impact “thatOverall, currency returns can have on the performance of an investment portfolio can be quite profound.

”

Table 2 Region

Cash Rate (%)

10 year bond yield (%)

Australia

4.25

3.67

US

0.25

1.88

UK

0.50

1.98

Euro

1.00

1.83

Japan

0.0-0.25

0.99

Source: Bloomberg. Data as at 31st December 2011

Table 3 Global Equities

3 months (%)

1 year (%)

3 years (%)

5 years (%)

MSCI World Index ex Aust Unhedged

2.0

-5.3

-2.6

-7.5

MSCI World Index ext Aust Hedged

8.7

-1.9

12.0

-1.9

Source: Bloomberg. Data as at 30th September 2010

Figure 1 Value of $100

USD

Euro

GBP

JPY

140

120

100

80

60

40

20

De c8 3 Ap r8 5 Au g8 6 De c8 7 Ap r8 9 Au g9 0 De c9 1 Ap r9 3 Au g9 4 De c9 5 Ap r9 7 Au g9 8 De c9 9 Ap r0 1 Au g0 2 De c0 3 Ap r0 5 Au g0 6 De c0 7 Ap r0 9 Au g1 0 De c1 1

0

Source: Bloomberg. Data as at 31st December 2011

investor receives two components to their investment return: the return generated from the underlying investment, and the return generated from the movement in the AUD against that foreign currency.

Even if an investor seeks to ‘fully hedge’ their investment (via having 100 per cent of their offshore exposure in AUD), it does not mean that the return to the investor may not result in a lower return compared to if the investor had remained unhedged. What hedging does is ‘lock in’ the foreign exchange (FX) rate at which the returns generated from the offshore investments

will be converted back into AUD. As Table 3 highlights, the movement of the AUD over the investment period and the extent to which an investor is either hedged or unhedged will impact on the total return irrespective of whether the investment decision was good or bad. As we can see from the performance of global equity markets over the last oneto-five years to 31 December 2011, the performance of the hedged global equity market has been superior to that of investing in unhedged global equities, particularly over the last three-year

period, where the relative outperformance has been a staggering 14.6 per cent.

However, it is important to note that, just like any investment, currencies do not always move in a predictable manner, and therefore hedging (i.e, increasing AUD exposure) does not always result in such recent (positive) performance returns. In this context it is important to consider what ‘exposure’ to AUD is appropriate within a portfolio context, and either being fully hedged or unhedged is too simplistic an approach to managing currency risk in a diversified portfolio.

So with the AUD having risen strongly over recent years – carrying with it the potential to remain higher for longer – there are a number of aspects that investors need to consider in relation to investing globally, and how to manage any currency exposure: • The appreciation of the AUD has made offshore investments ‘cheaper’. Investors can now get increased asset exposure due the AUD ‘buying’ more of the foreign currency. The benefit is that investors need to invest less to get the same security exposure outcome.

This allows investors the ability to better allocate capital within their portfolios and provides the opportunity to consider other investments. By taking advantage of this buying power investors have the ability to make substantive gains should the AUD depreciate from its current levels. While we currently believe that the AUD is overvalued at this point in the cycle relative to our secular forecasts against the major developed market currencies, for those investors who are considering global investments, to do so when the AUD is high against other foreign currencies is logical.

• Secondly, despite the appreciation of the AUD, investors still need to consider whether they have some level of AUD exposure (hedge ratio) in regard to global investments. We continue to believe that, when investing globally, a level of AUD exposure is important for two key reasons. First, it provides diversification benefits and second, it can lead to reduced portfolio volatility. In a ‘normal’ market environment we view an overall portfolio hedge ratio of 0.3 to 0.4 to be appropriate.

• However, for certain asset classes such as global bonds, a fully hedged exposure is more appropriate. This is due to the fact that these types of investments are generally less volatile in nature; and because these investments are fully hedged, investors can benefit not only from security selection but also the positive aspects of the ‘carry trade’ effect on the total return.

Overall, the impact that currency returns can have on the performance of an investment portfolio can be quite profound.

While the AUD has appreciated significantly in recent periods, it does not mean that we are experiencing a complete structural change in its relationship with other currencies, and that recent moves will persist to become the new ‘normal’. We continue to believe that currency needs to be treated just like any other asset class, and currency management is an important element of constructing and maintaining a diversified investment portfolio.

To this extent, currency exposures need to be ‘managed’, with investors making deliberate decisions akin to any other part of an investment portfolio. By adopting a proactive approach to currency management when investing in global markets, investors will be better prepared for the impact that currency can have on investment returns and the ability to achieve investment objectives over time.

Piers Bolger is head of research and strategy, advice and private banks, BT Financial Group.

www.moneymanagement.com.au March 22, 2012 Money Management — 25

Appointments

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

ROBBIE Bennetts Enterprises has appointed Shannon Overs as chief information officer along with a number of other key staff and consultant recruits.

Overs will be responsible for the development and implementation of cloud computing solutions for accounting firms, financial planning practices and small to medium sized enterprises (SMEs).

Greg Whimp Before joining Robbie Bennetts, Overs was chief information officer at Professional Investment Services (PIS).

