Money Management (19 May, 2011)

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Vol.25 No.18 | May 19, 2011 | $6.95 INC GST

The publication for the personal investment professional

www.moneymanagement.com.au

FEDERAL BUDGET ROUND-UP: Page 6 | ALTERNATIVE INVESTMENTS: Page 14

Macquarie tops platform rankings

By Mike Taylor MACQUARIE Wrap has finally broken through to take out the top position on the Wealth Insights Platform Service Level Report Rankings, with Colonial FirstWrap rated second.

Despite running second with respect to platforms, Colonial FirstWrap was ranked first with respect to the Wealth Insights Fund Manager Service Level report for the fourth year in succession – something Colonial First State (CFS) chief executive Brian Bissaker attributed to the company’s ongoing investment.

Importantly, the Wealth Insights research was carried out before CFS announced key changes to FirstWrap earlier this year, including fee structures among the lowest in the industry.

Commenting on the findings, Wealth Insights managing director Vanessa McMahon said the research had been conducted among 870 financial planners in April.

Last year’s top ranked platform in the

Wealth Insights Platform Service Level Report Rankings: 1 – Macquarie Wrap 2 – Colonial FirstWrap 3 – Pursuit Fund Manager Service Level Report Rankings: 1 – Colonial First State 2 – Perpetual 3 – MLC service level survey, IOOF’s Pursuit platform, was ranked third this year – with McMahon describing the rankings as being very close.

“Macquarie Wrap, Colonial FirstWrap and Pursuit are a dominant top three, and Colonial was only just pipped at the post,” she said.

In the Fund Manager Service Level Report, Colonial FirstWrap was followed by Perpetual and MLC. Bissaker said that while he would have liked to have seen Colonial FirstWrap emerge at the top of the rankings with

Entertainment expenses in the spotlight

By Caroline Munro

THE happy days of all-expensespaid trips and free tickets to the country’s top events will end should certain Future of Financial Advice (FOFA) reforms relating to soft dollar benefits be legislated.

Treasury has proposed a ban on soft dollar benefits that involve entertainment or gifts valued over $300. The alternative remuneration registers of some of the country’s biggest financial services groups revealed that the cost of entertaining individuals most often exceeded that threshold, with some packages to sporting events costing nearly $4,000.

MLC’s register revealed that overall the value of event packages and tickets for its guests to the Australian Open in January 2010 neared $370,000. MLC also spent nearly $110,000 on packages and tickets for the last Melbourne Cup. OnePath spent over $61,000 on tickets for advisers to the U2 concert last November. On its 2010 register, IOOF spent nearly $16,000 on tickets to the Caulfield Race Day. These companies are not alone

when it comes to significant expenditure on entertainment, but their spending does raise the question: what is appropriate?

“The FOFA package brings into stark focus the intent of these activities and events, and whether they in fact distort advice outcomes,” said Association of Financial Advisers chief executive Richard Klipin.

“There’s clearly a place right across the Australian business community for relationship management with a marketing focus – the question is what is reasonable?”

Klipin said the $300 ceiling per person per event was not unreasonable.

Mark Rantall, chief executive of the Financial Planning Association (FPA), said his association, along with the Financial Services Council (FSC), had long advocated for the threshold as part of its joint Industry Code of Practice on Alternative Forms of Remuneration. However, Rantall doubted that advice was actually being influenced by advisers attending events. This viewpoint was supported by Klipin.

Continued on page 3

Brian Bissaker respect to both planner service levels and fund manager service levels, he was satisfied that it was a leader in the field.

He said that, importantly, he believed Colonial FirstWrap had been highly ranked by advisers with respect to service level satisfaction – something that represented an important measure to the company.

McMahon said the importance of the survey was that it had been a part of the Australian financial services industry for the past 20 years and, for some companies, had become a part of their internal performance measures.

She said that a key mistake for some platform providers was to only survey among their own planners – something that gave rise to the risk of skewing results.

Macquarie’s head of insurance and platforms, Justin Delaney, said he was delighted with Macquarie Wrap topping the Service Level Report rankings in circumstances where it had been among the top-ranked platforms for five years in a row.

“We have a strong service level proposition across a wide range of attributes and I think this outcome reflects that,” he said.

Delaney said Macquarie was constantly seeking to maintain Macquarie Wrap’s position, including running its own service level satisfaction research and acting upon the feedback provided by advisers.

“That means we are continuing to invest where it’s needed,” he said.

FOFA debate hurting investor sentiment

By Milana Pokrajac THE unbalanced discussion about the proposed Future of Financial Advice (FOFA) reforms could be a large contributor to poor investor sentiment, which keeps pushing the managed fund sector inflows further down.

According to Australian Unity head of investments David Bryant, both the Government and the industry have failed to acknowledge the good components of the financial services sector during the FOFA discussions.

The Government announced the reforms in April last year, promising increased transparency in hopes to oust the bad apples and prevent events such as the collapse of Storm Financial and Westpoint Group from happening again.

Bryant argued that Australia already had a good superannuation system, a strong regulatory environment and a well functioning funds management industry, and that FOFA needed to be seen as a way to improve

the system.

“A lot of the noise around FOFA, MySuper and other things – while they are very good public debates to have about managed investments, advice and superannuation – I think what a lot of the people hear is that there is something wrong with the system,” Bryant said.

“At the moment, FOFA is simply contributing to poor sentiment because it is being heard as ‘there are problems to fix’ rather than ‘there are improvements to make’,” he added.

Plan for Life figures revealed the December 2010 net inflows for managed funds amounted to only $152 million, which is in stark contrast to almost $1.2 billion in the previous quarter or $20 billion from the June quarter 2007, before the global financial crisis (GFC) hit the markets.

While the researcher is still in the process of analysing the numbers from the March 2011 quarter, AXA’s general manager for platforms, Steve Burgess, said the company had seen a “sluggish and slow” first

David Bryant quarter of the year, even though there appeared to have been a slight recovery in the second half of 2010.

However, Burgess said he didn’t believe the FOFA talks had an effect on largely disengaged investors as yet.

“It’s putting a burden on planners and dealer groups, but from the client perspective, I think they are really not engaged in that debate or that argument as we speak right now,” Burgess said.

The Association of Financial Advisers chief, Richard Klipin, said the declining net flows should be of concern to all members of the Continued on page 3

Editor

Reed Business Information Tower 2, 475 Victoria Avenue Chatswood NSW 2067 Mail: Locked Bag 2999 Chatswood Delivery Centre Chatswood NSW 2067 Tel: (02) 9422 2999 Fax: (02) 9422 2822 Publisher: Jayson Forrest Tel: (02) 9422 2906 jayson.forrest@reedbusiness.com.au Managing Editor: Mike Taylor Tel: (02) 9422 2712 mike.taylor@reedbusiness.com.au News Editor: Chris Kennedy Tel: (02) 9422 2819 chris.kennedy@reedbusiness.com.au Features Editor: Angela Faherty Tel: (02) 9422 2210 angela.faherty@reedbusiness.com.au Senior Journalist: Caroline Munro Tel: (02) 9422 2898 Journalist: Milana Pokrajac Tel: (02) 9422 2080 Journalist: Ashleigh McIntyre Tel: (02) 9422 2815 Melbourne Correspondent: Benjamin Levy Tel: (03) 9509 7825 ADVERTISING Senior Account Manager: Suma Donnelly Tel: (02) 9422 8796 Mob: 0416 815 429 suma.donnelly@reedbusiness.com.au Account Manager: Jimmy Gupta Tel: (02) 9422 2850 Mob: 0421 422 722 jimmy.gupta@reedbusiness.com.au Adelaide Agent: Sue Hoffman Tel: (08) 8379 9522 Fax: (08) 8379 9735 Queensland Agent: Peter Scruby Tel: (07) 3391 6633 Fax: (07) 3891 5602 PRODUCTION Junior Designer/Production Co-ordinator – Print: Andrew Lim Tel: (02) 9422 2816 andrew.lim@reedbusiness.com.au Sub-Editor: Tim Stewart Sub-Editor: John Golledge Graphic Designer: Ben Young Subscription enquiries: 1300 360 126 Money Management is printed by Geon – Sydney, NSW. Published every week, recommended retail price $6.95 Subscription rates: 1 year A$280 incl GST. Overseas prices apply.

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More Budget loose ends

M

emo: Treasurer, Wayne Swan. CC: Assistant Treasurer, Bill Shorten. When you discover, more than two years after the event, that you’ve stuffed up a policy initiative such as Stronger Super, you really owe it to the electorate to fix it properly.

However, the critics are right in describing your Federal Budget effort to fix the excess contributions tax unintended consequences from the 2008 Stronger Super initiative as a ‘band-aid’ solution.

The band-aid descriptor seems highly appropriate in circumstances where the Budget provides that people can access only a one-off refund of their excess contributions – and only if those contributions amounted to less than $10,000.

By any objective measure, that represents a very limited concession on the part of the Government and one that will not prevent many well-meaning superannuation fund members finding themselves innocently caught up in a highly punitive tax regime.

The Government’s Budget measure will not stop people being exposed to an accumulative tax rate of 93 per cent – rather, it will simply reduce the numbers likely to be exposed. Further, no one will be allowed to

best that can be said “forThe the Budget is that, at first blush, it would not appear to have unduly added to market uncertainty.

”

err more than once.

In circumstances where Shorten was, himself, unwittingly caught by the excess contributions rules and where even the Tax Commissioner, Michael D’Ascenzo expressed concerns about the punitive consequences, the industry had every right to expect the Government to do more about fixing a problem of its own making.

The best that can be said for the Budget is that, at first blush, it would not appear to have unduly added to market uncertainty around Government policy with respect to financial services.

However, the financial services content of the 2011-12 Budget needs to be weighed against the still undelivered financial services content of the 2010-11 Budget – not least the absence of any specific legislation around higher contribution caps for over 50s and the progressive lifting of the superannuation guarantee to 12 per cent.

The reality confronting the financial services industry is that it needs to work in the knowledge that Australia has a minority Labor Government that is currently carrying two successive years of Budgetrelated financial services policy, plus a raft of intended changes flowing from the Future of Financial Advice (FOFA) reforms.

Lifting the superannuation guarantee remains inextricably linked to the imposition of a Mineral Resource Rent Tax, while the FOFA changes will undoubtedly be the subject of horse-trading with the major industry stakeholders and within the Parliament.

