Money Management (May 3, 2012)

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Vol.26 No.16 | May 3, 2012 | $6.95 INC GST

The publication for the personal investment professional

www.moneymanagement.com.au

IPA’S RADICAL PLAN FOR SUPER: Page 6 | RESOURCES NAGIVATE ROCKY TERRAIN: Page 20

Insto platforms stifle competition

By Lucinda Beaman FINANCIAL services players have taken aim at competition concerns and potential conflicts in institutionally owned investment platforms.

Ibbotson Associates head of adviser services Matthew Esler said “certain platforms” were pushing investors to use their own investment funds by preventing “like fund” competition on their platforms – particularly with multi-manager options.

Matt Heine, managing director of the non-institutionally aligned Netwealth platform, claimed bank-owned platforms were stifling competition.

“The risk in the current environment is that platform fees and, more importantly, platform ownership is making it increasingly difficult for non-aligned managers to get exposure on menus, models and, in the most extreme cases, multi-manager offerings,” he said.

“This issue is compounded when you look at other platform components

including risk, cash and term deposits, margin lending and broking services,” Heine said.

Yellow Brick Road chief operating officer Bryn Nicholson said vertically integrated providers and large institutions were “effectively [directing] their advisers through their control of platforms to sell products that may not actually be the best product for the client”.

Connie McKeage, chief executive of OneVue, a non-institutionally aligned platform, said she believed the rate of inhouse product being sold on institutionally owned platforms was a cause for concern.

“How can you argue that your own products are 80 out of 100 per cent of the time the best product for the client? I find that very hard to get my mind around, mostly because I don’t think it’s feasible and everybody knows it’s not feasible.”

The Australian Securities and Investments Commission (ASIC) has proposed changes to the regulation of platforms,

Bryn Nicholson including the requirement for platform operators to disclose how they select financial products for inclusion on investment menus or in model portfolios.

Nicholson said such disclosure would be “a really useful thing, to be able to pick

Macquarie, CFS take platform honours

By Mike Taylor

MACQUARIE Wrap has gone back-toback in being rated first in the annual Wealth Insights Platform Service Level Reporting Rankings, with Colonial FirstChoice again rated second.

Colonial First State continued its run of success, being ranked first again in the Fund Manager Service Level report, followed by Vanguard.

The announcement of the Platform Service Level rankings came almost at the same time as Colonial First State announced that the FirstChoice platform had achieved a milestone by reaching $50 billion in funds under advice (FUA) – fractionally ahead of its first anniversary later this month.

Commenting on the outcome of this year’s rankings, Wealth Insights managing director Vanessa McMahon said Macquarie Wrap and FirstChoice appeared to have emerged as dominant forces in the platform space. However, she noted that that IOOF’s Pursuit platform, which had been ranked first in 2010, had continued to perform well.

McMahon said there seemed to be little separating the Macquarie Wrap and CFS offerings, but CFS had managed to remain on top with

Platform Service Level Rank 1. Macquarie Wrap 2. CFS FirstChoice Fund Manager Service Level Rank 1. CFS FirstChoice 2. Vanguard

Justin Delaney respect to overall satisfaction.

“We are looking at a sector where the relative performance of these products matters to those charged with running them,” McMahon said.

“Boards and senior management are looking to external measures with

respect to peers, and the third party nature of this research means there are no biases in the data,” she said.

CFS chief executive Brian Bissaker acknowledged the importance of continuous improvement with respect to the platform. He said the company was continuing to invest in the underlying infrastructure and also to examine new offerings, including whether new services might be developed to help underpin the changes inherent in the Future of Financial Advice (FOFA) legislation.

However he said that in terms of FOFA, the FirstChoice wholesale offering had been FOFA-compliant for a number of years.

Macquarie’s head of platforms Justin Delaney attributed the backto-back wins to the company’s focus on adviser requirements.

“We’ve continued to direct our energies towards what the client wants and needs,” he said.

However Delaney said this did not necessarily mean that Macquarie Wrap would be looking to add new elements to the platform.

“Adviser satisfaction is what counts, and we’ve never really believed that is driven by bells and whistles,” he said. “Consistency of service is what matters.”

apart some of the effective tied distribution arrangements that are implemented through platforms”.

Matrix Planning Solutions managing director Rick Di Cristoforo said it was “pretty obvious the only real criteria for inclusion on platform lists is commercial, so additional transparency would be good”.

Macquarie head of life Justin Delaney said Macquarie was “happy to disclose the process behind the products that sit on Macquarie Wrap to those who ask”.

“We support transparency and have an open criteria, with no default or preferred funds.”

IOOF’s general manager of distribution Renato Mota said IOOF disclosed its process and was “generally supportive” of the initiative.

AMP and Colonial told Money Management they don’t disclose their process for selecting funds.

Continued on page 3

Social media becoming indispensable tool

By Chris Kennedy NEW technologies and social media are becoming less of a fad and more of an essential business tool, offering opportunities in key business areas such as gaining referrals and providing scoped advice, according to Hugh Humphrey, managing director of AMP-aligned dealer group Hillross.

He said the instantaneous nature of social media could also help advisers keep clients up to date with important developments such as legislative changes, and that social media was an area where a licensee could really help an adviser add value.

Humphrey said social media services such as Twitter, Facebook and LinkedIn could also help advisers supplement face-to-face meetings with other forms of regular, meaningful contact. Some Hillross advisers, for example, post regular newsletters (providing updates on topics such as financial markets movements) via Twitter, which allowed clients to choose whether or not to engage with each communication.

Hillross also rolled out nine iPad apps to its advisers at its national conference in January, which Humphrey said had seen a collective 720 downloads among the group’s advisers.

Such apps could help advisers in providing scoped advice by dealing with each “piece of the pie” separately, Humphrey said.

He said analysis from the US had shown that social media could be used to introduce advisers to prospective clients and help to build networks. “When an adviser can credibly Continued on page 3

Editor

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f, as is being widely speculated, the Federal Government uses this coming Tuesday’s Federal Budget to once again alter the tax setting around Australia’s superannuation system, then the Australian Labor Party (ALP) will have arguably forfeited the right to call itself the “party of superannuation”.

The ALP’s right to claim ownership of Australia’s world-leading superannuation regime is owed in large part to the efforts of former Prime Minister and Treasurer Paul Keating, and to the efforts of those leading the Australian Council of Trade Unions at the time – particularly Bill Kelty.

However, in less than two full terms of government, the Gillard Government has managed to erode the party’s standing as a sound policy maker where superannuation is concerned by tinkering with concessional contribution caps and excess contributions, together with a couple of more minor tweaks.

It is true that the Gillard Government has also set in motion the machinery necessary to lift the superannuation guarantee from the current 9 per cent to 12 per cent, but in doing so, it has effectively transformed what has always been a non-wage benefit into an appendage to the controversial minerals

“

No-one should be particularly surprised by the Government looking to Australia’s superannuation regime to fund election promises.

”

resources rent tax.

It is in these circumstances that the major organisations representing the superannuation industry, the Financial Services Council, the Australian Institute of Superannuation Trustees, the Association of Superannuation Funds of Australia and the Self Managed Super Fund Professionals’ Association of Australia were right to last week unite to condemn any further tinkering with the super regime.

They were right to do so, not only because such tinkering fundamentally undermines investor confidence in superannuation, but because such tinkering is taking place as part of the Government’s almost Quixotic quest to return the Budget to surplus in line with

a promise premised more on attempting to build political capital than any critical economic necessity.

What is more, the Government’s tinkering with superannuation in the Budget needs to be viewed against the background of the fundamental changes inherent in its Stronger Super policy approach and the reality that three consecutive intergenerational reports have reinforced the need for Australians to reduce pressure on forward budgets by becoming more self-sufficient in retirement.

Of course, no-one should be particularly surprised by the Government looking to Australia’s superannuation regime to fund election promises – looked at from a narrow, entirely political perspective it represents a honey pot which must be almost thoroughly irresistible to any government long on promises and short on resources.

Instead of further tinkering with superannuation in next week’s Budget, the Government and its Treasury advisers would better serve the Australian community by properly fixing the excess contributions regime and by focusing on what matters rather than on narrow political agendas.

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News Insto platforms stifle competition

Financial services workers getting itchy feet

By Mike Taylor

Continued from page 1 Chris Stevens, general manager for Colonial First State Custom Solutions, said the proposal was “inconsistent with the established policy position which treats platforms as a service rather than a product”.

“The platforms operator’s role is not to make recommendations or give assurances regarding the investments made available on the platform,” Stevens said.

BT Financial Group’s head of platform Kelly Power said that while BT had “no problem disclosing and being transparent about our process, the concern we’re raising through the FSC with ASIC is that disclosing the process may be seen as us recommending funds”.

Rick Di Cristoforo Meanwhile AMP, CFS, BT, IOOF and Macquarie all said advisers could compare like funds on their platforms, including multi-manager options.

MLC said advisers were able to compare funds on MLC platforms by reviewing the Product Disclosure Statements for each product.

FINANCIAL services companies need to be conscious that nearly two-thirds of Australian finance professionals (62 per cent) are willing to change jobs this year.

That is the bottom line of the latest analysis released by eFinancialCareers within its Retention Survey.

The survey also found that the professionals exhibiting itchy feet were being driven by a number of factors, including a lack of defined career progression at their current employer, perceived higher earnings elsewhere and a frustration at the poor recognition of their accomplishments in their current job.

Commenting on the results, eFi-

nancialCareers managing director APAC George McFerran said that with nearly two thirds of employees looking to jump ship this year, the message for employers was resoundingly clear.

“If firms want to keep key people, they must do much more in setting out defined career paths for them,” he said.

McFerran said that while ongoing difficult economic conditions had no doubt hampered firms’ abilities to provide career path certainty, this had led to a major backlash, with employees increasingly voting with their feet and looking for greener pastures elsewhere.

The survey also found that Australian finance workers were also

being driven by factors such as the need for more flexible working hours and employment packages that included childcare subsidies and healthcare.

It found that when seeking a new position, a salary increase of between 10-29 per cent for nearly half (49 per cent) of those surveyed was the minimum compensation increase they would accept.

The survey found the drivers for those who do not intend to leave their current employer in 2012 (38 per cent) were similar to those who intend to leave (62 per cent) – the opportunity for defined career progression, better working conditions and satisfaction with the level of recognition for accomplishments.

Social media becoming indispensable tool Continued from page 1 share information that adds value, even with nonclients, that may lead to them becoming clients in the future,” he said.

“That’s why we have pretty comprehensive policy around using social media, with a view to not just engaging with clients but building records of interested people that may or may not drive new busi- Hugh Humphrey ness into the future.”

Humphrey said LinkedIn was doing some interesting things in terms of creating groups and discussions.

