Print Post Approved PP255003/00299
Vol.26 No.7 | March 1, 2012 | $6.95 INC GST
The publication for the personal investment professional
www.moneymanagement.com.au
INFOCUS: Page 11 | BEYOND STRONGER SUPER: Page 12
Planners punt on volume rebates By Tim Stewart A PERCEPTION that volume rebates from product issuers to dealer groups will be allowed “in some shape or form” led to a turnaround in practice values at the end of last year, according to Forte Asset Solutions director Stephen Prendeville. But he was quick to warn that planners who are basing their business models on the continuation of volume rebates could be in for a nasty surprise. In the last six months of 2011, average practice valuations fell from 3.29 times recurr ing revenue on 1 July to 2.88 times by the end of the year, Prendeville said. However, valuations have since staged a recovery that began in late November, and are now closer to three times recurring revenue, he added.
Stephen Prendeville “Whilst the market sentiment was largely negative through the latter half of 2011, it did recover in November with the release of tranche 2 of the Future of Financial Advice Reforms and the belief – or
assumption – that volume overrides would be protected in some shape of form,” Prendeville said. Addressing Parliament on 24 November, Minister for Financial Services and Superannuation Bill Shorten stated: “If an adviser is confident that a par ticular stream of income does not conflict advice, then these reforms do not prevent them from receiving that income. “In the case of the receipt of income related to volume of product sales or investible funds, there is a presumption that that income would conflict advice. “However, this is a presumption only, and if the adviser can demonstrate that the receipt of the income does not conflict advice, then such remuneration will be permissible under the bill.”
Minter Ellison partner Chris Brown said it was very risky for planners to assume Shorten’s comments indicated a softening of the G over nment’s approach to volume rebates. “In reality, with institutional ownership and the requirements to change systems and protect reputations, I don’t think it’s something anybody working within an institutional dealer group would want to take on,” Brown said. Prendeville said that volume payments “must be considered a risk” due to the likelihood they would be deemed ‘conflicted’. “Any practice receiving volume-based payments needs to reduce their dependency on this revenue stream,” he added. Association of Financial Advisers (AFA) chief executive Richard Klipin said there was
Calls for standard label definitions in super By Milana Pokrajac TWO years after the Australian Prudential Regulation Authority (APRA) advocated better guidance on the appropriate risk levels for investment options within super, concerns have been raised that the industry has yet to properly address the matter. In its letter to trustees in June 2010, APRA stated that, at the time, there were no standard risk descriptors or industry-wide standard asset allocations for different labels such as conservative, balanced and growth, which “leads to confusion on the part of fund members and makes it difficult to properly compare investment performance”. “APRA is not, currently, suggesting guidance on the risk level appropriate for labels…this is something we would expect the industry to develop good practice material around over time,” the regulator wrote. Since then, the Association of Superannuation Funds of Australia (ASFA) and the Financial Services Council (FSC) have developed a ‘Standard Risk Measure’ framework, whereby super funds will be required to disclose the level of risk each option carries. While the solution has been endorsed by APRA and is due to kick off on 22 June
this year, creating standardised definitions of investment options has not been discussed. Recent analysis by Super Ratings found AustralianSuper, Cbus, REST and BT Bus Super all had similar exposure to growth assets in their default options (between 74 per cent and 78 per cent), but each fund labelled their option differently. Super Ratings managing director Jeff Bresnahan said the labelling inconsistency could sometimes mislead super members. “The overall picture is that there is no consistency in labelling in the industry, and that’s something we need because consumers quite rightly have an expectation that all balanced funds would be very similar, and they’re not,” Bresnahan said. “Let’s say for example that investor A placed their funds in a 50/50 [growthdefensive split] balanced option and investor B placed their funds in a 80-20 balanced option. Investor B – using historical returns – would retire with a lot more money than investor A, but they both thought they were in the same thing,” he added. Both Bresnahan and Chant West managing director Warren Chant have called for the regulator to step in and
little clarity about what would be permissible under the draft legislation. “At the moment we’re reading between and into the Minister’s comments, and while they appear clear on the face of it, it’s subject to a lot of interpretation,” Klipin said. From the AFA’s point of view, commercial arrangements that don’t conflict advice are “absolutely appropriate”, he said. He said that if the current agreements were deemed ‘conflicted’ it could disrupt the entire value chain, and practices would have to rethink their business models. “Where does the value come from, what’s their charging model, what services do they deliver, and where’s the profitability of their practice going to come from?” Klipin asked.
Social media a trap for unwary By Andrew Tsanadis
Jeff Bresnahan create standard definitions of investment labels. “The only way we are ever going to get consistency is for APRA to consult the industry, then come out and say ‘this is how you do it’,” Chant said. “If you want to educate people about investment and superannuation, you need some consistency,” he added. “By having common labels and clearly stating what they mean, it is going to be easier to communicate to members, but I don’t think it would change the way funds manage money.” Neither ASFA nor FSC were available for comment on this matter at the time of publication.
SOCIAL media such as Facebook, Twitter and LinkedIn are more about marketing the services of financial planners than about advice delivery. That is the assessment of industry experts, who have warned of the dangers of planners moving beyond the legal and regulatory confines applying to such media. They say that despite the benefits, advisers run the risk of using social media as an “education point” for general financial information – and clients may feel that they have the knowledge to potentially engage in an investment strategy prematurely, according to Synchron director Don Trapnell. “I think the law is quite clear – you can’t produce statements of advice online. In saying that, you have to try and balance the information you are pushing to clients with the advice you are giving.” Synchron independent chair Michael Harrison said most licensees have strict guidelines in place when advisers engage in web-based or mobile communication with clients. But the other potential problem with social media is that new communications technologies can be a significant time-waster for planners who do not Continued on page 3