A recent Wealth Insights index revealed that sentiment among financial planners was in decline even before the Government announced its latest FOFA intentions.

Given the loose ends and uncertainty, it is little wonder.

– Mike Taylor

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News

AusSuper deal creating questions

By Chris Kennedy A TRIAL arrangement between industry fund giant AustralianSuper and several financial planning dealer groups could lead to questions about the way advice services are structured.

Association of Superannuation Funds of Australia (ASFA) chief executive Pauline Vamos said the arrangement could lead to a further division between the level of general and intra-fund advice that funds provide that is covered by administration fees and full holistic advice.

Vamos said that the question for AustralianSuper and any other funds that enter this type of arrangement will be: will they pay for single-issue scaled advice, or will they offer it themselves? But the panel arrangement still represents the next step in the maturity of how super funds provide access to advice for members, she added.

Not appearing on Approved Product Lists (APLs) has been a big issue for industry funds, but with greater transparency provided by reporting and ratings agencies there is improved visibility of these funds. As such, planning groups are more confident about placing industry funds on their APLs, she said.

If further deals of this type eventuate, the stringent requirements AustralianSuper placed on the dealer groups (which include Matrix Planning Solutions and Godfrey Pembroke) would be copied by other funds, which already happens with associated financial planning groups, Vamos said.

Money Management understands these requirements to include: that the dealer groups must operate strictly under a fee-forservice payment structure; have suitably qualified advisers; and have a robust compliance and audit process.

Matrix managing director Rick Di Cristo-

foro said industry funds did have a place within the overall industry framework, and could be an efficient super platform for a range of clients.

“The industry has been focused on commissions and fees for too long, and industry funds versus advisers has been overdone,” he said.

AustralianSuper and Matrix have been looking to break down that wall and take things purely from an advice, platform and product perspective, he added.

Godfrey Pembroke managing director Tom Reddacliffe said that he was not interested in the so-called ‘war’ between industry funds and advisers, and that anything that led to more clients receiving quality advice was a positive thing.

Association of Financial Advisers chief executive Richard Klipin said that financially it made sense for industry funds to leverage a retail planning firm’s resources and

Pauline Vamos experience rather than go to the expense of setting up an in-house planning arm. This trial will likely be a forerunner to a lot more collaboration across the market, he added.

Di Cristoforo said Matrix would look at a similar proposal from another industry fund if it came up, but questioned whether another fund would be likely to enter the mix now when they haven’t previously. Reddacliffe said Godfrey Pembroke was not in discussions with any other funds at this time.

Entertainment expenses in the spotlight Continued from page 1

Klipin said that relationship-building was invaluable for advisers who wanted to ensure they had strong supplier relationships – a key competitive advantage in the marketplace, he explained.

IOOF general manager of distribution, Renato Mota, felt there was a lack of acknowledgement in the reforms as to the role that relationship-building played in this industry. Nonetheless, he said the industry would find other ways to build relationships with advisers, adding that IOOF would support removing perceived soft dollar benefit bias if it improved the perception of the profession.

Rantall suggested there was likely to be a bigger focus on education-based events in the future.

Richard Klipin An MLC spokesman said the group was unable to state whether more money would go towards educational initiatives until further details of the legislation emerged. MLC welcomed clarity on soft dollar benefits, the spokesperson said, adding that while the industry disclosed soft dollar payments under the FPA/FSC code, there had been some misunderstanding about these benefits and how to classify them.

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FOFA debate hurting investor sentiment

While your clients may have become more cautious, their priorities, like preserving capital, generating reliable income and beating inflation over the long term, remain exactly the same.

financial services industry, but added a combination of factors affected the investor sentiment, such as the hangover from the GFC, as well as Australia’s multi-speed economy.

“There is no doubt that the media commentary around FOFA and product and advice failures are obviously weighing in the mind of consumers, but I wouldn’t set it as a major feeder,” Klipin said.

Plan for Life senior manager Daniel Morris said the figures were not particularly worrying as yet despite the low net inflows, due to the market volatility which was present ever since the GFC recovery began.

11939/0511

Continued from page 1

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News

Advisers ambivalent when it comes to Federal Budget

By Caroline Munro

OVER half of advisers surveyed have neutral feelings towards the Federal Budget announcements, with only 24 per cent positive and 18 per cent negative, stated Midwinter.

The survey revealed that there was some disillusionment with the political nature of the Budget, said Midwinter executive director strategy and technical services Matthew

Esler, referring to an adviser comment that described the relief from inadvertent excess concessional contributions as “token at best”.

Nearly half (46 per cent) of advisers felt that the excess contributions tax refund would have no effect on their clients, 34 per cent stated it was unlikely and only 6 per cent believed their clients would have any excess tax refunded.

When asked if the Budget

announcements would mean that advisers would need to contact their clients to review their financial plans, 85 per cent said no, although 62 per cent stated that the changes to the low income tax offset (LITO) rules for minors would have some sort of impact on their trust advice businesses.

When asked what percentage of their clients would be impacted by the phasing out of the minimum pen-

sion drawdown relief, advisers stated that 35 per cent of clients were taking advantage of the reduction.

“It is interesting to note that this percentage was higher for clients with a transition to retirement pension, as they can keep more money in the superannuation environment while they are still working,” said Esler.

Only 12 per cent of advisers thought that the majority of their

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Adviser sentiment before the Budget announcements was such that 58 per cent thought the Transition to Retirement strategy would remain unchanged. However, Esler noted that 16 per cent had been unsure and 19 per cent felt it would be abolished, highlighting the need for Government to reassure planners and their clients of ongoing support for this legislation.

Westpac’s Evans to retire

By Angela Faherty

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WESTPAC chairman Ted Evans has announced his retirement. Evans announced he will leave the bank following the 2011 annual general meeting which is due to be held on 14 December 2011. He will be succeeded within the board by the current audit committee chairman, Lindsay Maxsted.

Evans will leave the bank after four years as chairman. He joined Westpac’s board in 2001 and was appointed to the position of chairman in 2007.

“With the success of the St George merger now assured, and the group performing ver y strongly under our talented and stable management team, I judged the time right to announce my retirement.

Lindsay is an enormously experienced and capable director and I know I will leave the chair of this company in the very best hands,” he said.

Maxsted joined the board as director and chairman of the audit committee in 2008.

News Fix concessional cap breaches, says Opposition

By Chris Kennedy

Mathias Cormann

ALL Australians who have previously inadvertently breached their concessional superannuation contribution caps should be given the opportunity to correct their mistakes without incurring heavy penalties, according to Shadow Minister for Financial Services and Superannuation, Senator Mathias Cormann.

After finally addressing the issue of inappropriate penalties for unintentional excess contributions, the Government should give those who have made the breaches the same opportunity to correct them that they would have in other parts of the tax system, Cormann said.

Australian Tax Office figures show 65,000 people had been hit with extra taxes after inadvertent

breaches of their concessional super caps during the 2009-10 financial year, according to Cormann.

The problem is being made worse in the current financial year due to the halving of the caps from $50,000 to $25,000, he said.

“One of the many real life examples of the problem is a part-time schoolteacher who

inadvertently paid $700 above her contribution cap into her superannuation funds, triggering a penalty tax bill of $70,000,” he said.

“This lady and the thousands of people like her deserved better than to be ignored by Labor as it reaped the windfall revenue from effective rates as high as 93 per cent,” Cormann said.

ASIC bans adviser for four years

By Ashleigh McIntyre

THE collapse of a managed investment scheme has led the Australian Securities and Investments Commission (ASIC) to ban a Victorian adviser for four years and suspend the licence of the firm he worked for.

Kevin Whitting of Mornington worked as an authorised representative of South Gippsland-based financial services firm Kedesco while he advised a number of clients to put their money into the now collapsed scheme, Blue Diamond Deposits Trust.

ASIC found Whitting failed to comply with financial services law when he provided advice to a number of clients between May 2007 and February 2009.

The regulator said Whitting made false statements by describing the Blue Diamond Deposits Trust as fixed interest when that was not the case, and that he failed to determine the personal circumstances of his clients when giving advice.

ASIC also suspended the licence of Kedesco for three months for failing to take reasonable steps to ensure its representatives complied with financial services laws and were adequately trained.

Kedesco must meet a number of conditions during its suspension or its licence will be cancelled.

Namely, it must replace the key person for the Australian Financial Services Licence and document procedures it will adopt to ensure compliance in the future.

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Federal Budget

Lukewarm response to ‘bits and pieces’ Budget

By Chris Kennedy

RESPONSES from throughout the financial services industry have so far been lukewarm on last week’s Federal Budget announcement, with some measures welcomed but some opportunities also missed.

Reforms to promote greater private infrastructure investment have been broadly welcomed, with measures such as the removal of tax impediments for institutional investors drawing support from the Association of Superannuation Funds of Australia (ASFA) and Mercer.

The Commonwealth Bank praised several positive measures that would aid small business, such as the extension of the asset write-off to motor vehicles, the early cut to the company tax rate for small business and changes to Pay As You Go tax instalments.

Several measures around superannuation were criticised, however. ASFA expressed disappointment the Government superannuation co-contribution was not being indexed, but supported changes to excess contributions cap penalties and the $80 million allocated through Stronger Super.

Andrea Slattery The Self-Managed Super Fund Professionals’ Association of Australia (SPAA) supported the move to allow for the $25,000 in additional concessional contributions to apply to the indexed $25,000 concessional cap for the over-50s from July 2012, but was disappointed the $500,000 threshold would not be indexed, which SPAA chief executive Andrea Slattery described as “short-sighted”.

The SPAA was also critical of the changes to excess contribution cap penalties, which Slattery said were a positive start but fell way short of a sensible solution.

The Institute of Actuaries of Australia expressed disappointment that the issue of longevity was largely ignored.

Institute chief executive Melinda Howes supported the allowance for pensioners to earn an extra $250 per fortnight without affecting pension payments, but said there were more solutions available to address longevity.

These include allowing development of flexible ‘new generation’ annuities that protect against the risk of outliving your retirement savings and the market risk of losing superannuation capital in retirement, she said.

Mercer described it as a “bits and pieces Budget” and said that although it was economically responsible, annual tinkering with the superannuation system would serve to undermine confidence in the system, and added that the continued freeze of the superannuation co-contribution limit of $1000 without indexation was disappointing.