“Social media is an element of that refocus back on: ‘what are clients experiencing, how do they hear about advice, how do they find a planner, what does a factfind feel like, how does it feel when you get a statement of advice, what’s the emotional response, what’s the intellectual response to the advice process?’,” he said.

Colin Williams, director of The Humble Investor, said the amount of change in this area had accelerated in the past few years and it could be hard for advisers to keep up.

Too many are waiting for help from their licensee rather than proactively engaging themselves, he said.

Williams said social media would never replace indepth conversations with clients but could be great for creating awareness at a higher level. It might be helpful for advisers to write a blog or newsletter – for example, to have something prepared for an expected interest rate rise that they could send to clients. Publishing that on a website could also help attract potential clients, he added.

A recent Zurich Australia survey found that although 34 per cent of advisers were now using an iPad in their practices, only 21 per cent were using it in a client setting.

It found a significant proportion of advisers would be prepared to increase their usage of social media. www.moneymanagement.com.au May 3, 2012 Money Management — 3

News

Financial advisers in dark on advice provision cost

By Andrew Tsanadis

Cameron O’Sullivan

AS the industry moves towards a fee-for-service model, financial advisers need to better understand their service costs per client and adopt scaled advice solutions to service lower-end customers, according to Provisio Technologies director Cameron O’Sullivan.

O’Sullivan said retaining C and D clients would continue to be a

challenge for advisers unless the cost of advice could be lowered.

“Cost of advice is becoming more important as planners and dealer groups consider new models for remaining profitable in a fee-for-service era,” O’Sullivan said.

The Investment Trends 2011 Planner Business Model report found that 54 per cent of the 1396 planners surveyed said the biggest

challenge they faced under the Future of Financial Advice legislation was providing advice affordable to lower-balance clients.

O’Sullivan said most planning practices had likely subsidised their lower-balance clients with their higher-balance individuals and “would become only marginally profitable” if they suddenly lost those high-end clients.

He added that it was crucial for

practices to adopt better solutions to service low- to -mid value clients, most of whom prefer receiving basic advice rather than traditional high-cost and time-consuming statements of advice.

“Advisers who embrace newer scaled advice solutions will be able to generate these basic plans in as little as a few minutes, dramatically lowering the cost of advice,” O’Sullivan said.

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By Bela Moore

THE FOFA intra-fund fee needs to be transparent and allow corporate superannuation advisers to charge for the services they offer under MySuper legislation, according to Corporate Superannuation Specialist Alliance (CSSA) president Douglas Latto.

Latto said the intra-fund fee, which the legislation requires to be set by a third party, should be negotiated by the company, its super members and the advisers who deliver the service.

He also said MySuper legislation as it is currently drafted did not allow customisation of services at the workplace level, or take into account the number of employees that fall under the fund and their different needs.

Latto said FOFA’s intra-fund fee was unlikely to sufficiently address the services provided by corporate super advisers.

“The MySuper legislation, as proposed, does not allow tailoring at the workplace level. It has a ‘one-size-fits-all’ approach with the inability to customise benefits, such as insurance cover, or charge different fees for each workplace. In addition, the setting of this standard fee is by the trustee through the intrafund advice fee, and does not involve the employer, employee or the adviser,” he said.

Latto said there was a misconception about the type of business being run, which could be better termed “services” rather than “advice”.

He said possible solutions could include a transparent intra-fund fee negotiated at workplace level, or an admission that what CSSA provides is services and therefore it does not fall under FOFA. “We believe we may not be able to be rewarded fairly for the services that we’re offering, and in a MySuper fund it will be one fee right across the whole MySuper fund,” Latto said.

News

No clear line between holistic and scaled advice: ASIC

By Tim Stewart

ALL financial advice is scaled to some extent, and “there isn’t some form of separation between holistic and scaled”, according to Australian Securities and Investmens Commission (ASIC) senior executive leader Ged Fitzpatrick.

“There’s always been a view from ASIC that advice is scalable. What we’ve been trying to do is to clarify

the guidance to ensure people have the confidence to make that point in terms of their business model,” Fitzpatrick said, speaking at the Association of Superannuation Funds of Australia Compliance Summit in Sydney.

He also confirmed that advisers who provide limited advice would be subject to the same obligations as those who provide comprehensive advice.

“All the personal advice rules will apply to scaled advice, including the

best interests duty. So the best interests applies, regardless of scale. And ASIC thinks it’s possible to provide less complex advice that is consistent with the best interests duty,” he said.

ASIC plans to release a consultation paper before July 2012 that will build on CP164 and provide further examples of scaled advice, Fitzpatrick said. Following a period of consultation, ASIC aims to release an updated regulatory guide on scaled advice by

September this year, he added.

A consultation paper and regulatory guide on the best interests duty will follow a similar timeline, Fitzpatrick said.

Intra-fund advice “will look quite different” in the near future, with ASIC planning to follow through on its plan to remove the class order relief for superannuation funds “so there are not two intra-fund regimes running at the same time”, he said.

Planners move on from FOFA ‘wedge’

By Mike Taylor THE Association of Financial Advisers (AFA) has told a number of dealer group conferences that the Future of Financial Advice (FOFA) debate was “hijacked by the Industry Super Network (ISN)”, and that ultimately the industry was “wedged” by both the ISN and the Government.

The AFA analysis of what happened through the FOFA debate was that the outcome delivered higher barriers for advisers in the form of opt-in, fee disclosure and bans on commissions, while delivering lower barriers for superannuation providers – particularly those funds supporting the ISN. However, AFA chief executive Richard Klipin told the dealer group conferences that notwithstanding the manner in which the FOFA outcomes were achieved, planners need to work within the new framework which has been delivered.

He told Money Management that with the legislation having passed the Parliament, discussion was ongoing with the Treasury and the Australian Securities and Investments Commission, and there was a good deal of devil in the detail.

Among the approaches being recommended by the AFA are that planner members should get prepared to demonstrate value to their clients, including through conversations, securing letters of engagement and following up with service delivery.

It suggests planners should start with new clients and engage with existing “engaged” clients at the time of their review.

Importantly, it suggests that planners treat their “disengaged” clients as new clients.

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News A soft-compulsion system is needed for disengaged super members: IPA

By Andrew Tsanadis

Andrew Conway

THE Government needs to take a more demographic-centric approach to superannuation policy by adopting a soft-compulsion system for persons under the age of 40, according to the Institute of Public Accountants (IPA).

In its pre-Budget submission for 2012, IPA recommended that current super policy needed to move away from a “one size fits all”

approach and should be based around three distinct demographics – the disengaged (those under 40 years of age); the partially engaged (those 40 to 50 years of age); and the fully engaged (those over 50 years age).

According to IPA executive general manager Vicki Stylianou, a demographics-based approach provides more stability in assessing current policy, compared to focusing on super balances which “vary greatly for a lot

of different reasons” throughout a person’s life.

IPA chief executive Andrew Conway added that current policy was too narrowly-focused on treating people as either saving for retirement or entering the retirement phase.

While the IPA stated that it supports the increase of the superannuation guarantee from 9 to 12 per cent, the introduction of a soft-compulsion system for persons under the age of 40 was preferred.

This would allow people on lower incomes to opt-out of the increase in the superannuation guarantee and maintain their level of income, particularly when buying a house or starting a family, the IPA stated.

The Government needed to better incentivise this demographic (low income earners under 40) to make extra contributions either through tax incentives or by better educating them to view super as a long-term asset of its own, she added.

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WHILE recent Australianbased research suggests financial advisers remain cautious about the economic outlook, their counterparts in the broader Asia-Pacific are more optimistic, according to the latest Barclays Survey of Wealth Managers.

The survey, released last week, suggests much of the optimism is based on a belief that China will not this year suffer a hard landing, and that the long-term trend in wealth accumulation is expected to continue in the Asia-Pacific region.

The Barclays survey is based on data collected at its seventh annual Wealth Management Conference held in Hong Kong last week, with 109 respondents from 65 firms across eight Asian countries.

Barclays said respondents included banks, private banks, broker dealers, fund managers and insurance companies.

Importantly, the survey pointed to the continued emergence of “ultra high net worth” clients as becoming more significant and now making up 24 per cent of assets under management (AUM), up from 19 per cent last year.

Commenting on the survey results, Barclays head of distribution for Asia-Pacific Philippe El-Asmar said it reflected growing optimism about the global economic recovery.

“It is encouraging to see high hopes for AUM growth rates and confidence in the China, Indonesia and India stories,” he said.

El-Asmar said there were also signs that wealth managers remained optimistic when looking outside Asia.

News

Stop tinkering with super, industry warns

By Mike Taylor THE superannuation industry has closed ranks to resist any changes to the tax regime around superannuation in the forthcoming Federal Budget.

With the Federal Government expected to change some of the tax settings applying to superannuation, particularly with respect to higher income earners, the four major organisations representing the super industry have warned against the changes.

At the same time, the Federal Opposition has warned that the Government must stop using the superannuation sector as a revenue milch cow.

It is not yet known what impact the change in the balance of the House of Representatives will have on the Government’s Budget intentions.

The four organisations representing the super industry are the Financial Services Council (FSC), the Australian Institute of Superannuation Trustees (AIST ), the Association of Superannuation Funds of

Australia (ASFA) and the SMSF Professionals’ Association of Australia.

All four organisations said that constant changes to superannuation tax arrangements could only serve to deliver instability for all working and retired Australians.

They pointed out that the Government had already been responsible for Budget tax changes in 2009-10 and 2010-11.

AIST chief executive Fiona Reynolds said taking the axe to super would only serve to put pressure on future budgets.

“Tinkering with super will leave all

Australians with less private savings,” she said.

ASFA chief executive Pauline Vamos said that for the sake of $1 billion in revenue, the Government would be undermining one of the best systems in the world and condemning many Australians to retirement without dignity.

FSC chief executive John Brogden warned that any reductions in concessions to superannuation in the Budget would be far outweighed by the cost to future Budgets.

Financial planning highly competitive

By Milana Pokrajac

DESPITE the largest institutions holding almost half the market share, the financial planning industry remains highly competitive, according to a report published by IBISWorld.

The Financial Planning and Investment Advice in Australia report found that the big four banks, along with AMP Limited, comprised 47.4 per cent market share in the financial planning world.

However, competition in the market is not decreasing, the report noted.

“There is competition in the industry between financial advisers for clients and between the distributors of financial products or platforms for financial advisers to distribute their products,” the report said.

Independent financial advisers compete on the basis of their independence, while large instos compete on the basis of reputation, returns and lower cost access to wholesale funds.

Furthermore, suppliers of investment products are competing for the funds of financial adviser clients.

“With the industry having experienced a shortage of qualified financial planners, there is also competition between financial institutions and dealer groups to attract financial planners,” the report added. “Dealer groups compete for staff on the basis of support services provided by planners.”