Other appointments from PIS include PIS senior executive Greg Whimp as a consultant, former PIS conference c o o rd i n a t o r a n d p e r s o n a l assistant Melanie Sharpin as executive assistant, and former PI S n a t i o n a l c o n f e re n c e

manager Mark Dwyer as chief operating officer.

Robbie Bennetts has also recruited Olympian Duncan Free to perform a business development role.

BENTLEYS principal Philip Rix has been appointed an executive director of Countplus.

Rix has 30 years’ experience working in accounting, in both small and large practices.

Before founding his own accounting practice in 1999, Rix had more than 16 years’ experience working with the four major banks and second tier accounting firms.

Countplus stated that his practice grew to six directors and 32 staff before becoming a member firm of Countplus and the Western Australian franchise for the Bentleys group.

In 2008, Rix was appointed to the national board of Bentleys and will continue to act as a principal for Bentleys’ Perth office.

Following his appointment, the Countplus board will have six directors, three non-executive directors and three executive directors.

IN line with a review of its current group risk operations,

Zurich Financial Services has made a number of appointments to its group risk team.

Reporting to Zurich national sales manager Stuart Rowe, Joel Brown has been appointed to the role of business relationship officer and will assist in the development and expansion of relationships with consultants and brokers.

Move of the week PROFESSIONAL Investment Services (PIS) has announced the appointment of Steve Quine as manager – risk and professional standards.

Quine has over 20 years’ experience in financial services, with broad skills in risk and compliance management, audit and remediation, strategic business planning, project management as well as practice and franchise management.

He was most recently head of professional standards at Financial Services Partners, and before that, State Super Financial Services’ professional standards manager.

In recent years, Quine has been focused on implementing expansive risk and compliance frameworks and increasing the business value proposition, PIS stated.

PIS chief executive officer Pete Walther said Quine’s appointment reflects PIS’ commitment to strong governance.

administrators with its group risk team.

M E N G D A Sh u h a s b e e n appointed an investment analyst and Yan Zhang, a technical analyst, as part of Pengana Capital’s Asian Equities Fund.

Shu will provide on the ground information and analysis of companies and industries for the equities team. Trained as a doctor, Pengana stated that Shu’s medical experience will be valuable in analysing the Chinese pharmaceutical industry – a core holding in the team’s portfolio.

Zhang’s role will involve

Joel Brown Ap p o i n t e d t o t h e ro l e o f group risk pricing manager, L o u r e n s Fo u r i e w i l l b e re s p o n s i b l e f o r g r o u p r i s k portfolios and focus on the areas of pricing, product d e v e l o p m e n t , re i n s u ra n c e and internal training.

Zurich has also announced t h e a p p o i n t m e n t o f Da v i d Mattingley and Sharon Lee as

Opportunities WEALTH PROTECTION SPECIALIST Location: Adelaide Company: Terrington Consulting Description: A number of leading wealth management firms are seeking customerfocused wealth protection specialists.

To be considered, you will have experience in providing financial advice and a strong risk background, including the provision of both personal and business risk solutions.

You will also need to be DFP/CFP qualified.

To find out more and to apply, visit www.moneymanagement.com.au/jobs, or contact Myra at Terrington Consulting – 0404 835 895, myra@terringtonconsulting.com.au

FINANCIAL ADVISER – BUSINESS RISK SPECIALIST Location: Perth Company: Terrington Consulting Description: A Western Australian business advisory firm is seeking a financial adviser specialising in risk to join its wealth management team.

In this role, you will be responsible for providing detailed risk insurance advice for

Mengda Shu analysing the team’s fundamentally-based investment ideas using technical analysis, and to execute trade.

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

the firm’s business clients. An excellent knowledge of tax structure, entities, estate planning and SMSF is therefore essential.

You will also be required to identify new avenues of business to help grow the firm.

To be successful, you will have a proven track record in a similar financial planning role and a demonstrated ability to build and maintain effective client relationships.

For more information and to apply, visit www.moneymanagement.com.au/jobs, or contact Myra at Terrington Consulting – 0404 835 895, myra@terringtonconsulting.com.au

SENIOR FINANCIAL PLANNER Location: Sydney Company: Financial Success Australia Description: A financial planning firm is seeking a senior financial planner to provide advice to its existing client base.

To be successful you will be fully qualified, preferably CFP or intending to be so, be strong on technical strategies and have excellent interpersonal skills.

You will be supported with back office staff and an office manager.

A competitive salary and incentive is available, and an options scheme will be

introduced to enable equity participation based on your ability to assist in client growth and retention going forward.

To find out more and to apply, visit www.moneymanagement.com.au/jobs, or contact Financial Success Australia, reception@fsuccess.com.au

There will be the opportunity for the role to develop into a full adviser position.

For more information and to apply, visit www.moneymanagement.com.au/jobs, or contact Principal Edge Financial Services, enquiry@principaledge.com.au

FINANCIAL PLANNER RISK ADVISER Location: Sydney Company: Principle Edge Financial Services Description: A wealth advisory firm is seeking a risk adviser to build long-term relationships with clients and help them reach their personal goals.