Gillard Government commits to MySuper THE Government has used the Federal Budget to cement its commitment to the introduction of the MySuper regime.

The Budget papers reveal the Government is committing $26.2 million (including $2.1 million in capital) over four years to the Australian Prudential Regulation Authority (APRA) and $3.7 million over four years to the Australian Securities and Investments Commission to introduce a simple, low-cost default superannuation product called MySuper.

It said the measure would be funded by an increase in the levy on APRA-regulated superannuation funds.

At the same time, the Government said it would provide $14.6 million over two years to the Australian Taxation Office (ATO) to develop a business case and initial capital related expenditure to implement a mechanism for members to view superannuation accounts that have been reported to the ATO, and establish governance and project teams during consultation to undertake detailed design of ATO IT systems to support the SuperStream measures.

It said the Department of Finance and Deregulation would also receive $0.4 million over six years from 2010-11 to undertake a Gateway review of the project.

Poor remedy for excess caps tax

By Mike Taylor THE Federal Government has run into flak from a wide cross-section of the financial services industry with suggestions that the Budget measures to address the excess contributions tax problem do not go far enough.

Those critical of the extent of the Government’s approach included the Australian Institute of Superannuation Trustees and major accountancy and consulting firm Deloitte.

Deloitte Superannuation partner John Randall described the Budget initiative on the excess contributions tax as “only a temporary band-aid”.

“In our view the Government has missed an opportunity to provide a workable solution to the excess concessional contributions tax problem,” he said. “At an industry level it is like using a band-aid for a severed artery – it won’t stop the bleeding, as many breaches of the concessional contributions caps on an ongoing basis are due to circumstances that are usually outside an individual’s control.”

Randall said that, at the very least, the Government should have extended the relief to every year, rather than just the first year, in which a breach of the cap occurred.

He said the situation would only become worse for affected individuals as salaries increased and the compulsory superannuation contribution rate increased to 12 per cent.

Earlier, AIST chief executive, Fiona Reynolds said her organisation also held concerns that the measure would only be available once and that her organisation would be pressing the Government to allow for the measure to be ongoing.

Tighter regime for SMSFs Investment Manager Regime

Bill Shorten THE Federal Government has surprised many observers by flagging a range of changes to the self-managed superannuation funds (SMSFs) regulatory regime.

In doing so, the Government has provided extra Budget funding to both the Australian Taxation Office (ATO) and the Australian Securities and Investments Commission (ASIC) totalling $40.2 million to implement what it describes as “a range of measures relating to the self-managed superannuation fund sector”.

The Government also expects SMSFs to help fund the changes, announcing that

the “cost of this measure will be offset by a $30 increase to the SMSF levy with effect from the 2010-11 income year, raising $47 million over four years”.

It said it would also be introducing SMSF auditor registration fees from 1 July, 2012, raising $1.8 million over four years.

The Budget papers said the package of SMSF reforms were designed “to improve the operation, efficiency and integrity of this sector and increase community confidence”.

The Government said the reforms included the introduction of administrative penalties that the ATO could apply in cases of noncompliance by SMSF trustees and the introduction of knowledge and competency requirements on SMSF service providers.

This included the registration of SMSF auditors and tightened legislative restrictions on SMSF investment in collectables and personal use assets.

The initiative also requires SMSFs to value their assets at net market value in the context of the ATO publishing valuation guidelines.

Commenting on the move, Assistant Treasurer and Minister for Finance Bill Shorten said in a statement that the reforms would “boost Government and public confidence in the SMSF sector”.

6 — Money Management May 19, 2011 www.moneymanagement.com.au

arrangements extended

THE Government has used the Federal Budget to confirm its extension of the Investment Manager Regime arrangements, something it claims will give foreign managed funds and their investors more certainty for the 2010-11 income year.

The Assistant Treasurer and Minister for Financial Services, Bill Shorten, said the Government would be introducing amendments to the income tax laws to prevent the Australian Taxation Office (ATO) from raising assessments for certain investment income of foreign managed funds for the 2010-11 income year, where the fund has never lodged an Australian tax return.

He said such funds were “an important source of mobile capital” and that providing tax certainty would enable them to comply with US reporting requirements and minimise the risk of them withdrawing from investing in Australia.

Shorten said the measure represented an extension of the arrangements announced in December last year, and which had applied to the previous financial year.

“Tonight’s announcement will provide tax certainty for foreign managed funds and their investors, which invest around $57 billion in Australia, for the 2010-11 income year,” he said.

Shorten said the Board of Taxation was currently examining the design of an investment manager regime as part of its review of the tax treatment of collective investment vehicles.

“To address the issue of the ongoing tax treatment of these investments, I have asked the Board of Taxation to report to me on an investment manager regime as it relates to foreign managed funds by the end of the third quarter of this year,” the minister said.

He said that extending the previously announced measure would allow the Government to consider the board’s report prior to making a final decision on the tax treatment of this investment.

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News

Trio compensation set to cost funds up to $500,000

By Ashleigh McIntyre

The collapse of Trio Capital cost small investors millions of dollars.

THE levy to cover the $55 million financial assistance package for victims of the Tr io Capital collapse has been announced by the Government, with funds to pay a maximum of $500,000.

Assistant Treasurer Bill Shorten previously announced investors in funds regulated by the Australian Prudential Regulation Authority (APRA) for which Trio was trustee would receive compen-

sation by way of a levy on other regulated funds.

The Government has now announced the levy will be calculated by multiplying the rate of 0.0001977 by a fund’s assets, with the maximum levy set at $500,000, while the minimum will be $50.

At the time, Shor ten said that investors in APRA-regulated funds deserved to be compensated by the Government if they lost their invest-

ASIC set to tighten rules around over-the-counter derivatives Greg Medcraft

By Caroline Munro

THE Australian Securities and Investments Commission (ASIC) has proposed a tightening of the rules around the financial requirements for issuers of over-thecounter (OTC) derivative products.

ASIC stated that a review of (OTC) derivative products, such as contracts for difference (CFDs) and margin foreign exchange, came about as a result of the increase in interest from retail investors. ASIC stated that in light of this growth it wanted to ensure that issuers had adequate financial resources to manage their operating costs and risks, and that

the owners of issuers were committed to the viability of the business.

“Increasing numbers of mum and dad investors are trading in these complex and risky products and it’s important the interests of all parties are aligned,” said ASIC commissioner, Greg Medcraft.

“We want issuers to be required to address operational risks with good cash flow forecasting and by holding sufficient liquid funds against losses and expenses that could arise from these risks.”

ASIC’s proposed changes include the requirement that issuers create rolling 12-month

cash flow projections, and replacing the current requirements to hold surplus and adjusted surplus liquid funds with the requirement to hold net tangible assets of at least the greater of $1 million or 10 per cent of average revenue.

CFD provider Capital CFDs has welcomed the proposed changes, stating that retail investors would ultimately benefit. Capital CFDs managing director, Andrew Merry, said ASIC’s proposals were in step with the issue of segregated client funds, adding that issuers being sufficiently capitalised had the added benefit of providing retail investors with greater confidence.

“Currently, under the Corporations Act, Australian financial services licensees dealing in OTC derivatives are legally allowed to use client funds to hedge positions,” said Merry.

“This sends a confusing message to trading clients and we have long advocated for change in the law.”

He added that the proposed changes would create a level playing field among issuers and align Australia with global standards.

ments through fraud.

The assistance will help those investors in the Astarra Superannuation Plan, the Astarra Personal Pension Plan, the My Retirement Plan and the Employers Federation of NSW Superannuation Plan.

Those 690 direct investors, of which 285 were self-managed superannuation funds, are not eligible for the compensation payment since no levy scheme is in place to recoup costs from fraud.

Trust income tax reform worries accountants

By Milana Pokrajac ACCOUNTING firm Crowe Hor wath has expressed concerns about the Government’s handling of the trust income taxation reform, claiming it is not allowing enough time for consultation with the industry.

The Government had recently released an exposure draft legislation which would remove capital gains and franked dividends derived by trusts from current taxing arrangements and subject them to a different taxing regime.

While releasing the draft legislation, the Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, explained the early release of the legislation was “to ensure that interested stakeholders have the maximum opportunity to comment on the core changes

proposed in this legislation”.

However, Crowe Horwath national tax director, Tristan Webb, said contemplating complex new legislation that relates to the current financial year was not appropriate.

“The draft explanator y memorandum is filled with statements that the final legislation will clarify matters, but this is not good enough for taxpayers who need certainty for this financial year,” he said.

Webb said the one-year amnesty provided by the Australian Taxation Office in March last year for all taxpayers utilising trusts was an effective way of solving this problem.

“The easy way to fix the current problems is to extend the amnesty for another two years,” Webb said.

“This will provide the time needed for further consultation and allow the Government to provide for a complete overhaul of the existing rules.”

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Call Andy O’Meagher on 1800 230 737 or visit act2.com.au for further information 8 — Money Management May 19, 2011 www.moneymanagement.com.au

News

FOFA reforms create vehicle for platforms to manage opt-in

By Milana Pokrajac

Steve Burgess

Commbank weathers the storm

By Mike Taylor THE Commonwealth Bank is on track for a solid profit despite reporting relatively subdued market conditions within its wealth management divisions.

In a March quarter trading update released to the Australian Securities Exchange (ASX), the big banking group said that unaudited cash earnings for the three months ended 31 March were approximately $1.7 billion.

Commenting on the result, Commonwealth Bank chief executive Ralph Norris said operating conditions remained challenging.

“While the Australian economy continues to perform relatively well, consumer and business confidence remains fragile, resulting in subdued spending patterns and muted system credit growth,” he said.

Dr i l l i n g d ow n o n wealth management and insurance, the trading u p d a t e s a i d re l a t i v e l y subdued market condit i o n s h a d re s u l t e d i n v o l u m e g row t h b e i n g broadly flat through the quarter, with funds under management increasing by just 0.2 per cent.

It said subdued net flows had been offset by positive investment returns.

The update said FirstChoice had continued to perform relatively well, with net flows of $440 million for the quarter, with FirstWrap also growing solidly with net flows of $317 million.

The update said insurance in-force premiums had grown 1.1 per cent driven by solid growth in retail life.