While competition for the business of financial advisers may still be based on the size of commissions, there may also be non-money rewards and recognition for the volume of business an adviser attracts.

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INVESTMENT • INSURANCE • SUPERANNUATION

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www.moneymanagement.com.au May 3, 2012 Money Management — 9

News

Bloomberg rolls out NEXT software to Aussie clients

By Chris Kennedy BLOOMBERG is in the process of rolling over Australian subscribers of its research terminal to Bloomberg NEXT. Major clients of Bloomberg’s news and information service are institutional money managers, but other clients include the big four banks, research houses and corporate advisory firms.

Subscribers to the terminal will be given a site visit to take them through the

upgrades, although the process of switching over to the new functionality is automatic, according to head of sales and account management at Bloomberg LP, Australia and New Zealand, Amanda Dobbie.

Bloomberg said the NEXT terminal will be easier to use, search and navigate following what Dobbie described as the biggest overhaul of the system since its inception in 1981.

The upgrade was based on client feedback, with some clients also volunteering

to have keystrokes logged to help Bloomberg research how the terminal was used.

Currently at least 165,000 of Bloomberg’s 310,000 clients have been upgraded, including at least 3,500 in Australia and all of New Zealand, according to Dobbie.

The main changes are around “discoverability”, “uniformity” and “intuitive workflow”, according to Bloomberg.

It said data is easier to search now, with users able to simply type in search terms

on the home screen. For example, companies can be searched by name or description, without having to look up the ASX code. Similarly, a user can now look up “China GDP” without having to know how to navigate to that country’s economic data.

The various information and news items screened have been reconfigured for a more uniform appearance, which aids navigation by making the process more intuitive through a more consistent look and feel, according to Dobbie.

Be your own success story BT tele-claims cut trauma claim wait

By Bela Moore

Creating financial independence since 1846 Find out who at ioof.com.au

10 — Money Management May 3, 2012 www.moneymanagement.com.au

BT FINANCIAL Group (BT) has started offering a telephone based claims service for trauma claims, reducing waiting times for these claims from 68 days for a paperbased claim to an average of 14 days, according to BT head of life insurance Phil Hay. Hay said BT aimed to offer clients the same service it made available for income protection claims in 2010.

“We introduced the service quietly in November last year and have received excellent feedback from our customers, who are appreciating not just the convenience of being able to make a claim over the phone, but they are having to wait much less time for their claims to be processed,” Hay said.

The tele-claims service for trauma insurance has fielded 16 per cent of all trauma claims since its inception, with $1.6 million paid in claims so far.

Customers can utilise the service on policies five or more years old which have no prior claim history. It is available for certain traumas and claims of up to $250,000.

“The fact that we have the ability now to assess and pay a claim through a phone- based system without the need for the customer to fill in a claim form is not just about ease of process, it’s about understanding the needs of our customers and providing a service that is sensitive to their situation,” said Hay.

InFocus The kids are all grown up…

FINANCIAL PLANNING ADVICE Advice by segment

34 W %

Superannuation and retirement advice

27 21 10 8

%

Investment advice and management

%

Self-managed super fund advice

%

Other

%

Tax advice Source: IBISWorld

WHAT’S ON

So why are we still giving them pocket money? Matt Drennan looks at the Government’s decision to support certain industries and whether it is completely necessary.

hen I first started studying economics, there was a popular argument concerning infant industries. Industries that are just being established need to be protected until they get sufficient scale to enable them to compete on the world stage, or so the argument went.

The adjunct to this was that manufacturing industries deserved special consideration because they helped build a necessary skills base – welders, carpenters, plumbers, etc. You know, useful guys that when thrown together on a desert island with a supermodel can wander off into the jungle with nothing but a pocket knife and build a condo to impress the said supermodel in less than 24 hours. (For those mere mortals amongst us who work in service industries, about two thirds of the workforce, we are apparently not regarded as providing core skills worthy of government bailouts).

The latest such foray to support manufacturing by the Gillard Government was to keep Holden in Australia for another 10 years and cost taxpayers $275 million. Well, actually it cost a lot more than that. The latest package was on top of many millions relating to the Automotive Transformation Scheme, the recent deal to pay Ford $34 million to keep producing cars in Victoria until 2016, and on it goes...

Picking winners FPA Beyond the Shadow Shopper Workshop 8 May Swissotel, Sydney www.fpa.asn.au

FSC/AFA Post Budget Breakfast 9 May Four Seasons Hotel, Sydney www.ifsa.com.au

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

SMSF Essentials 2012 30 May Central Pier, Melbourne Docklands www.moneymanagement.com. au/events

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

Picking winners is hard when it comes to the racetrack, even for guys I know who spend way more time than they should studying the form.

When it comes to bureaucrats sitting in Canberra who don't know one end of a screwdriver from the other, the exercise becomes fraught with danger. Worse still, many of the recent commitments to support various manufacturing businesses appear to have been made completely off the cuff, coming directly from the politicians without any prior consultation. These knee-jerk reactions border on suicidal.

The reality is that if a Government wishes to give an industry the best chance of survival in a difficult economic climate, it achieves nothing by reacting to individual company cases. Even the head of the Productivity Commission acknowledged as much in a recent speech.

A more effective approach is to make the business environment more favourable for such industries by attempting to influence the macroeconomic factors impacting on them.

A lower Australian dollar, lower interest rates and better business loan availability all have a role to play. But above all, productivity must be lifted.

The head of the Productivity Commission used an interesting example in his speech to highlight just how much productivity has deteriorated in certain industries. He noted that research at a particular company had shown man hours required to pour a cubic metre of

12 — Money Management May 3, 2012 www.moneymanagement.com.au

concrete had increased from 9.1 hours in 1998 to 11.3 hours in 2012. On this rough measure, that’s a fall in productivity of almost 25 per cent. While bad enough in its own right, when you consider that in all likelihood most of Asia was improving its productivity over this period, it is truly damning.

The causes of this collapse in productivity are plain to see and are being shouted from the rooftops by our industry leaders: general overregulation and inconsistent/overlapping state and federal regulation; union militancy and an inflexible industrial relations system under the Fair Work Act; an uncompetitive taxation and investment regime; the ‘go it alone’ approach to a carbon tax levied at more than double the rates prevailing in Europe; and the failure to establish a true sovereign wealth fund to ensure that at least some of the benefits from the current resources boom are not frittered away.

Policy inconsistencies

what is occurring in practice. Take the recent conference among CEOs and State and Federal leaders, which agreed to reduce red (and green) tape.

In practice, however, the new carbon tax is supported by voluminous legislative documentation, miners are crying foul about the ramp-up in environmental regulation around coal seam gas exploration, and retailers are seeking new legislation to remove the $1,000 duty-free cap on imported consumer goods.

The Fair Work Act has greatly expanded the matters on which companies must consult with the workforce – and virtually guaranteed union involvement in every step of the process. The industrial relations environment has deteriorated significantly, causing a spike in industrial disputes and a commensurate loss of productivity.

It is a good thing we don’t have an excessive amount of Federal Government debt or bad loans in our banking system. If we did, we might have to join the EU and ask for a bailout package.

While attempts are being made to address these issues, it appears to me that many aspects of policy are in direct contradiction to

Matt Drennan is a business and financial markets commentator.

Platforms

Overdue for a revolution Platforms have been around for 25 years, but there seems to be a feeling among some industry players that it’s time for a fundamental rethink about the sector, Lucinda Beaman writes.

Key points z

Industry calls for a fundamental rethink about platforms; z Sector under pressure to cut costs, increase value; z Despite the pressure to reduce fees, platforms keep investing millions of dollars in new technology; z BT holds almost half of the market.

CAST your mind back to 1987.

Bob Hawke was Prime Minister.

Mobile phones were virtually non-existent; in fact, on 23 February 1987, the first mobile phone call in Australia was made.

Kylie Minogue’s Locomotion was on high rotation, and at the movies you might have seen Good Morning Vietnam.

The average house price in New South Wales was $72,000, and you could still smell cigarette smoke in aeroplanes.

That’s the year platforms were first introduced in Australia, via Asgard (Sealcorp, as it was then), with the launch of the country’s first master trust.

Fast forward 25 years, and there’s a feeling among some advisers and industry players that it’s time for a fundamental rethink about platforms, the way they interact with investors, and the role they play in helping Australians build their wealth.

Tony Fenning, managing director of Shadforth Financial Group, said while platforms have “gradually developed” since the early 1990s, there hasn’t been real innovation since then.

“I think what we’re looking for here is a more revolutionary breakthrough,” he said.

Over that time, leading-edge systems have become legacy issues, and more

recently, once profitable and protected revenue models have become regulatory mine fields.

Bryn Nicholson, chief operating officer of non-institutionally aligned dealer group Yellow Brick Road, described this as a “very challenging time in terms of how financial products are manufactured and distributed”.

“We think that some of the assumptions about how that’s being done are changing, and we think the market’s ready for some better ways of getting financial products into the hands of consumers,” Nicholson said.

In a white paper on wealth management technology, consulting group Tria Investment Partners said Australia’s wealth management industry is being “assailed by a range of structural and cyclical forces,” – namely, the internet, advances in platfor m and wealth management technology, improvements in financial planning software and the advent of a listed operating model for managed funds under the Australian Securities Exchange’s (ASX’s) Aqua II project all threatening traditional business models.

While regulatory pressures are the most immediate focus, rapid advances in platform and wealth management technology and online investing are presenting challenges and opportunities in equal measure. And while the investment required in maintaining and developing platforms rises – platforms spent $130 million on new developments last year alone – the pressure on platform margins is rising on every front.

Perpetual saw the writing on the wall, and in October last year the wealth manager outsourced the administration of its platform to Macquarie in what Macquarie’s head of life Justin Delaney said

14 — Money Management May 3, 2012 www.moneymanagement.com.au

was Australia’s biggest outsourcing deal.

Announcing the decommissioning of its platform administration system, Chris Ryan – at the time Perpetual’s managing director and chief executive – said that in “the context of possible regulatory changes and rapidly evolving client needs, the cost of maintaining [the platform’s] functionality at required levels would have been prohibitive”.

Instead, he said the company would redirect cost savings towards growth opportunities. Geoff Lloyd, then Perpetual’s head of Private Wealth (now managing director and chief executive) said the outsourcing arrangement would allow Perpetual to focus on servicing clients, while Macquarie focused on the technology needed to deliver those solutions – a strategy Lloyd said would ultimately lead

Platforms

“It would be nice if they could have some [more] technology in direct shares and be more open, and we’re pushing them all the time to have more term deposit ranges and more cash options,” Fenning said.

Fenning also believes it’s time for Australia to follow global examples of platform design, such as his personal ideal – the Charles Schwab platform in the US – which gives clients more access to and control of their investments and straight through processing if they want it.