In this role, you will seek out new clients, maintain and grow this client base from the portfolio and provide ongoing advice.

You will also provide advice on personal business protection strategies and work with clients to review their current risk insurance needs and ensure that they have appropriate cover.

The minimum qualification requirement is DFP 1-4, so the role would suit a recent graduate or someone of mature age seeking a new profession.

Location: Malaysia Company: Montpelier Description: A south-east Asian-based financial services firm is seeking a financial planner to join its Kuala Lumpur team.

With an Australian expatriate-focused client base, the opportunity is open to a qualified financial planner with a proven sales record.

The successful candidate will be supplied with a support package, including accommodation to get you started as well as an existing client base to work with.

You will be able to make the role your own through your own initiative, along with experiencing the lifestyle of Kuala Lumpur.

For more information and to apply, visit www.moneymanagement.com.au/jobs, or contact Montpeleir, recruitment@montpeliermalaysia.com

www.moneymanagement.com.au March 22, 2012 Money Management — 27

Outsider

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

Bikie investor cops bum wrap JUST when Outsider thought he had heard of nearly every investment strategy in the industry, he was bemused to learn that a Sydney Rebel bikie was charged by police after he was allegedly found with $3,400 in cash lodged between his buttocks.

Clearly the strategy here was not to be arrested, but Outsider wondered whether the gentleman concerned had not in fact devised a safer method of investing than putting his money into equities or making

extra contributions to his superannuation.

Given the state of global markets and the attractiveness of "fixed" interest, perhaps he was right to consider his approach a sound one.

Looking at it logically, Outsider imagines the rate of return of cash in the backside will depend on how 'heavily' you allocate, while your commitment as an investor will be central to how long you hold the asset class.

Outsider suspects that losing your deposit following the intervention of a regulator was something that must have fallen through the cracks of the product disclosure statement.

Conceivably, the efforts of a good financial planner would have left the investor in a less onerous predicament.

As for the 300 ecstasy pills also alleged to have been found in the investor's posterior – well, Outsider predicts a steady return to the courts.

Our debt of gratitude – you bankers!

OUTSIDER wants it placed firmly on the record that he is shocked and appalled at suggestions that investment bankers might be prepared to place their own interests above of those of their clients.

Indeed, he finds claims made by a departing New York-based Goldman Sachs executive, Greg Smith, that his colleagues were simply "milking" their clients to be absolutely at odds with Outsider's experience with the investment bankers he encounters in Australia.

In Outsider's experience, investment bankers represent some of the very few people who understand the value of a fine wine, a good cigar and Germanmade car. He has even known them to share the former.

So, putting aside the large sums of money that seem to change hands whenever investment bankers become involved in mergers and acquisitions, Outsider does not believe for one

“

Out of context

moment that such people should be subjected to the same types of fee scrutiny as, say, financial advisers.

Nor does he believe people should misunderstand the good intentions with which some of those investment bankers have brought highly structured products to market.

Outsider believes the critics need to take a close look at the manner in which investment banks have trimmed their sails since 2007/08, not least at Macquarie where earning a bonus has become no easy task.

Having said all of the foregoing, Outsider can barely wait to see the latest GFC/Wall Street movie, Margin Call. He reckons any flick which deals with an investment bank trying to dump bucket-loads of toxic debt at five minutes to midnight is likely to be art imitating life.

“He is the most delinquent taxpayer."

Former Lehman Brothers Holdings managing director Bradley H. Jack skimps on paying property tax, says Fairfield Town Tax Collector manager Stanley Gorzelany.

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

Jobs for the girls, pleads Outsider OUTSIDER is known to be a man who suppor ts equal opportunity in the workplace.

For example, he gives all his colleagues an equal opportunity to be insulted irrespective of gender, ethnic background or sexual orientation.

This is why he wonders if his newsroom may one day make the cut for the Equal Opportunity for Women in the Workplace Agency (EOWA) Employer of Choice for Women citation.

Apparently, a couple of financial services institutions have been awarded the EOWA Employer of Choice 2012 citation, including State Street (for the fourth consecutive year) and AustralianSuper. Outsider offers his hearty congratulations.

The award, Outsider understands, acknowledges the companies’ policies and prac-

"He only shows an interest in super when he uses it to chase union bogeymen …"

Financial Services Minister Bill Shorten on Federal Opposition Leader Tony Abbott.

tices supporting women and “reflects global commitment to supporting the advancement of women.”

Outsider has to admit he is puzzled by suggestions the Money Management newsroom would be overlooked for such an award when he, personally, has sought to shatter the glass ceiling by giving his female colleagues all the attention he thinks they deserve.

Why, hardly a day goes by when Outsider doesn't offer helpful, career-enhancing advice of the sort he believes women appreciate, and he knows they have really benefitted from his not infrequent fashion tips.

Financial services journalism may be something of a boys’ club, but Outsider sees nothing wrong with adding the occasional adornment.

"Markets are telling us that Greece still faces a Herculean task."

BGC Partners markets analyst Louise Cooper on the yields of new Greek bonds.