PLATFORM providers will have an ideal opportunity to manage and run the opt-in requirement on behalf of financial planners, once the Government’s Future of Financial Advice (FOFA) reforms package is implemented.

According to AXA’s general manager for platforms, Steve Burgess, and netwealth executive director

Matt Heine, the introduction of this service would make sense, given that platforms had already been administering most of advisers’ businesses.

“The number of times that a platform, on behalf of the adviser, touches the customer during the course of the year is quite substantial in terms of standard and annual reports, as well as providing a portal for clients to log on to

a website and check their balance,” Burgess said.

Heine said that platform providers would know what fees are being charged to a client, allowing them to become a ‘collection point’ for those fees.

“Therefore clients will need to opt-in and authorise us to actually continue to pay [advisers],” Heine said.

Both Burgess and Heine

flagged plans to build a mechanism for running the opt-in in the next two years. However, the exact details around the requirement are still unknown, which Burgess said would delay plans of building such an administration tool.

“We’re waiting to see what the detail of the regulations means and therefore exactly the scope of what we need to build and design actually is,” Burgess said.

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www.moneymanagement.com.au May 19, 2011 Money Management — 9

News Industry backs recommendation to scrap ban on exit fees

By Ashleigh McIntyre A SENATE committee on competition in Australia’s banking sector has recommended the Government reconsider its proposed ban on exit fees, with much industry support.

The Senate’s Economic References Committee stated that rather than abolishing exit fees, it recommended the Government give the recent ban on unreasonable exit fees by the Australian Securities and Investments Commission (ASIC) a chance to work.

It also said it was notable that the only financial intermediaries that openly welcomed the ban of exit fees were the major banks.

Mortgage Choice chief executive Michael Russell strongly supported the committee’s

Phil Naylor recommendation on exit fees due to the unperceived adverse effects it would have

on competition.

“Should the Gillard Government unilaterally ban exit fees, then it will unwittingly hand over on a plate the heads of the nonbanks to the major banks.

“Why? They are reliant upon this fee to be able to remain competitive at the f ro n t e n d , w h e re re a l c o m p e t i t i o n counts for the consumer,” Russell said in Mortgage Choice’s submission to the Treasurer.

Mortgage provider FirstMac also welcomed the recommendations, with managing director Kim Cannon stating a ban on exit fees would likely create a class of ‘rate shoppers’ which would increase costs for all lenders, with costs passed on to consumers.

However, Cannon said he did not agree with the senate committee’s further

recommendation that if a ban were to be implemented, it should only apply to authorised deposit-taking institutions.

Cannon said he did not think it would create a truly level playing field, and it would erode the benefits of competition for consumers.

The Mortgage and Finance Association of Australia (MFAA) chief executive Phil Naylor disagreed, stating if a ban on exit fees were to be introduced, small lenders should be exempt.

“The deferred establishment fee (which was considered an exit fee) brought down the margin on home loans for thousands of Australians,” he said.

“Lenders such as Aussie and Wizard used the deferred establishment fee to reduce mortgage costs and compete with the banks.”

RI Group forges Tasmanian alliance UK shares shortfall problem with Australia

By Mike Taylor RI GROUP, formerly RetireInvest Group, has grown its presence in Tasmania, forming an alliance with Tasmanianbased B&E Personal Banking to provide financial advice.

Announcing the alliance, RI Group chief executive Paul Campbell said it formed part of the group’s continued focus on business growth.

B&E Personal Banking has more than 36,000 Tasmanian members and is described as offering a

comprehensive and competitive range of banking products and services ranging from term deposits through to personal loans and general insurance.

RI Group is seen as filling the financial planning gap in the B&E service offering.

AUSTRALIANS are not the only ones facing a retirement incomes shortfall, with a new report issued in the United Kingdom suggesting that country faces a £9 trillion shortfall.

The report, developed by the Chartered Insurance Institute, warns that many preretirees have little savings and

carry the burden of significant debts just at a time when their incomes are about to fall.

Commenting on the report, a spokesman for the Institute said a lot of people were going to have their assets depleted by their parents’ long-term care costs.

The UK Minister for Pen-

sions, Steve Webb, was quoted in the UK media as saying the next generation would be faced with increasing life expectancy, a decline in final salary schemes and lower annuity rates.

“They are going to have to take greater responsibility for saving for their retirement,” he said.

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10 — Money Management May 19, 2011 www.moneymanagement.com.au

News

ATO takes ‘hard line’ against accountants

By Mike Taylor

Andrew Conway

THE Australian Taxation Office (ATO) has been accused of taking a ‘hard line approach’ to compensating tax practitioners for the cost and frustration involved by a problematic computer systems upgrade last year.

The Institute of Public Accountants (IPA) has strongly backed the findings of the Inspector-

General of taxation’s review of the so-called ‘Change Program’, which it said had vindicated the call for compensation.

It said the Inspector-General’s report had confirmed what later became evident – that at the time of the deployment of the new system “it was not in an ideal state in terms of the number of existing defects or defects likely to arise”.

Prosecuting the IPA’s case, its chief executive, Andrew Conway, said the organisation was disappointed that the ATO had disagreed with the InspectorGeneral’s recommendation for compensation.

“Our members have every right to be outraged for not being compensated for the economic loss they have suffered,” he said.

Conway said members of the

IPA had incurred serious damage to their reputations as well as lost time in dealing with the ATO and their clients while attempting to resolve problems during the implementation of the Change Program.

“Some of our members even had to resort to obtaining finance to maintain cash flows during this period due to refund delays,” he said.

NGS and UCSuper to merge THE trend towards consolidation is continuing in the superannuation industry, with Non-Government Schools Super (NGS Super) announcing its intention to merge with UC Super.

The merger, if it proceeds, will create a single $4.4 billion super fund covering non-government schools and Uniting Church employees.

The two funds said a memorandum of understanding had been developed to proceed with discussions around the merger.

NGS Super chief executive, Anthony Rodwell-Ball said one of the most important considerations was that both funds had complementary membership profiles.

“NGS Super’s heritage as a fund for non-government schools means many of our members work in faith-based schools. Similarly, UCSuper’s membership base consists of Uniting Church employees, so there’s a natural affinity between the funds and a strong focus on values.”

UCSuper chairman, Bruce Binnie said the fund had undergone a detailed and rigorous process in selecting a merger partner.

“After a strategic review in 2010, it became clear that our members’ interests would be best served by merging with a likeminded partner. We believe this is the most effective way to manage costs, deliver a great member experience and gain access to the best funds management,” he said.

12 — Money Management May 19, 2011 www.moneymanagement.com.au

PointofView FOFA: Bring it on?

TOP 100 SNAPSHOT The total number of finacial advisers in Top 100 Dealer Groups:

13,000 2001

While people are generally reluctant to embrace change, the more proficient financial advisers will adjust swiftly to their new landscape following proposed FOFA amendments, writes Greg Cook.

I

’ve heard footballers describe a bittersweet experience as ‘like kissing your sister’. My experience with the Future of Financial Advice (FOFA) and Stronger Super changes and their precursor inquiries, if not so crudely bittersweet, has at least taken me from ambivalence to anxious equivocation.

The problem

The financial services industry certainly continues to have a significant minority of pretenders.

Individuals who fall short on technical competence, cruisers who would prefer not to provide ongoing advice to their clients, and to a lesser degree, ‘unprofessionals’ who elevate their own interests well above their clients’ interests.

A booming economy inevitably brought in a conga line of opportunists – and accidental tourists too. Amateur property developers, day traders and financial engineers begin to think they have developed their own magic formula, when in fact they are simply being swept along.

As the saying goes, a high tide raises all boats.

Each in their own way, the global financial crisis (GFC) wash-up and the improving education, professional and disciplinary standards have all moved to shrink the disease in the last three years. One consequence of FOFA should be to drive this significant minority from tipping point to a non-representative pimple.

I’ve been involved in the Financial Planning Association’s (FPA’s) new remuneration guidelines which are set to apply from 1 July 2012 – specifically regarding the continuation of life risk commissions. The committee that I chaired recommended to the board that these be allowed to continue beyond 2012.

The journey from an advice industry to a planning profession cannot be made by individuals and their professional bodies alone though. Whether we like it or not the catalyst will be Government regulation.

When shortcuts abound, people take them.

Most people are reluctant to embrace change, especially where it is set to make their professional life harder and potentially less profitable, or shine the light on the shortcomings of their business model.

The intervention

Prior to Easter I attended the somewhat infamous FPA lunch where Assistant Treasurer and Minister for Finance Bill Shorten was the speaking guest. The speaker invited questioners to

stand and indentify themselves, and Shorten would answer their question. Neither then occurred. Shorten declined to answer the first questioner, saying he would like to take notes and answer all the questions and comments in an ‘omnibus’ fashion.

Shorten then returned to the lectern bridling with a collective response. Fiducian managing director Indy Singh’s mildly cheeky and amusing question about the Government consulting like Bruce Lee fights in Enter The Dragon (fighting without fighting) was admonished. The sour conclusion did not bode well for the upcoming FOFA announcement!

A question about the increasingly sloping playing field of intra-fund advice was misunderstood by Shorten to be referring to general advice that might be given at a workplace seminar. That was particularly unfortunate because it was a question hungry for an answer.

The self-described industry fund ‘movement’ is, by all accounts, on a path of subsidising advice from the revenue of management fees.

I recently heard firsthand from a leading recruiting executive that our friends in not-for-profit are aggressively recruiting planners with packages as high as $220,000 per annum. The freemarketeer in me would normally think that is a good thing, albeit a long way from the costly anti-advice campaign (not just anti-commission) over the decades.

Only problem is the advice cost is apparently not being passed on commercially. Advice that probably costs thousands of dollars to deliver is charged to the member at a fraction of the cost. At least in the current low-cost milk war the small outlets and the supermarket chains operate commercially, and the supermarkets haven’t got the Government altering the rules to their advantage! The majority of members who receive little or no advice subsidise this advice through a giant internal trail commission. More than a little ironic? They are certainly a progressive movement, but here they are moving in the wrong direction.

The question I am now asking is: Could Shorten be accused of over-egging the pudding?

To paraphrase US president Barack Obama, my answer is: ‘Yes he can’.

Shorten is what the commentators call a conviction politician. It’s warming to see a person of principle, considering the poll-driven flip-flopping of many of his political contemporaries.