“If they want to go through the adviser they can do that, but they’re not bound to

There has been some “desire to move towards more efficient equity exposure.

-” Rick Di Cristoforo

question of how long,” he said.

“We’re pretty loud and clear on that with our suppliers, who – to their credit – are saying yes, but having real trouble turning around the existing business model. It’s going to take them some time, but I’m certain that they will produce something that’s good. It just might take some time – and we’re on their case.”

BT’s Power agreed the time had come to change the way platform desktops operated, adding platforms “need to start engaging with end members”.

“We will always be a business that supports financial advice, and being an intermediated business, I don’t see us actively promoting a direct wrap offer,” she said.

“But investors are becoming more engaged and becoming more aware of their investments, so you need to provide them more access in terms of better reporting in response to that trend.”

In the meantime, smaller players are catching up, according to Recep Peker, senior analyst at Investment Trends.

“New entrants, such as Hub24, Linear, OneVue and Powerwrap, have significantly improved their adviser facing functionality in recent times, and now achieve similar scores in our platform benchmarking reviews to more established platforms such as CFS FirstChoice, AXA North and MLC Fundamentals.”

Cost cutting

Matt Heine to higher levels of funds under advice.

Other companies, such as BT, continue to forge ahead in the other direction.

Kelly Power – BT Financial Group’s head of platform products – said BT had spent around $50 million on its BT Wrap and Asgard platforms in the past 12 months alone. That’s separate to John Shuttleworth’s $150 million budget for his ‘next generation’ wrap project.

For BT, it’s a no-brainer. With $68.1 billion in wraps that it sells under its own brands or administers on behalf of others, BT holds 48 per cent of the market.

But despite the recent investment, it seems there’s still a way to go. Shadforth Financial Group has substantial client funds on BT Wrap, Fenning said, as well on its badged CFS wrap called Symetry, and on Asgard.

go through the manual process of ringing or faxing an adviser to get a transaction that could have been done online.”

Fenning said while some of his peers would be more fearful of such an open style, “we feel that with the wave of internet banking and the use of the internet and iPads, the world’s moved past ringing your adviser to place a transaction. I’m sure it’s inevitable, it’s just a

Big or small, established or new – every segment of the financial services value chain is now under pressure to reduce costs, radically increase their value, or face extinction.

A number of platforms, including Asgard, AMP and netwealth, have recently introduced pay-for-use approaches, in which they strip features from existing products to create a basic version, onto which advisers can add chosen features such as equities, paying separately for each as they go.

The core of Asgard’s Infinity product is the Advance multi-manager options, plus cash and term deposits, with additional features able to be tailored to the client’s needs. BT’s Kelly Power said Infinity had attracted close to $1 billion since its launch at the end of October.

“It’s been really well received, and a big part of that is that there are no fees on term deposits, so obviously it’s been very attractive for clients that want to park their funds in term deposits and cash options,” she said.

Matt Heine, managing director of netwealth, said the group would this week release Super Accelerator, the first product in its new low cost, full-featured Accelerator range.

Super Accelerator will also provide multiple options to tailor client portfoContinued on page 16

www.moneymanagement.com.au May 3, 2012 Money Management — 15

Platforms Continued from page 15 lios and deliver cost savings, Heine said, with the core menu starting at 35bps and capping at $250,000. The ‘plus’ menu would also have a $1 million fee cap and would allow up to six accounts to be aggregated, Heine said.

Macquarie’s Delaney said the group had $1 billion in inflows into its Consolidator Series, in the six months after its May 2011 launch, with another “significant milestone” expected to be hit soon.

The Consolidator Series allows clients to consolidate managed funds and direct equities and pay fees based on the value of their account, irrespective of the number of holdings in the portfolio.

“To us, this is proof of the growing demand among advisers and clients for more flexible and transparent pricing options, which are FOFA [Future of Financial Advice] compliant,” Delaney said.

But there are other cost-saving strategies available too. For years, separately managed accounts (SMAs) have been available as a cheaper and more taxeffective alternative to managed funds platforms, but until now they have remained the domain of the smaller players, and haven’t been embraced by the industry.

Yellow Brick Road’s Nicholson said although the dealer group is currently keeping many of its clients largely in cash, where equities are concerned, they see the best value for money in accessing them through SMAs. That’s one of the reasons YBR is in the process of migrating all of its clients onto the OneVue platform, Nicholson said.

“Our view is that, for certain classes of clients, separately managed accounts rather than managed funds will deliver better returns in the long-term, because the cost structure is lower and it’s more tax effective.

“It will take a number of years, it’s not going to happen overnight, but we think that SMAs – and being able to offer products based on that – will provide us with a competitive advantage compared to financial planning firms that are simply providing a kind of retailing service for managed funds,” Nicholson said.

Rick Di Cristoforo, managing director of Matrix Planning Solutions, said his group had also been “progressing through more and more use of managed accounts since 2006”.

“There has been some desire to move towards more efficient equity exposure.

We’re always on the lookout for best practice platforms,” Di Cristoforo said.

Matthew Esler – head of adviser service for Ibbotson Associates, which provides investment consulting and adviser services including platform analysis – said managed accounts “provide what some elements of FOFA failed to achieve – a low cost, transparent, effective financial services system”.

“Dealer group research divisions really need to be aware of managed account solutions as an immediate alternative to managed fund platforms,” Esler said.

“They’re cheaper, more tax-effective, provide clients with more flexibility in terms of accessing funds, equities and ETFs, and they enable transparent investment management and execution.”

Currently, Hub24, Linear, netwealth, OneVue, Praemium and Powerwrap are among the platforms that offer SMAs. But the bank-owned platforms are also working hard to move into the space.

MLC has introduced managed account model portfolios. While Macquarie doesn’t currently offer SMAs, they’re ‘on the radar’.

Shadforth’s Fenning said his group had recently developed versions of separately managed accounts with BT and Colonial, including a managed discretionary account with the latter.

“We have launched, but softly, while we’re making sure that it’s fine and works as we intend,” Fenning said.

Justin Delaney

These are the biggest “changes we’ve seen in a quarter of a century. Longterm, it will work, these things just take time.

”

- Darren Pettiona

16 — Money Management May 3, 2012 www.moneymanagement.com.au

“I wouldn’t say the system is yet fully robust, so we’ve been reluctant to put the scale on there that we’re capable of while we test it.”

However, Fenning is happy to wait until it works.

“It’s an important option; but that’s all it is.”

BT’s Power said SMAs are a “key part of our strategic plan”, with development falling under John Shuttleworth’s ‘next generation’ wrap project.

“At the moment we’ve really focused on model portfolios and templates across equities and managed funds – that was what we delivered last year and which is kind of the building blocks

towards full SMA capability,” Power said.

“Full SMA capability will come down the track, probably within a two-year time frame.”

Darren Pettiona, chief executive of Hub24, believes that “eventually, for Australian equities, managed funds will become obsolete”.

“The future is the international SMAs coming in. We’re talking to a group now that has 250 international managers and 1,300 investment strategies – we’re going to bring in and test run their top 20 managers,” Pettiona said.

“You know what they charge? 35 basis points.”

Chris Stevens, general manager for Colonial First State Custom Solutions, said Colonial is also interested in pursuing international equities as an asset class when an efficient trading solution can be found.

Despite the benefits, Pettiona acknowledges the slow take-up of SMAs will continue for some time.

“A lot of it is legacy issues – you’ve got to see a client, look at the tax implications, reset them with a new ideology,” he said.

“It’s just going to be one of those things… the switch from retail funds to wholesale and the platforms took ages, but then – bang.

“These are the biggest changes we’ve seen in a quarter of a century. Long-term, it will work, these things just take time.” MM

Feature

All eyes on Aqua As the Australian Securities Exchange is about to launch Aqua II, Lucinda Beaman looks at possible outcomes for the new capability. Will it succeed or is it bound to fail like its predecessor?

THE Australian Securities Exchange (ASX) is just months away from launching its listed managed funds capability on Aqua II – a service that, if supported, could see the end of the antiquated and expensive paper-based application and redemption for managed funds.

Richard Murphy, ASX general manager, capital markets told Money Management that so far, Aqua had succeeded in signing up more than 30 members, consisting of fund managers, unit registries and stockbrokers – a figure he said far exceeded initial expectations.

Murphy said that group included “a good number of fund managers and the right number of unit registries to be able to service them,” with the remainder made up of ASX brokers. Murphy said the ASX would not name its foundation members until it had closed some outstanding key discussions.

While previous attempts to resolve the issue of paper-based managed funds processing have failed, conditions are now leaning in favour of the eventual success of Aqua II. In a recent white paper on the topic, the consulting group Tria Investment Partners said there was “no question that the external environment is now much more favourable than prevailed during the previous attempts”.

The group did add, however, that some “large established players have a lot to lose from Aqua II success and it cannot be assumed they will engage or cooperate – let alone be supportive.”

Tria Investment Partners believes Aqua II “casts the ASX as a competitor to traditional platforms and is an additional enabler of the already burgeoning off-platform model”.

“We expect there will be some reluctance from bank owned brokers and platforms to get behind Aqua II, given the threat to existing profitable business models,” the paper states.

Murphy said his team has had “indepth, multiple discussions with every one of the big bank-owned fund managers, and the platform guys and distributors within the banks”.

“Nobody in the industry denies the central logic of what ASX is doing,” Murphy said.

Murphy said from the discussions it was clear that platforms and bank-owned product manufacturers “do see some benefit to their business” of being able to leverage the ASX’s Clearing House Electronic Subregister System (CHESS) for managed funds.

“Every one of the platforms is also a member of CHESS for equities. Platforms have equities on them as well, but they don’t have 2,000 people stuffing envelopes in Adelaide in relation to equities,” Murphy said.

“From that perspective, they’re looking at it as a [potential] benefit. What it does to the rest of their business, whether they see it as a threat to shelf space fees for managed funds versus a friend in processing – that’s for them to make that call.”

Colonial First State and AMP have previously stated they are discussing Aqua with the ASX and considering potential opportunities for the funds management side of their businesses.

The ASX does not see itself as a competitor to platforms, Murphy said.

“We’re not doing tax reporting or anything like that; we won’t do what others do because we actually think in the end some platforms will start using this to get some of the benefits, and they’ll still provide tax reporting.”

Opportunities There appears to be a compelling argument for platforms to join the service.

Murphy said Aqua would charge between $3 and $5 per transaction, while “nearly all the fund managers” quoted him anywhere between $30 and $150 per transaction costs for managed fund appli-

cations and redemptions.

The $3-5 charge represents the CHESS cost, and is not inclusive of unit registry costs, Murphy said, and while Aqua can’t promise to redeem “your entire $150”, it can cut “a big chunk” out of paper-based transaction costs.