Former senior Labor Minister Lindsay Tanner says that at the last election Australia voted for ‘none of the above’. The path of conviction can be a hard road when you are running a minority Government. In this case though, to wring out the last of my metaphor, it may save Shorten from marching across a bridge too far.

Or is the tactic to put out an ambit proposal, and retreat to implement only what is necessary?

The intended consequences?

As the many unanswered FOFA questions begin to find an answer, the industry can begin to take comfort that life will go on. For example, the proposed grandfathering of remuneration structures will mean that business values will not decrease overnight.

Regarding opt-in, my position is that professional planners are happy to have their clients regularly reminded of the advice fees that they are paying, but why should the default position be that the advice relationship ceases every two years?

Many of us are scratching our heads though, wondering what major problem the banning of superannuation risk commissions will solve.

Certainly not the endemic underinsurance one in Australia. And the Storm and Westpoint victims weren’t taken down with too much term insurance in their portfolios.

If it is really young part-time workers unwittingly having unwanted insurance premiums deducted from their small account balances (a story that News Limited newspapers rather conveniently ran on the eve of the post-Easter FOFA announcement), then we are in sledgehammer and walnut territory.

Regardless of fiduciary responsibility, with non-super contracts continuing to pay commissions, both the public and the industry will be completely skewed. I understand too that the intention is to include members of selfmanaged funds in the net. We will be the only country on the planet that has such an advice environment.

Planners who want a purer risk advice model are free to do this now – being paid only by the client in every transaction, rather than by a product.

From the advent of the four-page Customer Advice Record of the late 1990s, to the resulting overblown disclosure documentation of Joe Hockey’s Financial Services Reform Act, financial advisers have mostly been reluctant participants. My experience is that when confronted by new regulation though, good advisers can lift and adapt quite readily to a new landscape.

Let’s continue to work to make sure the results are not unintended ones.

Greg Cook CFP is managing director of Eureka Financial Group.

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Money Management Fund Manager of the Year Awards

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Leadership Series – FSC/Deloitte lunch

27 May Park Hyatt, 1 Parliament Square, Melbourne 3000 www.ifsa.com.au

Financial Ombudsman Service National Conference 2 June Melbourne Convention and Exhibition Centre www.fosconference.org/fos/

Investor Roadshow – SMSFs 7 June Crowne Plaza, 16 Hindmarsh Square, Adelaide www.asx.com.au

www.moneymanagement.com.au May 19, 2011 Money Management — 13

Alternatives

Looking to the alternatives Fund managers remain divided regarding the merits of alternatives, with some financial planners ignoring the sector entirely, writes Benjamin Levy.

DEFENSIVE assets should be the cornerstone of an investors’ portfolio coming off the back of bear markets. With an uneven share market recovery and different sectors of the market underperforming, the alternative investments business should be booming. So why are significant numbers of financial planners ignoring it?

And the planners who are trying to access alternatives through the simplest method, a platform, are being caught out by platform requirements, restricted to products with enough liquidity and daily unit pricing – like hedge funds or commodities – to fit on the platform, without any opportunity to gain real, direct exposure to other more illiquid alternatives.

The result is a very low penetration of alternatives among the planner community, a typical portfolio allocation of only 3 per cent or 5 per cent, and substandard products.

Continuing liquidity concerns are also causing a decline in the use of illiquid strategies, despite efforts by fund managers to showcase their benefits. This is leaving fund managers divided about what alternatives are remaining popular among both retail and institutional investors and how they should plan any future developments.

Platform restrictions

Alternatives should be an important part of investors’ portfolios right now, but instead some financial planners seem to

be ignoring the sector.

“We’re just not convinced; we don’t have them on our recommended list; we don’t have any approved products at this point.

We don’t have a closed mind to them, but we haven’t been persuaded with a strong enough case to include them in our portfolios,” says Fiducian head of financial planning Alan Hinde.

A number of financial planners contacted by Money Management for this feature declined to be interviewed but nevertheless confirmed that they were not using alternative investments in their portfolios, or that alternatives were not included on their dealer group’s approved product list.

But that may not be the fault of advisers at all. The majority of advisers rely on platforms to provide single-point access to investment products for their clients, meaning that unless alternative products are provided on the platform, advisers would have a hard time getting access to them.

Credit Suisse’s Pension Coverage Group head of third party distribution, Josh Peel, blames the structure of the investment platforms for the slow penetration of alternatives among planners.

“From the experience we’ve had, the planner community largely has had a slow take-up with the quality of alternative products [that] fits within the framework that most planners operate within. If they use a platform, or they use a managed discretionary account, it’s very hard to fit a quality

14 — Money Management May 19, 2011 www.moneymanagement.com.au

alternative product into that platform universe,” he says.

Much of the difficulty comes down to the platforms’ requirements of daily liquidity and daily unit pricing. Because many alternatives on offer are not liquid, the platforms are skewing the availability of alternative investment products towards those that can fit within their requirements.

“Planners who might be selecting alternatives from a platform are restricted to those alternatives that have sufficiently liquid pricing to be on that platform. And so that reduces that alternatives world down quite considerably, to generally liquid alternatives,” says head of alternatives at AMP Capital, Suzanne Tavill.

“There continues to be interest in the spaces of hedge funds and commodities, but that needs to be seen against the fact that it is a restricted interpretation of what alternatives is, more broadly.”

The narrow focus on liquid, platformfriendly strategies is being followed across the industry.

Standard & Poors’ January review of the alternatives sector noted that there were large inflows into commodities, index exposures, and actively managed alternative products, while at the same time liquidity terms for many retail alternative funds had improved, including recently introduced daily unit pricing and increased redemptions.

Credit Suisse has also seen renewed interest in commodities and hedge funds, all

Key points • Select groups (including income funds, bonds and private equity) have a long tradition of use among some financial planners, but the greater universe of alternatives remains largely unexplored.

• Many planning industry professionals remain unconvinced about investing in alternatives, believing them hyped-up solutions to periods of uncertainty.

• With alternatives usually derived from products not easily identified with the share market, planners and investors both need education on their benefits, and how they work.

• When implemented, Foreign Accumulation Fund rules should lead to a more competitive investment market, with a significant impact on alternatives.

strategies that have liquid characteristics or introduced daily liquidity and redemptions, post-GFC. Platforms requirements could partly explain why hedge funds, commodities, and fixed income funds are so highly favoured among those planners who do use alternative investments.

The result is that aside from a select few alternatives with long traditions of use among financial planners – like fixed income funds, bonds, and private equity – the greater universe of alternatives remains unexplored.

Alternatives

planners have “to beFinancial educated on the use of alternatives and their benefits before they will take them on more broadly in their portfolios.

- Josh Peel

”

“Everyone would love to be able to offer some of these illiquid alternatives on a platform. But there’s no way of really doing it; you can’t pretend these illiquid strategies are not illiquid,” Tavill says.

AMP Capital got around the problem by creating a suite of multi-manager funds – the Future Directions Funds (FDF) range – that contain within them a more complete range of alternative strategies, and offering the funds themselves on a platform. AMP’s benchmark allocation to illiquid alternatives in the FDF range is 7 per cent. It’s not direct access to illiquid strategies, but it’s better than nothing.

Finding the perfect alternative

Lingering concerns from the GFC are partly responsible for fuelling interest in more liquid alternatives from industry players still using the sector.

“There is an increased focus, post-GFC, on transparency, liquidity, risk management, governance and fees, so that has led to certain sectors or products becoming more popular than others,” says Credit Suisse’s head of the Pension Coverage Group Matthew Perrignon.

Rob Graham-Smith head of portfolio management at Select Asset Management, says there is a strong desire for very liquid alternative products among retail investors, while interest in illiquid alternatives has been on the decline since 2008.

The trend is the same even among institutional investors like super funds where

they can afford to hold more illiquid investments for longer periods of time. Despite alternative allocations of 5 per cent to higher than 20 per cent in the institutional space, most of that is directed towards liquid alternatives.

Direct infrastructure and private equity have been the ones to suffer from that trend, Graham-Smith says.

Fund managers believe advisers shouldn’t be too quick to dismiss illiquid alternatives.

“Illiquidity is not necessarily a dirty word.

There is definitely still room in portfolios for longer-term illiquid assets, like in closedend funds,” Perrignon says.

AMP Capital divides their alternatives portfolio into liquid and illiquid assets and combines them to get the best mix of their different risks and returns.

“It’s ‘the sum is more than the cost’ type of effect. We think you can do quite well in that space,” Tavill says.

Infrastructure, timber, agriculture and aircraft leasing are some of the more illiquid assets that AMP Capital include in their portfolios.

Tavill believes the inflows they are receiving indicate that financial planners are investing in direct liquid alternatives as well as investing in their diversified fund approach to gain access to illiquid alternatives.

“They like using the diversified fund approach where the diversified portfolio manager makes allocations to alternatives and manages the liquidity, and you contin-

ue to have planners who have interest in wanting to pick specific, more liquid exposures,” she says.

Peel believes that investor focus on the ability to get daily liquidity is making it difficult for advisers to match their clients’ requirements for long-term assets.

“We should be focusing on the real horizon, which should be well into retirement – 20 to 40 years from when they invest,” he says.

But many in the planning industry need to be convinced that they should invest in the alternatives space at all. Hinde warns that many advisers, including Fiducian, believe alternative investments are hypedup solutions to periods of uncertainty, leading them to treat the products cautiously.

“Often, when things go wrong, people cast around for silver bullet solutions; they cast around for some ‘magic’ that they’ve overlooked previously, but alternatives aren’t delivering proven benefits to portfolios, in Fiducian’s view,” Hinde says.

“Do the potential rewards give a benefit that will overall deliver something to client’s portfolios, given the unknown and unproven nature of many of these areas?” he asks.

The association between the alternatives asset class and hedge funds may be behind planners’ reluctance to rely on some of the more ‘out-there’ alternative products. Many financial planners still see certain hedge funds as opaque and not easily understood,

and it appears that they are readily transferring those blemishes to include the wider alternatives asset class.

“People think of alternative investments as different to the normal asset class ranges, whether it’s water futures, or things that are really not classified in the normal asset class boxes,” Hinde says.

Advisers’ experiences with hedge funds do make things difficult, Peel acknowledges.

“They haven’t been exposed to them.