“The other thing that we think will benefit advisers’ clients is that by removing some of the costs in the process, the MERs of funds on ASX will end up being lower than the unlisted versions.”

Bryn Nicholson, chief operating officer of Yellow Brick Road, agreed that Aqua would “force down some of the fee structures in managed funds and lead the world of managed funds and ETFs to converge – and we think that will be a fantastic way to provide a better deal for clients.”

Nicholson said Aqua would mean “some of the entrenched interests that have been keeping the cost structure of access to managed funds high will be undermined,” forcing down the share of revenue that goes to fund managers and platforms as they lose some of their grip over the assets.

Murphy said the system would also provide administration efficiencies for financial planners, allowing investments in managed funds, direct equities, REITS, infrastructure funds and ETFs to be included on the same holding statement.

“For a client who wants to buy BHP and a managed fund, I can send the same orders through the broker I use and I know the same process will occur and my client will be better off as a result,” Murphy said.

Tria Investment Partners believes some ‘sophisticated’ financial planners and higher end advice segments are now “substituting traditional platforms with technology via CRM and administration software, such as XPLAN, Coin and Praemium”.

While these technologies are “well short of perfect”, the group says the “removal of platform costs creates scope for a big headline reduction in fees to the client”.

While removing a platform means adding

the cost of additional administration and planner desktop software costs to the practice, Tria believes combining Aqua with some of the now quite sophisticated CRM systems available could prove effective in cutting costs.

The march of progress Connie McKeage – now chief executive of OneVue – was acting chief executive of eTrade when it was set up in Australia.

“It was tough at the time because it was the disaggregation of the value chain in broking, and all of a sudden we had research basically separated from execution. Everybody said ‘it’s not going to work’, but look at it now. It’s a no-brainer and everybody just accepts discount broking,” McKeage said.

She believes Aqua II will similarly challenge the traditional order of the platform world.

“I think it will take longer to take off than people think, but I don’t think it will fail this time. I think it will, inevitably, be a success.”

Tony Fenning, managing director of Shadforth Financial Group said “any technology improvement that comes along to improve the service to clients or lower the cost is a good thing”.

The ASX is progressing towards a midyear launch, subject to ASIC regulatory clearance, Murphy said. In the meantime, the platforms are “all looking at each other to see is anybody going to take it up”.

“It’s really up to them to make an assessment of what they think is going to happen with FOFA coming in, the clear government intent for this space, straight through processing being a clear efficiency compared to what’s going on at the moment and the benefit they would achieve in their own cost structures.

“For some, it’s just an element of plumbing, but it is a piece of the plumbing that is absolutely rotten to the core.

And nobody would argue with that,” Murphy said.

MM

www.moneymanagement.com.au May 3, 2012 Money Management — 17

OpinionRisk

TD or

not TD

Col Fullagar looks at the past 30 years and how the definition of total disability as we know it now has evolved throughout the years.

A

ct three, scene one. Hamlet enters: “TD or not TD? That is the question…”.

To answer the question, Hamlet would of course go to his policy document where, irrespective of whether it was written in Shakespearian English or plain English, he would find the definition of total disability.

Today, advisers, claimants and even claims managers might ponder the same question and similarly go to the policy document.

There Hamlet and the rest would read the requisite definition.

Irrespective of whether its meaning did or did not appear clear, an assessment of how well it would perform can in part be made by seeking out various key components of the definition that should be present behind the scenes; subtly enhancing clarity, contractual certainty and equity. Of course, their absence would do the opposite.

In order to identify these components it is necessary to not only look at the principal player on the income protection stage, but also its supporting cast of partial disability and the waiting period.

Also, rather than consider contracts present there is merit in visiting contracts past in order to gain an understanding of what was done and why during the various stages of the definitions development.

Time and space dictate that assumptions and generalisations are made; however, these will not be material to the context.

The lights dim and the curtain rises …

Act 1, scene 1 – the early 1980s The income protection market was dominated by three players who have since morphed into one; AMP, National Mutual and Australian Casualty & Life (AC&L).

To assess the impact a sickness or injury had on the ability to generate income, reference was made to the insured’s occupational “duties”: “ To t a l D i s a b l e m e n t m e a n s t h e continuous inability of the life insured by reason solely of injury or sickness … to perform each and every normal duty of his usual occupation.”

(National Mutual, Disablement Insurance Policy, February 1981.)

Setting aside National Mutual’s assertion that only men needed insurance, the insured was left in little doubt – ie, the sickness or injury must render them incapable of performing every aspect of their occupation, irrespective of how minor it was and inconsequential to the generation of revenue. There was no distinction between what subsequently became known as important and non-important duties.

Also, to be eligible for a benefit, the insured had to be “continuously totally disabled” for the entire waiting period.

Complementing total disability was partial disability: “If, immediately following a period in

18 — Money Management May 3, 2012 www.moneymanagement.com.au

After many years of little “change, the contractual position started to evolve during the second half of the 1980s.

”

respect of which the insured has been entitled to receive a benefit, the insured engages in any profession or occupation but … his earnings are … less than his pre-disability earnings … a partial disability benefit is payable.”

The eligibility criteria for partial disability were identical to that of total disability – ie, the insured had to be totally disabled for the waiting period. If the insured returned to work or in fact was able to return to work in any capacity, even for a day, the waiting period would restart.

Key components identified: - Total and partial must be separate and distinct; the insured can be one or the other or neither – but not both.

If total and partial disability overlap, the untenable situation can arise where the insured seeks to claim under total disability but the insurer assesses under partial disability.

- The eligibility criteria during the waiting period must be identical.

If eligibility differs, an insured might be eligible for a total disability benefit at the end of the qualifying period, while another with an equivalent waiting period

experience might be ineligible for a partial disability.

Act 1, scene 2 – the mid to late 1980s After many years of little change, the contractual position started to evolve during the second half of the 1980s.

Associated National Life, later Tyndall Life, introduced a definition of total disability that distinguished between those duties responsible for the generation of income and those that were inconsequential to it.

“Total disability means that solely because of injury or sickness … you are unable to perform the important duties of your regular occupation.”

(Associated National Life, Income Reserve Plan, 1989.)

While there was an understanding that “important duties” were those that led to the generation of earnings, the phrase was not yet encapsulated in a policy definition.

The waiting period retained the qualification that it was “… the number of days … that total disability must continue before disability benefits begin to accrue”, no return to work was permitted.

The criteria for partial disability eligibility remained identical to total disability: “immediately following a period of total disability that lasts at least as long as the waiting period.”

And for the first time, a capability clause appeared recognising that an insured that would otherwise satisfy the criteria for partial disability but for whom work was not available, should be contractually guaranteed a benefit.

“You are engaged in one or more important duties or able to engage in one or more important duties of your regular occupation.”

While the dominant basis of assessment remained duties-based, by the end of the 1980s an alternative gained increasing attention – ie, hours-based.

“Totally disabled means that you are unable to work in your usual occupation for more than ten hours a week.”

(Sun Alliance, Income Protection Insurance, 1992.)

The insured; however, still had to be totally disabled for the entire waiting period as benefits only applied until, “You return to work in any occupation”.

Key components identified: - Capability clauses may be required Provided the distinction between total and partial disability is retained, provision should be made for those who are partially disabled, but for whom work is not available.

- Revenue v non-revenue generating activities The insured’s involvement in nonrevenue generating activities should not preclude a benefit payment.

Act 2, scene 1 – the early 1990s The 1990s saw the introduction of further contractual changes. Some of these were positive, while others arguably less so.

Clarity was improved when the phrase “important duties” was defined within the policy: “Important duties means the duties of

your regular occupation which could reasonably be considered primarily essential to producing monthly earnings.”

(Tyndall Life, Risk Insurance Policy, 1990.)

It was also recognised that the insured should be encouraged to attempt a return to work (if medically approved) so provision was made for a return to work for “up to 5 days”; in effect, there could be up to 5 days of “partial disability” during the

Unfortunately, some “insurers created contractual ambiguity by retaining a reference to the return-towork facility.

”

perform “all important duties” disappeared.

“The person insured is totally disabled if, because of an injury or sickness, he or she is … unable to perform at least one duty of his or her occupation which is necessary to produce income.”

(Australian Casualty & Like, Premier Income Protector Plan, 1995.)

The ‘one important duty’ definition had arrived.

Almost immediately, hours-based allowed the insured to be totally disabled while working up to 10 hours a week.

These liberalisations were applauded, but they brought a complication that remains; it was now possible to be paid a total disability benefit while at the same time being able to earn or even actually earning an income; the distinction between total and partial disability was being compromised and made more complex.

Other changes followed: The need to be ‘totally disabled’ for the entire waiting period was replaced with a need to be totally disabled for a set number of days, after which the insured could be partially disabled for the remainder of the waiting period.

This change made redundant the facility to return to work for “up to 5 days” during the waiting period as the insured could in fact return to work for any number of days after the initial set period.

Unfortunately, some insurers created contractual ambiguity by retaining a reference to the return to work facility.

Key component identified: - Avoid redundant wording Those changing policies should be vigilant, thinking through the implications for new wording rather than simply assuming that which currently exists should be retained.

Act 3, scene 1 – the early 2000s

waiting period.

Duties and hours-based definitions were challenged by a new player, income-based: “You are not capable of earning … twothirds or more of your average monthly income.”

(FAI, Disability Income Benefit, 1990.)

While the exponents of their respective definitions claimed theirs to “be the best”, in reality, each was a satisfactory way to assess the impact of a sickness or injury on the ability to work and earn, but while each had its strengths, each also had unique weaknesses.

Key components identified: - Terminology Terms must be succinctly and consistently defined.

- Policy purpose The policy should have a central aim, and this purpose should be reflected in the content of its clauses.

Act 2, scene 2 – the mid to late 1990s In the mid-1990s the market stepped over a line; the requirement to be unable to

In 2002 a new style of definition was released, the so-called three-tiered definition.

“Total disability means that solely because of a sickness or injury the life insured…has suffered a reduction of 80 per cent or more in the ability to: - Generate monthly earnings; - Perform the income producing duties; or - Ma i n t a i n t h e s a m e n u m b e r o f hours worked, in the insured’s usual occupation.”

(TOWER Protection Policy, Disability Protection Plan, 2002.)

The logic was compellingly simple; each of hours, duties and income work in the vast majority of situations as a means of equitably assessing the impact of a sickness or injury on the insured’s ability to work; however, none of them is without technical shortcomings, for example: - Hours-based; the extent of disability required to claim is proportionally different, depending on the pre-disability hours worked; - Duties-based; contractual certainty is compromised if an insured can perform “all” duties, but less effectively; - Income-based; a reducing income caused by a poor economic climate can affect benefit eligibility.

Optimal opportunity for the insured to demonstrate total disability requires a

choice at the time of claim. The pragmatic edge in regards to likelihood of claim with a three-tier definition over a single tier was, however, marginal.