Alternatives tend to be a very big universe, and if you mention hedge funds you may be frowned upon for even mentioning it,” he says.

Financial planners have to be educated on the use of alternatives and their benefits before they will take them on more broadly in their portfolios, Peel says.

Investors also need to be educated on how alternatives work. Because returns from alternatives come from products that are not correlated to the share market, it necessitates moving away from what investors themselves know about investing, leading to even less enthusiasm for the sector.

Graham-Smith warns that investors shouldn’t invest in fund managers that have high levels of tail risk involved.

“They have an incremental sort of gain, gain, gain – and then they fall off a cliff!

That’s something we’re not interested in,” he says.

Continued on page 16

www.moneymanagement.com.au May 19, 2011 Money Management — 15

Alternatives Continued from page 15

Where is the alternatives space headed?

The continuing interest from planners and investors in liquid and transparent alternatives is splitting the funds management industry, with several industry players mapping out different future trends and their response.

Investors would do well to remember that the broader alternatives asset class are much like hedge funds in at least one respect: investors have to know when in the market cycle to hold them.

Russell Investments’ multi-manager portfolios started rotating back into alternatives in late 2009 as concerns over possible inflationary pressures in commodity prices mounted.

They bought in global-listed infrastructure, commodities, and opportunistic exposures like high yield emerging markets debt.

Each of these asset classes delivered returns in excess of 20 per cent in 2010. Those three exposures will still play key roles for Russell Investments in 2011, but commodities are beginning to be pared back.

“We’re happy to hold alternatives, we just want to hold them at the right point in the cycle,” says Russell portfolio manager Andrew Sneddon.

Select Asset Management is continuing to see ‘decent interest’ in the alternatives space as a result of concerns surrounding the bailout of Greece and other European markets last year, according to GrahamSmith.

“We have seen a big turnaround in investor attitudes towards alternatives,” he says.

Graham-Smith expects investor interest in soft commodities like oil and energy, as well as rising food prices, to continue to expand off the back of unrest in Egypt and Libya.

Select Asset has been working overtime to get more exposure to agricultural commodities in their portfolios to take advantage of that thematic.

“Food is particularly large component of emerging market consumer price indexes, particularly in Asia,” Graham-Smith says.

Agricultural commodities is an underappreciated area, considering there have been very strong rises in the sector, he adds.

AMP Capital has seen some hesitancy among the large superannuation funds towards the alternatives space, with liquidity and types of returns being chief among their concerns.

“There is concern about the liquidity necessary within a [super] fund, plus considering the types of returns that are coming out of the space, I think there is a fair bit of evaluation of the alternative sector going on,” Tavill says.

Investors are also evaluating whether the method they adopted to gain exposure to alternative investments in the past is the best approach to take in the coming year, Tavill says.

Russell has taken the opposite approach with institutional investors. Their global alternatives team is exploding with growth.

They spent most of last year shifting experts internally into the alternative investments space, and announced plans to hire more than 25 new specialists.

The move was then part of a strategy to provide investors with opportunities to

“

Often, when things go wrong, people cast around for silver bullet solutions, some ‘magic’ that they’ve overlooked previously, but alternatives aren’t delivering proven benefits to portfolios.

- Alan Hinde

”

increase exposure to illiquid alternative investments. The company forecast in the middle of last year that institutional investors would increase their alternative investments from 14 to 19 per cent exposure over the next two or three years.

Russell’s director of alternative investments for the Asia Pacific region Nicole Connolly was very optimistic in her assessment of the sector during last year.

“Alternatives have proved their role as portfolio diversifiers and risk-mitigators during volatile markets, and we expect continued demand from institutional investors, even if the global recovery were to falter,” she said.

Insurance-linked strategies have seen big growth among institutional investors in Credit Suisse’s Pension Coverage Group, thanks to their non-correlation benefits, as

well as capital starvation strategies, Perrignon says.

Credit Suisse expects investors to try to exploit the effects of increasing costs of capital of regulatory requirements from Basel III which will be implemented in the next couple of years.

Those alternative providers of capital are emerging as a direct result of the GFC. The after-effects of the GFC are causing many changes in the way the industry works, including driving the development of new, different sectors – like capital providers – so that institutional investors can cast a fresh eye over for new investment opportunities.

“The increase in regulatory requirements and increasing costs of capital are going to mean that it’s harder for banks to keep loans on their balance sheets, and as a result, alternative providers of capital

are stepping in to take the place of banks – and that is creating opportunities,” Perrignon says.

Some fund managers openly disagree over future trends of particular alternative products. While Russell’s Global Survey on alternative investing last year found private equity, real estate and hedge funds were the big three preferred alternative types among investors, Graham-Smith believes private equity is struggling.

“Private equity has struggled from a capital-raising perspective in the last few years,” he says.

Graham-Smith also questioned whether real estate should be placed in the alternative asset space.

“In terms of real estate, we tend to carve out real estate as a non-alternative in Australia. I know it’s regarded as an alternative in the United States, but Aussies have a particularly high exposure to property and for that reason we regard it as a mainstream investment,” he says.

Some financial planners are also bemused by the choice of label.

“I wouldn’t put the real estate sector into alternatives, unless it was structured in some particular way that was unusual. We see them as mainstream,” Hinde says.

Simon Wu, chairman of Premium Wealth, believes the label ‘alternative’ is itself ill-defined, and warns that terminology can be ‘contagious’.

“There are a lot of misnomers in this industry. Is China an alternative or not? If not, then why is there so little money put into it when it’s growing much faster than the rest of the world? In this country, 30 per cent to 40 per cent of every portfolio is put into Australian equities and that’s considered orthodox. Who defines orthodox?” he asks.

The whole investment industry’s approach to defining certain categories and pigeonholing them is wrong, Wu says. MM

Foreign investment rule change THE repeal of the Foreign Investment Fund rules (FIF) should have a significant impact on the alternatives space in the coming months.

FIF, which was repealed in July 2010, required any overseas fund manager selling an investment to advisers to have a local trust set up to manage the tax treatment of those investments being offered in Australia.

The impact of FIF was to stymie the introduction of quality overseas alternative products by burdening any joint venture with the overhead costs of a local trust structure.

During the 2009-2010 budget, the current government proposed to replace FIF with a specific anti-avoidance rule, the Foreign Accumulation Fund (FAF) rules.

The intentions of the new provisions will apply where an investor holds an interest in a foreign accumulation fund, and entered into the fund with the intention of receiving a tax deferral benefit.

While FIF hasn’t yet been finalised, it is expected to significantly reduce the compliance and administrative burden placed on Australian investors.

The repeal of FIF is a critical turning point for Australian investors looking for access to quality products, according to Credit Suisse head of third party distribution Josh Peel.

“If you look at what has been available to Australian investors, it has been somewhat sub-optimal fund structures, if I can say it that way,” Peel says.

Once the new FAF rules are implemented, there will be an explosion of competition from overseas fund managers, leading to an even more competitive investment market, he adds.

16 — Money Management May 19, 2011 www.moneymanagement.com.au

However, the introduction of FAF will only be beneficial for fund managers who are finding it difficult to offer overseas products directly to Australian investors. For investment companies here who are already exposed to global fund managers – such as AMP Capital – FAF will make little difference.

“In my world … less than 5 per cent of our exposure [in private equity, for example] is to Australia because of how we’ve structured our program. We are accessing, globally, managers and deals, so from my perspective of what’s specifically offered in Australia. I don’t really focus on that because it’s not really a constraint,” says head of alternatives at AMP Capital, Suzanne Tavill.

Some of the other illiquid alternatives exposure in AMP Capital’s alternatives asset allocation are only slightly higher towards Australia, Tavill says.

Despite the exposure towards global fund managers among some companies, overall retail investment towards alternatives is very low. The introduction of new, quality products as FAF is implemented may go some way towards boosting the size of asset allocations.

Currently, investors allocate roughly 3 to 5 per cent of their portfolio to alternative assets. The small size makes it difficult for the alternative funds managers to hold the attention of advisers for long.

In contrast, overseas investors have roughly 30 per cent of their assets in alternatives. While that large allocation may have something to do with the precarious state of the share market and the generally gloomy nature of overseas investors, it is a good indication of the work fund managers have to do here to close the gap.

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OpinionLegal A problem shared Frequent changes in the law mean compliance issues can often be a legal minefield. Here, lawyers David Court, Sonnie Bailey and Kathryn Wardrobe answer three frequently asked questions.

A

s financial services lawyers, we get asked a lot of compliance questions. Here are three common ones. They are: • Are there any restrictions on a financial planner providing tax advice when advising a client?; • How do I shorten my Statement of Advice (SOA)?; and • How do I meet my continuing professional development obligations if I am a responsible manager under both an Australian Credit Licence (ACL) and an Australian Financial Services Licence (AFSL)?

1. Are there any restrictions on a financial planner providing tax advice when advising a client?

Financial planners are currently able to include tax advice when advising a client, as long as: • They are an authorised representative of an AFSL holder; and • Their advice is accompanied by a statement that they are not a registered tax agent and the client should request advice from a registered tax agent if they intend to rely on the advice to satisfy obligations or claim entitlements under taxation laws.

Of course, any included taxation advice would still be subject to the general conduct and disclosure obligations (such as the laws pertaining to misleading and deceptive conduct ) applying to the provision of financial product advice under the Corporations Act 2001.

There has been increasing tension in recent times over the regulation of the provision of financial advice and taxation advice.

It is difficult in practice for a financial planner to provide financial advice without considering taxation implications and for a tax agent to provide tax planning advice without considering the types of financial products to use as structuring vehicles.

Historically, each area has had its own system of regulation. But there has been increasing overlap due to the broadening of the reach of each regulatory system through the introduction of the Financial Services Reform and the Tax Agents Services laws.

Until 30 June 2012 the overlap has been resolved (at least in so far as financial planners are concerned) by exempting financial planners from the Tax Agent Services laws subject to the conditions set out above. After that time it is intended that financial planners will need to obtain some form of tax advice authorisation and meet competency requirements before being able to provide tax advice. Supervision of these requirements will be through the Australian Securities and Investments Commission (ASIC). However, specific details of the scope of tax services that can be provided and the competency requirements are being considered by a working party composed of representatives from Government agencies and professional bodies.

David Court is a lawyer with Holley Nethercote commercial lawyers.