Two more subtle changes were made

by TOWER. First, was the removal of the ambiguity that existed with wording such as “incapable of earning two-thirds” – ie, “does this mean a reduction of two-thirds or only one-third”. Phrasing was altered to simply “a reduction of ”.

Second was the replacement of a numeric assessment with a proportional one, thus avoiding disproportionate levels of disability being required to achieve claim eligibility, for example: - With a one important duty definition, an insured with one duty must be 100% disabled, whereas an insured with two important duties is only required to be 50% disabled; and - With a 10 hour definition, an insured working 40 hours a week must be 25% disabled, whereas an insured working 50 hours a week is only required to be 20% disabled.

With a proportional measure, irrespective of the number of duties or the number of hours, the same proportional reduction in ability was required.

Key components identified: - Gaps in cover should be avoided; - Equity should be maintained; and - Ambiguity should be removed.

Act 3, scene 2 – the present The past 30 years has seen many changes to the definitions of total disability, but by studying these changes and the reasons for them it is possible to develop a script of some things to look for behind the scenes in the definitions of today: - Total and partial should remain separate and distinct; - Eligibility criteria during the waiting period should be identical; - Insured’s who can work but for whom work is not available should be protected; - Undertaking non-revenue producing duties should not preclude a claim payment; - Terminology should be succinctly and consistently defined; - The purpose of the policy should be reflected in its content; - Redundant wording should be removed; - Gaps in cover should be filled; - Measurement criteria should be equitable; and - Ambiguity should be avoided.

The claims of policy drafters about achieving the above appear to vary.

Some loudly proclaim their success but “They doth protest too much, methinks”.

(Hamlet, Act 3, Scene 2.)

Some are more humble, “True it is, that we have seen better days”. (As You Like It, Act 2, Scene 7.)

Advisers and clients would perhaps be the better judges and the former on behalf of the latter are no doubt best placed to rate the insurers’ performance and how well they achieve clarity, contractual certainty and equity.

Col Fullagar is national manager for risk insurance at RI Advice Group.

www.moneymanagement.com.au May 3, 2012 Money Management — 19

OpinionCommodities

The rocky terrain Returns from the resources sector are under pressure. Investors will find themselves navigating the rocky terrain, writes Andy Gardner. be a winner.

Today, the course is more challenging. Commodity currencies, operating costs, capital costs, and geopolitical risks have all risen. Meanwhile, heightened market volatility is a reminder of how sensitive resources are to the economic cycle.

With global growth expected to be some 30-40 per cent below its 10-year trend in 2012, our investment strategy is to be ‘generally defensive but selectively offensive’. The opportunity to generate superior returns in the sector remains, but it will require greater skill to separate the winners from the losers.

Chart 1: China’s share of Share globalOf commodity demandDemand China's Global Commodity

60%

49

50% 40%

2010

56 46

44

24

24

20%

42

39

21 16

14

36

35

17 14

17 8

10 7 1

3

13

#1

#1

#1

#1

Construction Drivers

#1

#1

#1

#1

Na Oi l tu ra lG a s Ur an iu m

rm Th e

#1

Al Coa um l in iu m Co pp er Ni ck el Po ta sh

al

Le ad

nc Zi

l Co a

n

Iro

et M

Or e M n Al lo y St ee l

0%

#1

Gold (g/t)

2,275 Lead (%Pb)

10%

CHINA RANK

Copper (%Cu)

35

44

34 26

2,600

40

As a % of 2011 growth

39

30%

higher levels of income per capita.

China currently consumes only 12 per cent of the world’s oil each year, despite accounting for over 50 per cent of global oil consumption growth.

Government intervention and legislation can also spur structural demand themes, such as the trend towards decarbonisation – potential beneficiaries may include commodities such as uranium, lithium and graphite.

Supply drivers can also be structural.

The decline in mineral grades is reflective of the fact that the best deposits have been cherr ypicked and ever increasing repletion rates at existing operations must come from evermore

Chart 2: Declining ore grades

2002

63

Structural demand drivers are important. China currently has the greatest level of influence on commodities related to early stage industrialisation, accounting for over 50 per cent of global demand in met coal, iron ore, steel, zinc and manganese, which are largely exposed to construction activity.

While China’s urbanisation and infrastructure development still has many more years to run, these commodities will inevitably be the first to see their intensity of use peak out. On the other hand, consumer driven commodities such as energy, potash, nickel and titanium dioxide will ‘peak out’ at much

#1

#2

Consumer Drivers

Source: BHP Billiton & AMP Capital

20 — Money Management May 3, 2012 www.moneymanagement.com.au

#9

Ore Grades (Cu, Pb, Zn, Au, Ni, U, Diamonds)

70%

Commodity exposures

Zinc (%Zn)

30

1,950

Uranium (kg/t U3O8) Nickel (%Ni)

25

1,625

Diamonds (carats/t) Silver (g/t)

1,300

20

General Trend 15

975

10

650

5

325

#6 0 1840

0 1855

1870

Source: G. Mudd (Monash University)

1885

1900

1915

1930

1945

1960

1975

1990

2005

Ore Grade (Ag)

I

nvestors looking at the relatively high pr ice level of bellwether commodities such as oil, iron ore, copper, and gold may be forgiven for thinking that times must be quite good for resource companies once again.

The truth is that the current period of relatively high commodity prices is very different to that enjoyed prior to the global financial crisis (GFC).

To use racing terminology, in the period of 2003-2008, all it seemed you had to do to make money was to back the race. For a time, vir tually any resource company or project seemed to

marginal deposits. To put this into context, Rio Tinto’s copper production has suffered due to declining grades and is 400koz below its peak in 2009 – the tons lost equivalent to nearly seven times the current output from PanAust.

It is important to identify those commodities which are supply constrained. Further, it is preferable for emerging markets to have a growing reliance on imports of those same commodities due to insufficient domestic production. The old adage is ‘go long where China is short, and short where China is long’. This is true within the value chain as well as across it. China is short bauxite but it is long aluminium, for example.

Some commodities offer structurally higher returns than others. The shape of the cost curve is critically important in determining the potential return profile of a commodity. The steeper the curve, the greater the ability for low cost producers to lock in a return. Margins can be protected where high barriers to entry/exit exist – for example, where major infrastructure development (port and rail) is required, and where markets are highly consolidated. Iron ore and oil are notable examples.

Stock exposures Companies are inherently leveraged to commodity prices through their cost

structures and volume growth. While the beta in high cost producers can be rewarding in the shor t-ter m when commodity prices are rising, it can prove fatal when prices fall. Producers such as Mirabella and Kagara have come badly unstuck as zinc and nickel prices have come under pressure.

A challenge for many investors is to determine exactly what true costs are.

The now commonly used industry term “C1 cash costs” is very misleading – excluding many significant items such as maintenance, overheads, and royalties. The best way to militate against negative tail risk is to stick to a core portfolio of low cost, high quality producers.

With prices flattening and costs rising, delivery of low cost volume growth will be an increasing determinant of earnings and a differentiator between companies.

The world’s largest companies will naturally find this more difficult, given the huge scale of their production in absolute terms.

It took Rio Tinto 50 years to ship its first billionth ton of iron ore, but it hopes to deliver its second in only the next five years. In essence, companies will need to move faster in order to stand still. The world’s largest copper producer based in Chile, Codelco, plans to spend $30 billion over the next eight years just

to keep copper volumes flat.

This provides a window of opportunity for the more nimble mid-cap producers.

Capital management is key. Cash generation is king in the mining sector.

Good deposits should always generate high retur ns if well managed, and management should continually optimise their asset portfolio by selling marginal or non-core assets.

Discipline is harder to come by when it comes to deploying that cash. Is it the right time to buy, build, or give back money to shareholders? While management generally says that organic growth ranks highest in ter ms of pr ior ity, evidence would suggest that an equal if not greater amount of capital has gone towards acquisitions in the past decade in view of the many mega deals that have occurred. This is somewhat intuitive, given that capital intensity is rising at a rapid pace while acquisitions increase firm production but not industry production.

Large cap miners can capture market share while limiting the commodity price impact. But at the peak of the cycle – when competition for assets, equipment and labour is at its most intense (and expensive) – diversified resource Continued on page 22

www.moneymanagement.com.au May 3, 2012 Money Management — 21

OpinionCommodities Continued from page 21

The commodity ‘supercycle’ remains intact, but is “entering a new phase of its development. ”

Chart 3: Self-sufficiency of emerging markets across commodities Net Imports

70%

Net Exports

BRICS' % Share of Global Production

60%

Aluminium Zinc

50% Nickel

Iron Ore 40% Copper Refined 30%

Alumina

20%

Bauxite Copper Concentrate

Oil (BRICS) Thermal Coal

10% Uranium Met Coal

Oil (China)

0% 0%

20%

40%

60%

80%

100%

120%

BRICS' Self Sufficiency as % of Consumption

Source: Merrill Lynch & AMP Capital

140%

companies should be considering a greater degree of capital return.

To wit, we would not be surprised to see BHP reign in its massive $80 billion plus capital expenditure program and re-evaluate its capital return policies largely in response to these shareholder concerns.

Think small. By far, the greatest opportunities lie in the many exploration and development companies – for those that do their homework. Knowledge of the geology, mineability, and metallurgy of the deposit is required.

The history and track record of the asset and management is also important.

Over half of the ‘new’ projects in Australia are in fact restarts or refurbishments of some kind, and many of the same characters are seen time and time again. The below schematic describes the investment value proposition at various points along the resource development curve.

Momentum investors come into the stock primarily seeking the eureka effect that follows good exploration results.

Frequently, these speculators exit their stock positions when the hard yards commence (pre-feasibility study and financing) – causing the share price to peak. The subsequent dip is called the ‘value valley’. The valley is longer for bulks/energy (infrastr ucture) and shorter for precious metals.

For a professional investor, on average, the best risk adjusted return usually comes post the release of the pre-feasibility study. This outline (but quite detailed study) can provide enough information for a sector specialist to perform a SWOT and valuation scenario analysis. This may be 1-3 years pr ior to production commencing, depending on the project’s infrastructure needs and the specific Government approval process.

Given the restrictive nature of the domestic funds – which often cannot invest in pre-producing companies – investing at this point in time also provides a window of opportunity before

Summary This article has attempted to outline a basic set of principles that investors may follow to help frame the core sector dynamics as we see them at this juncture.

The commodity ‘supercycle’ remains intact, but is entering a new phase of its development. This requires a greater level of discipline from company management and greater levels of due diligence from investors.

By AMP Capital portfolio manager and analyst Andy Gardner.

Chart 5: Copper prices re-based in different currencies

Chart 4: The exploration and development curve

650 Operating

Investment Acquisition

Value

the ‘big money’ can begin to follow the stock, led initially by active super funds and followed by passive funds as the increasing market cap propels the stock into a new index.