18 — Money Management May 19, 2011 www.moneymanagement.com.au

2. How do I shorten my SOA?

Preparing a Statement of Advice (SOA) takes time. It’s one of the reasons providing financial advice isn’t cheap.

If you can provide shorter SOAs to your clients, you can cut the cost of doing business.

An SOA is also an opportunity to showcase the value that you’ve provided to your client in providing your advice. The more succinct your SOA, the more likely your client is to understand it, perceive the value of your service, keep coming back to you, and recommend you to friends.

As a firm, we’ve seen thousands of SOAs. When we compare notes, a recurring theme is that SOAs are far longer than they need to be.

In fact, failure to provide short, clear SOAs can indicate breaches of the following obligations: • That “statements and information included in the Statement of Advice must be worded and presented in a clear, concise and effective manner” – section 947B(6) of the Corporations Act 2001; and • Financial services licensees must “do all things necessary to ensure that [the financial services they provide] are provided efficiently, honestly and fairly” – section 912A(1)(a) of the Corporations Act 2001.

We think one of the reasons that SOAs

are so long is that advisers (and their lawyers) take an unnecessarily broad interpretation of the legislative obligation to give “information about the basis on which the advice is or was given” (section 947B(1)(b) of the Corporations Act 2001).

This obligation doesn’t mean a SOA needs to include all information about the basis of the advice. It may be appropriate to include this information for some clients, but in most cases it’s not. It’s an AFSL obligation to keep your workings on file (for at least seven years), but a simple explanation about why you’ve made a recommendation is usually enough. Some other tips are: • Be careful about the scope, and stick to it. Only include information in the SOA that’s directly relevant to the scope of your advice; • Take advantage of your ability to incorporate information by reference. Refer to details from your Financial Services Guide and relevant Product Disclosure Statements, and even cost structures set out in your initial terms of engagement with the client. If you must refer to educational material, refer to it within the SOA, and provide it as a separate resource; and • Invest resources into refining your SOA templates to a bare-bones, legally solid skeleton. (Over time, a template can grow into an unwieldy beast that is no longer clear and concise.) The investment in refining the

template will pay off with efficiencies in the medium- to long-term.

The ASIC and Financial Planning Association (FPA) SOA examples are valuable resources which demonstrate how SOAs can be concise and effective (although they’re not perfect).

Finally, the shortest SOA is the one you don’t need to prepare: • Know when you can prepare a Record of Advice (ROA) rather than a SOA; • Have a clear grasp of the exact definition of “personal financial product advice”.

Knowing this doesn’t just make for good after-dinner conversation. It can mean the difference between preparing a SOA (or ROA) and providing a simple general advice warning.

Sonnie Bailey is a lawyer with Holley Nethercote commercial lawyers.

3. How do I meet my CPD obligations if I am a responsible manager under both an ACL and an AFSL?

Responsible managers of ACLs are required to undertake 20 hours of continuing professional development (CPD) per year. In our experience, it is also common for AFSL holders to require their responsible managers to undertake 10 to 20 hours of CPD per year (although no prescribed

minimum number of CPD hours has been set by ASIC). So, if you are a responsible manager of an ACL and an AFSL, does this mean that you need to undertake 40 hours of CPD per year?

It will be of little consolation to such responsible managers that the matter is not clear one way or the other. However, as will become evident, we do not think that a dual responsible manager must complete double the CPD. Responsible managers exist to demonstrate that the holder of the licence (ACL and/or AFSL) is competent to engage in the credit activities and/or provide the financial services authorised by its licence. To demonstrate such competence to ASIC, the responsible manager must have the necessary qualifications and experience. Competence is an ongoing obligation for licensees, which must be demonstrated at all times.

Responsible managers of AFSLs ASIC has not specified the minimum number of CPD hours that responsible managers of AFSLs are required to undertake each year. Nor does it outline what activities can be counted towards CPD. What we do know (from ASIC’s Regulatory Guide 105) is that an AFS licensee is required to: • Maintain and update the knowledge and skills of its responsible managers; and • Keep records showing the steps it has taken to maintain its organisational competence.

The CPD activities should cover the financial services and products to which the responsible manager’s role relates and also knowledge of the regulatory environment.

Some common examples of CPD activities undertaken by responsible managers of AFSLs are: • Attending relevant seminars and workshops; • Having access to adequate resources (Internet and newspapers); • Subscribing to relevant newsletters; and • Internal and external training and assessments.

Responsible managers of ACLs For responsible managers of credit licensees, ASIC has set a minimum of 20 CPD hours per year. It is also a standard condition (number 6 of ASIC’s Pro Forma 224) of every credit licence that CPD activities must: • Be relevant to the role of the responsible manager with the licensee; • Include product and industry developments relating to credit; and • Include compliance training on regulatory requirements applying to credit activities.

Records of the CPD activities must also be maintained. ASIC states (at Regulatory Guide 206.66) that the following activities may count towards CPD: • Attendance at relevant professional seminars or conferences; • Preparation time for presenting at relevant professional seminars or conferences; • Publication of journal articles relevant to the credit industry; • Viewing DVDs of recent (within the last year) professional seminars or conferences (up to 10 hours per year); and • Completion of online tutorials and/or quizzes on recent (within the last year) regulatory, technical or professional developments in the industry.

Striking a balance for the dual responsible manager If, for example, the AFS licensing regime requires responsible managers to complete 20 CPD points, our view is that it does not mean that the dual responsible manager has to complete 40 CPD points.

The challenge for a responsible manager of both an ACL and an AFSL is to find the right combination of CPD activities covering appropriate topics that will allow the responsible manager to demonstrate they are maintaining competence under both regimes.

Here are some tips that will help dual responsible managers strike a balance between meeting their regulatory requirements and the practical difficulties of completing 40 hours of CPD per year.

• Consider the options and the overlap:

check out what activities are available from a range of sources. For example, several industry magazines and newsletters will cover regulatory developments under both regimes. Also, the ACL and AFSL regimes impose broadly similar obligations on licensees under section 47 of the National Consumer Credit Protection Act 2009 and section 912A of the Corporations Act 2001.

When considering potential CPD topics check for overlap between the obligations.

For example, both licensees are required to have risk management systems in place that comply with AS/NZS ISO 31000:2009. Therefore, in our view any CPD activity relating to risk management would count as CPD for both regimes; • Plan your CPD year carefully and creatively: we recommend that you or your support teams develop a forward-looking training plan which focuses on what you need to do to enhance your relevant knowledge and skills. A training needs analysis is a useful tool to help you target your training. Also, think creatively as to what constitutes training. As mentioned earlier, ASIC has made some suggestions in relation to the ACL CPD activities but this should not limit the range of CPD activities that might be undertaken, particularly in relation to the AFS licence. The actual number of hours of CPD you will need to undertake each year will vary depending on the various CPD options available. However, if you can only undertake a few activities that cover both regimes you may end up completing closer to 40 hours of CPD than 20; and • Document your activities: this is a clear requirement of both regimes. If you’ve developed your training plan as outlined above, you can add the details to your training plan as you complete each activity. It is fine to have combined CPD training records that cover specific credit related and financial services related CPD. Kathryn Wardrobe is a lawyer with Holley Nethercote commercial lawyers.

These three questions were submitted to www.complianceforums.com.au

www.moneymanagement.com.au May 19, 2011 Money Management — 19

OpinionResources r e r s o o f urces e s a c A

Strong growth fundamentals that favour commodity price growth point to solid investor returns from global resources.

John Robinson explains why global resources exposure remains compelling.

I

nvestors considering their exposure to the resources industry should take note – strong global d e m a n d f o r re s o u rc e s w i l l continue for some time.

The urbanisation of China and the associated need in that country for i n f ra s t r u c t u re d e v e l o p m e n t a re p owe r f u l s t i m u l i f o r re s o u rc e s demand – a process that will extend over decades.

There will inevitably be pauses and short-term interruptions along the way as inflationary pressures are managed, but the long-term trend will continue to support resources demand growth.

But it isn’t just China’s economic development that is driving global resources sector growth. There is d e v e l o p m e n t a c ro s s a s p re a d o f emerging economies, many in the Asian region. India is moving along a growth path, similar in many respects to China’s but with characteristics u n i q u e t o In d i a’s p o l i t i c a l a n d economic structure.

In the developed world post-GFC, resources demand from the US and Europe is slowly picking up and their contribution to demand growth is expected to be gradual but increasingly positive.

Se t a g a i n s t s t r o n g g r ow t h i n demand, the supply response has been muted, with a range of factors constraining development of new major projects.

Slow recovery in the global financial sector has had an impact on new project funding and a repricing of risk has added to these constraints.

A lag in major infrastructure development in transport and ports has also been a drag, particularly in the b u l k c o m m o d i t y s e c t o r w h e re demand growth has been strongest.

The lead time to bring on new p r o d u c t i o n h a s b e e n l i m i t e d by shortages in skilled labour and c o n s t r u c t i o n i n p u t s a n d a m o re aggressive approach to economic nationalism and fiscal settings has raised the development risk profile, both in Third World countries and those in the developed world.

Not surprisingly, with continuing strong demand growth and a muted supply response, commodity prices

20 — Money Management May 19, 2011 www.moneymanagement.com.au

have trended strongly upward, with a relatively b r i e f , t h o u g h m a rk e d interruption during the GFC. The daily movement in metal prices can be volatile and at times relatively sharp with corresponding daily adjustment in the share prices of resource companies.

In v e s t o r s w i t h a medium to long-term horizon need to differentiate between daily movements that reflect speculative trading in metal d e r i va t i v e s a n d t h e i n c re a s i n g i n f l u e n c e o f c o m m o d i t y- b a s e d exchange-traded funds ( E T F s ) , a s we l l a s t h e m o re fundamental supply/ demand relationship that governs longerterm price trends.

For many Australian investors, direct access to t h e g l o b a l re s o u rc e s sector is limited to those companies with an ASX listing. Most seek this exposure through BHP a n d R i o Ti n t o, w i t h perhaps only peripheral awareness of other major global miners active in Australia, but not locally listed.

Xstrata, for example, is a major globally diversified mining company and t h e w o r l d’s l a r g e s t thermal coal exporter. It h a s a h i g h p ro f i l e i n Au s t ra l i a , b u t b e i n g based in Switzerland and with a London stock exchange listing it is not readily accessible to local investors.