Seek out takeover targets. Mergers and acquisitions remain one of the best investable themes in mining. The world’s major primary commodity consuming nations (such as China, India, Korea, and Japan) all have dominant industries which have critical supply needs that cannot be met domestically.

In response, the governments of these consumer nations explicitly or implicitly encourage foreign direct investment to ensure security of supply.

Diversify overseas. The wave of acquisitions in the Australian mid-cap mining space over the past few years has limited investors’ options in many sub-sectors.

Despite Australia being one of the world’s largest coal exporters, there are relatively few established producers remaining on the Australian Securities Exchange following the departures of Macarthur, Centennial, Felix and Coal & Allied, to name a few. The copper sector is similarly bereft of quality companies.

Currencies are also a major factor. The movement in the Australian dollar has contributed to a significant loss in competitiveness for those companies reporting revenue in Australian dollars.

When combined with the carbon tax, mining tax, and the rate of general cost inflation, it is easy to see why foreign investors have largely shunned the Australian resource market since the GFC.

US$/tonne A$/tonne Chilean peso/tonne Zambian kw acha/tonne

550 450

Construction

350

Eureka Effect

250

Source: RFC Corporate Finance Ltd

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

Source: GMP Securities

Jul-12

Jul-11

Jan-12

Jul-10

Jan-11

Jan-10

Jul-08

Jan-09 Jul-09

Jul-07

Jan-08

Jan-07

Jul-05

Jan-06 Jul-06

Jul-04

Jan-05

Time

50 Jan-04

Advanced Exploration/Pre-feasibility Study

150

Jul-03

Feasibility Study

Jan-03

Exploration Success

OpinionTechnical Happy 65th – bring forward the party!

How is the ‘bring forward rule’ triggered, and what happens when the $450,000 cap is only partially used at or around the time a client turns 65? CFS’s technical services team explains.

O

ne of the most common questions from advisers concerns the rules around making non-concessional contributions and the ‘bring-forward rule’. These questions generally arise as part of a strategy to maximise a client’s super savings before the client ceases to be eligible to contribute to super. Of particular importance is how the bringforward rule is triggered, and what happens where the $450,000 cap is only partially used at or around the time a client turns 65.

Part of the confusion around contributions and the caps comes from the fact that there are separate pieces of legislation that govern how contributions are made, in terms of eligibility to contribute, and then any excess contributions assessment.

When looking at a particular client, the first step is always to ask, ‘Can the c l i e n t c o n t r i b u t e t o s u p e r ? ’ If t h e answer is yes, then you can determine how much can be contributed without exceeding contribution caps.

Can your client contribute to super?

The ability to make a contribution to super is governed by the Superannuation Industry (Supervision) (SIS) regulations. Eligibility is based on the client’s age on the date the contribution is made, and generally requires the client to either be under age 65 at the time of the contribution, or meet the work test during the financial year prior to making the contribution.

How much can your client contribute tax-effectively to super?

The amount that can be contributed tax-effectively is determined by reference to both: • The Income Tax A ssessment Act 1997, in relation to the client’s contribution cap, and • The SIS regulations, in relation to the fund-capped limit relevant to the client. This is the maximum single contribution that a fund may receive from a client and is related to their nonconcessional cap.

In both cases, the amount that can be contributed during a financial year is determined by the client’s age on 1 July of that financial year.

Triggering the bring-forward rule – in the year your client turns age 65 The bring-forward rule can only be triggered in a year in which your client is age 64 or less on 1 July. The trigger is contributing more than $150,000. Where a client has triggered the bring-forward

Continued on page 24 www.moneymanagement.com.au May 3, 2012 Money Management — 23

OpinionTechnical Continued from page 23 rule in the financial year they turn age 65, they may continue to have access to the bring-forward remaining for the next two financial years.

This means that where a client has more than $150,000 of non-concessional cap left under the bring-forward rule, it may still be contributed to super. This is despite the fact that the client is not age 64 or less on 1 July in either of the next two financial years.

The key is this: a super fund cannot accept a single contribution of more than $150,000 where the client is 65 or more on 1 July. This means that if the contribution is more than $150,000 it must be made over two or more transactions.

To avoid any doubt, it is recommended that these contributions be made on separate days and be clearly identified through both banking transaction and contribution paperwork as distinct contributions.

These concepts are best illustrated with an example.

key is this: a super “fundThecannot accept a single contribution of more than $150,000 where the client is 65 or more on 1 July.

”

than 75 and meets the work test: that is, she has worked for 40 hours in 30 consecutive days for gain or reward, prior to making the contribution.

forward rule. The fund cannot accept a single contribution of more than the $150,000 fund-capped limit, so it must be split over at least two transactions.

Q: How much can she contribute?

A : Sh e c a n c o n t r i b u t e a t o t a l o f $ 2 5 0 , 0 0 0 . Howe v e r t h i s m u s t b e contributed over at least two separate transactions, for example $150,000 and $100,000. Cersie has $250,000 remaining of her non-concessional cap that can be contributed under the bring-

Diagrams 1 and 2 will help advisers make decisions about whether their clients can make a non-concessional contribution, and if so exactly how much.

By Colonial First State’s technical services team.

DIAGRAM 2: C AN THE CLIENT CONTRIB UTE TO SUP ER TODAY?

Diagram 1: Can the client contribute to super today?

Is the client aged 64 or less today?

Yes

No Is the client aged less than 75? 1

Contribution can be made to super

Yes

No

Has the client met the work test this

Yes

Cannot contribute this or any future

No

Contribution can be made to super

1. Contributions may be made up to 28 days after the month in which a client turns 75.

DIAGRAM 3: B RI NG-FORWARD CONTRIB UTIONS FLOWCHART

Diagram 2: Bring-forward contributions flowchart

Example Cersie turned age 65 in February 2012 and will continue to meet the work test for several years. She has $200,000 available to contribute this year, and will sell a property worth $250,000 in 2 years time when she is 67.

Q: Can Cersie contribute to super in March 2012, having turned 65?

A: Yes, because she is aged 65 but less than 75 and has met the work test during 2011-12 prior to making the contribution.

Q: How much can she contribute in March 2012?

A: Cersie can contribute the full amount of the $200,000 she wishes to, because she was aged 64 on 1 July of the 2011-12 financial year. Her non-concessional cap under the bring forward rule is $450,000. Note that by contributing more than $150,000, she automatically triggers the bring forward rule.

Q: Can she contribute in 2013-14?

A: Yes, because she is aged 65 but less

24 — Money Management May 3, 2012 www.moneymanagement.com.au

Yes

No

Has client triggered the bring-forward rule

Yes Can contribute up to $450,000 – 2 (P = _________ P

Has client triggered the bring-forward rule

No

Can contribute up to $450,000

Yes Can contribute up to $450,000 – 2 (P = _________

No

Can contribute up to $150,000

P IMPORTANT Fund can’t accept a single contribution more than $150,000. Contribution may need to be split over two or more transactions

2. Previous contributions equals the sum of the contributions that triggered the bring-forward rule and other non-concessional contributions made within the three financial years affected by the bring-forward rule.

Toolbox Continued from page 25 arrangement they make with a provider such as a bank or insurance company.

Personal pensions are typically selffunded and are suited to self-employed individuals or those who don’t belong to a workplace pension fund.

There is generally no limit on the amount of personal contributions that can be made to a UK pension fund; however, tax concessions are limited.

Her Majesty’s Revenue and Customs (HMRC) provides tax relief at marginal tax rates on up to 100 per cent of personal contributions for UK taxpayers. The HMRC will also match contributions for non-taxpayers (£25 for every £100 of personal contributions up to a combined maximum of £3,600 per tax year*).

Generous tax concessions for registered pension funds include: • An annual contribution limit of £50,000 (includes personal, employer and third party contributions but excludes State Pension contributions) that attracts tax relief at marginal tax rates. Unused limit from the previous three years can be carried forward. Penalty tax of up to 50 per cent applies to any excess; • A maximum tax-free benefit known as a lifetime allowance (LTA) – similar to our former RBL – of £1.8 million (reducing to £1.5 million from 6 April 2012) can be

accumulated. Benefits taken in excess of this amount are taxed at 25 per cent (if taken as a pension) and 55 per cent (if taken as a lump sum); • No tax on capital gains or investment income.

Since April 2010, the minimum age at which an individual can access their pension is 55 (earlier if in serious ill health); prior to this it was age 50. Most pension funds allow a tax-free lump sum of up to 25 per cent to be taken by members when they first commence their pension. The pension can be deferred but must be commenced by age 77. Members can also take a part pension while transitioning to retirement.

Transferring UK pension to Australia Transfers out of UK-registered pension schemes are tested against the LTA. Tax of 25 per cent applies to transfers in excess of the LTA. Transfers below the LTA are not taxed, provided the overseas scheme is a Qualifying Recognised Overseas Pension Scheme (QROPS). Transfers to an overseas pension scheme that is not a QROPS are considered ‘unauthorised payments’ and are subject to tax of 40 per cent. A further 15 per cent surcharge may apply if the amount transferred in any 12month period is 25 per cent or more of an individual's UK pension balance.

QROPS is a super fund established

outside the UK that satisfies UK requirements for preservation and payment of benefits including that: • At least 70 per cent of the funds must be used to provide a lifetime income; and • Benefits cannot be paid before minimum retirement age (unless due to serious ill-health); or • Where a double tax agreement (DTA) exists that contains exchange of information and non-discrimination provisions, the QROPS can adopt the rules of that country’s pension/superannuation legislation.

Since Australia has a DTA with the UK, members can therefore access their money under the normal Australian superannuation conditions of release (eg, retirement, age 65 etc.)

The QROPS trustee is required to let HMRC know about any withdrawals, payments or transfers made from an individual’s account. Previously, when the member had been a non-UK resident for five complete tax years, the annual reporting by the QROPS to HMRC ceases.

Due to HMRC concerns about the abuse of the current system, the rules relating to the transfer of UK pension to QROPS were tightened from 6 April 2012.

The changes from 6 April 2012 include: • Revised conditions that an overseas pension fund must meet to be a QROPS; • Acknowledgement by the individual,

to be completed before the transfer, that tax may apply; • Revised time limits for UK-registered pension funds to report transfers to QROPS; • Additional powers for HMRC to request information from a QROPS trustee; • Revised time limits for reporting of payments by a QROPS to HMRC. Note: Any payment from an individual’s account after 10 years from the transfer date does not need to be reported to HMRC, unless the individual has been a UK resident at any time in the last six tax years. Reporting must occur within 60 days of the payment.

The revised rules will apply to all existing and new QROPS from 6 April 2012.

The new reporting rules apply to transfers made both before and after 6 April2012.

In deciding whether to leave their pension benefits in the UK or transfer them to an Australian super fund, UK migrant clients must weigh up tax and contribution limits as well as the rules of the UK and Australian funds. * The UK tax year runs from 6 April to the following 5 April.

Sarina Raffo is the technical services consultant at Suncorp Life.

THIS EVENT SOLD OUT IN SYDNEY, SO

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REGISTER NOW www.moneymanagement.com.au/ professional-development/seminars and follow the prompts

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SMSF: What’s hot

Top 5 Strategies

The latest issues and legislative changes.

Tips and traps of the leading strategies.

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26 — Money Management May 3, 2012 www.moneymanagement.com.au

Appointments

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

Move of the week MLC Investment Management has appointed Chris Clayton as head of asset management.

With over 15 years’ experience in sales and distribution, Clayton was most recently chief executive of Acadian Asset Management – a Colonial First State Chris Clayton venture.

National Australia Bank stated that Clayton has a deep understanding of the retail distribution aspects of the investment management sector and is well positioned to step into his new role.

FRANKLIN Templeton Investments has made another addition to its retail team in Australia, appointing Stuart Devlin to the newly created role of southern regional manager.

Based in the fir m's Melbourne office, Devlin will be responsible for developing key account relationships in

V ictor ia, Tasmania, South Australia and Western Australia.

He has more than 15 years’ retail experience and was previously head of retail sales for ING Investment Management and state manager for AXA. Franklin Templeton director of advisory services Jim McKay said Devlin's addition to the

retail business would enable the company to better provide s e r v i c e s t o d e a l e r g ro u p s, boutique advice firms, family offices and financial advisers.

J.P. Morgan has announced that its head of global investment banking coverage, capital markets and mergers and acquisitions, Jeff Urwin, will take on the additional role of chief executive of AsiaPacific.

He will be based in Hong Kong and will be responsible for overseeing all of J.P. Morgan's strategic activities in the region, along with his current global banking responsibilities.

The company said it was the first time J.P. Morgan's global head of investment banking will be based in the Asia-Pacific.

Urwin succeeds Gaby Abdelnour, the current head of AsiaPacific who announced in March

that he would be leaving the bank after 14 years with the firm.

MLC Investment Management has appointed Greg Michel as senior research analyst.

Reporting to MLC head of fixed income Stuart Piper, Michel has around 29 years’ experience managing fixed income portfolios.

His most recent position was as head of fixed income at ING Investment Management, where he was responsible for a team of eight professionals and the management of approximately $14 billion in cash and fixed income assets.

FIIG Securities has announced the appointment of Sandra Philpott as chief marketing officer.

In her new role, Philpott will be responsible for developing FIIG's marketing programs with

Opportunities SENIOR FINANCIAL ADVISER Location: Adelaide Company: Terrington Consulting Description: A well-established wealth management firm is seeking a senior financial adviser to join its team.

The successful candidate will have several years experience in a lead financial adviser capacity – ADFP and CFP qualifications are considered desirable.

You will be technically strong, having worked with SMSFs, family trusts, estate planning, retirement planning, taxation, investments and both personal and business risk insurance.

To find out more and to apply, visit www.moneymanagement.com.au/jobs, or contact Myra at Terrington Consulting – 0499 771 629

PARAPLANNER Location: Adelaide Company: Terrington Consulting Description: A national financial services business is seeking a self-motivated paraplanner to join its growing team.

the goal of ensuring the consistency of the company's brand.

Philpott is a senior marketing and business executive with a wealth of experience across the financial services, telecommunications and not-for-profit sectors.

She previously consulted to small and medium enterprises in developing new markets through acquisition and organic growth and reviewing distribution channels.

Prior to joining FIIG, Philpott was head of customer marketing at Telstra, general manager for business banking at Westpac and managing director of vendor finance at GE Capital. She has also held senior marketing role in the both the insurance and mortgage sectors.

Philpott's appointment comes amid FIIG's plans to expand its specialist team to better service investors seeking fixed income investments.

For more information on these jobs and to apply, please go to www.moneymanagement.com.au/jobs The candidate will have demonstrated practical experience in the preparation of SOAs and have an excellent market and technical knowledge including risk, investment and superannuation strategies.

DFP and RG146 certificates are essential, although the completion or commencement of an ADFP would be regarded as favourable.

Candidates with experience using XPLAN will be highly regarded.

For more information and to apply, visit www.moneymanagement.com.au/jobs, or contact Myra at Terrington Consulting – 0499 771 629

FINANCIAL ADVISER Location: Adelaide Company: Terrington Consulting Description: A specialist boutique financial advisory firm is looking to hire a proven financial adviser with an existing book of clients.

You will have an excellent knowledge around superannuation, tax and Centrelink, as well as experience in dealing with HNW clients.

Along with an existing book, the candidate

will have the ability to procure new clients through their own networking skills.

This is a long-term opportunity with an excellent remuneration package, as well as the prospect to build equity under a corporate structure.

To find out more and to apply, visit, or contact Myra at Terrington Consulting – 0499 771 629

FINANCIAL ADVISER Location: Adelaide Company: Terrington Consulting Description: A financial planning firm is looking to hire an experienced, technically competent and passionate financial adviser.

To be considered for the role, you must have experience in providing clients with expert advice in superannuation and wealth accumulation, risk, retirement planning, investment advice and estate planning.

You will also need to be ADFP and/or CFP qualified.

For more information and to apply, visit www.moneymanagement.com.au/jobs, or

contact Myra at Terrington Consulting – 0499 771 629

JUNIOR PARAPLANNER Location: Brisbane Company: MW Recruitment Description: A professional services firm with a wide range of financial planning and business services/tax clients is seeking a junior paraplanner.

In this role you will be responsible for compiling SOAs and undertaking portfolio research and reviews.

While the team is relatively small, you will have access to excellent resources and a comprehensive client list.

To be considered, you will already be an established paraplanner with at least 12 months experience, along with DFP or equivalent certification.

To find out more and to apply, visit www.moneymanagement.com.au/jobs, or contact Hugh at MW Recruitment – (07) 3009 6400, hughw@mwrecruitment.com.au

SUBSCRIBE TODAY FOR ONLY $199 AND BE UP TO DATE ON YOUR INDUSTRY NEWS!

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MO12OP01 www.moneymanagement.com.au May 3, 2012 Money Management — 27

Outsider

6

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

Revolution – the frustrated planner’s anthem

All fired up OUTSIDER would like to extend his condolences to the 1300 global staff at Aviva Investors who were all briefly fired early last week via email.

Apparently most realised immediately the email was sent in error, a company spokesman said. But Outsider can only assume it was a nervous wait for any staffers who had not been putting their best foot forward of late.

Aviva Investors is the asset management arm of Aviva, one of the world’s largest insurers. The fact that the company has reportedly been restructuring, and has recently

announced an overhaul of the board and a number of likely redundancies, would have contributed to some nervous glances around the various offices. At least, that is, until a hurried a p o l o g y a n d re t r a c t i o n f ro m H R a r r i ve d a f e w m i n u t e s a f t e r t h e e r ro neous sacking notice.

The email was intended for a single unlucky person but was apparently of a generic nature, asking the employee (or employees in this case) to turn over any company property and exit the building.

Although the remaining 1299-odd staff are safe for now, the fact that the

HAVING closely watched the epic three-year journey of the Future of Financial Advice reforms – and witnessed the frustration of various industry participants – Outsider suddenly felt inspired and created a new industry anthem. Outsider would also like to apologise to The Beatles.

company apparently has a sacking email template should probably be some cause for concern.

Outsider has since been given pause to wonder how things would have panned out if a similar error occurred

at the publishing company that produces Money Management. Outsider suspects that by the time HR followed up with their retraction, everyone would already be celebrating at the local watering hole.

Putting the super in hero

IS it a bird? Is it a plane? No, it’s a league of super-powered heroes learning the value of saving and investing responsibly.

That’s the concept for Marvel’s latest action-packed adventure Saving the Day, starring none other than Earth’s mightiest heroes – The Avengers.

Visa Canada, teaming up with the comic book company, said that the story

“

was aimed specifically at children aged 12 to 18, who it says receive only 31 per cent of their information about managing their finances from school.

As the heroes take on a subterranean foe, Outsider was surprised to learn that even superheroes need to learn a few things about financial stability.

Take Spider-Man for example – he is often between jobs and has to freelance as a photographer just to pay down his Aunt May’s house. He definitely needs some life and disability insurance as he hangs from lamp-posts and scales buildings all over the mean streets of Manhattan.

Despite the billions of dollars he’s earned as a weapons developer, Tony Stark’s alter ego Iron Man is not entirely in the black either: Outsider thinks the playboy ought to really consider signing a prenuptial agreement before hitching up with one of his many female fans.

Funnily enough, it seems the Incredible Hulk himself, Dr Bruce Banner, is on a better wicket than his contemporaries.

Before he lost his cool (for good) he was a highly-paid weapons researcher.

Since going rogue, he spends nothing on clothes – except perhaps a new pair of purple pants every so often – and saves on rental costs by bunking up in woodland caves.

Outsider thinks the good doctor should also apply for joint life insurance to average out the penalty costs.

You say you want a revolution Well, you know ASIC wants to change the world You tell me that it’s evolution Well, you know We all want to charge the world But when you talk about wealth destruction Don’t you know that you can count me out Don’t you know it’s gotta be, fee-light Fee-light, Fee-light You say you got a real solution Well, you know We’d all love to see the plan You ask me for a contribution Well, you know We’re doing what we can But when you want money invested at negative rates All I can tell is brother you have to wait Don’t you know it’s gonna be, a long night Long night, long night You say you’ll change the constitution Well, you know We all want to change your head You tell me it’s the institution Well, you know You better free the clients instead But if you don’t change until the final hour You ain’t going to make it with anyone anyhow Don’t you know it’s gonna be, all right All right, all right All right, all right, all right All right, all right, all right

Out of context “The Reserve Bank board has been meeting on the second Tuesday of the month since 1960, according to the RBA archives. It’s been meeting on the second Tuesday of the month since 1960. Everyone makes mistakes, let’s be clear, but the Reserve Bank board’s been meeting on the second Tuesday of every month since 1960.”

Financial Services Minister Bill Shorten’s attempts to lampoon Opposition Leader Tony Abbott for a slight misstep go spectacularly wrong.

28 — Money Management May 3, 2012 www.moneymanagement.com.au

“Compliance is when you tell your 15-year-old that he needs to do his homework and he actually does it.”

Super funds could learn a lot from Super Complaints Tribunal chair Jocelyn Furlan’s family life.

“For those of you who have trouble sleeping at night, here’s the determination number for the case.”

Furlan again, offering a remedy for the insomniacs at the ASFA Compliance Summit in Sydney.