Other major global resource companies active in Australia include: • Anglo American: one of the world’s largest mining companies and the second-largest exporter of Australian coking coal. It has its primary listing in London; • Brazil’s Vale: a major global diversified miner.

It is the world’s largest iron ore exporter with c o a l o p e ra t i o n s i n Australia’s Bowen Basin and Hunter Valley; and • Canadian company Teck: the world’s secondlargest coking coal exporter and third-largest zinc producer, an active explorer in Australia.

Fo r l o c a l i n v e s t o r s looking to gain exposure to these major global

players, as part of a diversified resource sector portfolio, there are two primary options: Open-ended Managed Funds with specialised products in global resources. The Colonial First State Global Resources Fund is the largest in terms of funds under management, but others in this category include t h e Pe n g a n a a n d Pe r p e t u a l Global Resources Funds. All have

a unit trust structure and operate in the same manner as the broader Managed Fund sector.

The second option is to invest through an ASX Listed Investm e n t Co m p a n y, o r L I C , t h a t specialises in global resources.

There are 47 LICs in the ASX Composite Index but only three specialise in the global resources

many Australian investors, direct access to “theFor global resources sector is limited to those companies with an ASX listing. ”

Continued on page 22

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OpinionResources Continued from page 21 sector: the Global Resources Masters Fund (GRF), the LinQ Resources Fund (LRF) and Global Mining Investments (GMI), the largest of the three.

ETFs can also provide investors with resource sector exposure, but there are no locally listed products that offer a global resource perspective. There are ETFs that

“

Some investors will prefer the LIC option with real time buy/sell pricing.

”

replicate the local ASX 200 Resources Index and there are a number of locally listed commodities-backed ETFs in the precious metals sector.

In developing an investment strategy to provide exposure to the global resources sector the argument for diversity across commodities, geography, markets and companies presents a prudent starting point. An investment in

BHP and/or Rio certainly provides some of this diversity but there are many other substantial and globally diversified miners that can be added to the investment mix to generate a broader spread. This is best achieved by selecting from LICs and/or Managed Funds specialising in the global resources sector.

Some investors will prefer the LIC option with real time buy/sell

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pricing, a feature of all ASX listed stocks and the simple and transparent tax treatment of dividend income. Attaching franking credits can also add to the appeal of LICs, particularly for SMSFs with their internal income tax levels at either 0 per cent or 15 per cent. The closed structure of LICs can also be advantageous, with buy/sell investment decisions made at a time and level to suit the investment management strategy, rather than being dictated by inflow or outflow of funds that result from an open-ended Managed Fund structure.

Some investors will be more familiar and comfortable with Managed Funds and their unit trust structure. Both investment options have similar fee structures with individual variations according to funds under management and performance drivers.

T h e ro l e o f s e l e c t e d ETFs is narrower but can p r ov i d e an added element to portfolio construction, particularl y w h e re a s p e c i f i c commodity exposure is sought. ETFs typically have lower fees and are g e n e ra l l y d e s i g n e d t o replicate either the ASX 200 Resources Index or the particular commodity market pr ice movement. But they are not designed to outperform the market.

Whatever the investment avenue, the reason to invest is compelling.

The global resources sector is underpinned by strong growth fundamentals and a supply/demand balance that favours commodity price growth, particularly in the bulk commodities sector of iron ore and coal (thermal and coking). The major global resources companies are well placed to provide investors with good returns, given their strong profits and operating cashflows. Continuing mergers and acquisitions in the global resources sector will provide additional benefits for those investors with broad exposure to the global mining sector.

John Robinson is chairman of Global Mining Investments.

Toolbox Fiduciary duty –

Briefs

best interests or best advice?

What does ‘best interests’ advice mean for advisers?

Pam Roberts reports.

W

hen the Ripoll enquiry findings were released, a key recommendation was the introduction of statutory fiduciary duty for financial planners to act in the best interests of clients. This means an obligation to place a client’s interests ahead of their own. The fiduciary (or best interests) duty would be on the licensee (dealer group) and apply to authorised representatives.

What is the ‘best interests’ duty?

A fiduciary duty is not solely about the quality of the advice. Instead, for financial planners it is about putting the client’s interests ahead of their own.

Effectively, this means avoiding conflicts of interest and not taking payments without the client’s active consent. If payments are made that breach the duty, the fiduciary must ‘account for profits’ to the client, which means the client actually owns the payments unless they agree to the fiduciary receiving it.

In a number of cases the courts have found a fiduciary duty does apply to financial advisers in the particular circumstances under examination.

However, inserting the duty into the Corporations Act will mean it will become an express obligation and ASIC will have greater powers to become directly involved to prohibit conduct it regards as breaching the duty.

The Government has advised in the Future of Financial Advice (FOFA) Information Pack released on 28 April 2011 that the best interest duty will be subject to a reasonableness test and an adviser will not be obliged to trawl through the entire gamut of financial products on the market. However, the Government also directs: “If the adviser cannot recommend a product that is in the best interest of the client from their own ‘approved product’… then the fiduciary duty may require them to search beyond the ‘approved product list’ or recommend that the client should see another adviser… If a person considers that they

cannot provide advice that is in the best interests of the client in accordance with the duty, they must refuse to provide the advice.”

Best interests or best advice? That is the question

Acting in the best interests of a client is not the same as providing the best advice to a client, although each action impacts on the other. In providing advice a professional financial adviser already has an obligation to provide appropriate advice and to exercise reasonable care and skill.

The quality of advice is also covered under the advice contract, with these obligations remaining unchanged.

The Government has made clear that the best interest duty is about the process of providing the advice, not the quality of the advice itself. Advisers who get the process right, but whose actual advice is not appropriate, reasonable or is negligent, will remain accountable for the cost of client loss.

Who is responsible?

As outlined in the FOFA Information Pack, the ultimate responsibility for complying with the duty to act in the client’s best interests falls to the licensee, who will be financially responsible for any breaches. Individual authorised representatives may be subject to administrative penalties, such as banning orders. Making the licensee ultimately responsible is consistent with other requirements in Corporations law and also ensures that licensees put into place systems and procedures to ensure representatives comply with the new duty.

Stakeholders and the fiduciary duty

Licensee/dealer Group Licensees will need to streamline the services they provide to authorised representatives. Licensees may need to review where there may be gaps in products on their approved product lists and where training and administration procedures need to be updated and enhanced.

Licensees will find this difficult when there is no draft legislation to work from and a start date of 1 July 2012.

The administration cost of operating a financial advice business is likely to increase. At the same time, financial planning group revenue streams are under threat (with items such as rebates from fund managers). Increased costs will fall

to authorised representatives and then, inevitably, clients will pick up the tab.

Licensees may also feel the impact of increased insurance costs as professional indemnity (PI) premiums may rise to reflect the greater statutory obligations envisaged by FOFA. Consequently, from 1 July 2012 PI insurance will need to cover the best interest duty as well as other statutory changes.

Authorised representatives/advisers From 1 July 2012 financial advisers will need to put their client’s interests ahead of the interest of themselves and their licensee. Although the Government has said financial advisers will not need to trawl the length of the market to find the best possible product for a client, practical problems will still arise. If a product is not on the advisers approved product list, advisers will have to seek individual approval. In some instances, that approval may not be forthcoming. In addition, advisers who are authorised representatives may not be aware of the principal’s interest in a particular product.

Clients Will clients notice their adviser is under a statutory duty to act in their best interest? Probably not, but if and when the cost of advice increases, they will definitely notice that. They will also notice some of the structural problems with the new FOFA regime, including: • The lack of tax concessions for advice; • The inefficiencies of having to opt into advice every two years; and • The inevitable problems clients will encounter if they forget to opt in.

Conclusion

As with all FOFA reforms, the devil may well be in the detail. How this new statutory fiduciary duty will work and the details advisers and licensees need won’t be available until draft legislation is released after June 2011. Many advisers have already factored in a ‘best interests duty’ into their advice remuneration structures from 1 July 2012. However, increasing the key concern for advisers over this and other FOFA reforms is the increasing cost of advice, a cost which will inevitably be borne by clients.

Pam Roberts is technical services manager at IOOF.

MIDWINTER has made a range of changes to its Client Manager and Reasonable Basis software in response to the Government’s recently announced Future of Financial Advice reforms.

Midwinter added new scaled advice software developments within Cashflow & Capital, which the firm said would enable financial advisers to illustrate a client’s current position and a range of multiple alternative limited advice recommendations.

The firm also added a ‘best interest’ fiduciary matrix to its financial planning modelling tools.

“The new best interest fiduciary matrix will quickly demonstrate what the existing and recommended funds cost, and what their features and benefits are,” said Midwinter’s executive director – strategy and technical, Matthew Esler.

In response to opt-in requirements, the firm introduced a new ‘Traffic Light’ compliance framework to Client Manager, providing financial adviser practices and dealer groups with alerts regarding whether a client’s financial services guide, privacy policy and fact find has been provided or is up-to-date.

MACQUARIE Wrap has launched a new range of investment, superannuation and pension accounts called the Consolidator Series.

The group stated the portfolio value pricing structure complements Macquarie Wrap’s existing holding-based pricing structure, allowing clients to consolidate their managed investments and direct shares in one place, without any automated transaction or transfer-in fees.

Efficiently administering direct shares is a growing area of importance for adviser practices, with approximately 30 out of every 100 advisers already including direct shares in their advice model. This number is expected to increase to 43 out of every 100, according to head of insurance and platforms at Macquarie, Justin Delaney.

Delaney said Macquarie Wrap’s latest addition was designed to help advisers respond to the shifting expectations both of clients and regulators, which is particularly timely following the release of the Future of Financial Advice reforms.

RUSSELL Investments has launched Russell Practice Management (RPM), which aims to help Australian advisers enhance their advice model and increase practice revenue.

The program provides tailored front-office and back-office support in the areas of business management, operations, human resources and client servicing, covering topics such as client engagement, fees and pricing, client value propositions, leadership, change management and business structuring, Russell stated.

“As the FOFA reforms are implemented, it’s more important than ever for advisers to future-proof their businesses to ensure they evolve and grow, rather than simply survive the raft of changes approaching,” said Russell’s managing director for retail investment services, Patricia Curtin.

The program will help advisers articulate the value they bring to clients as they move away from portfolio construction to focus on quality advice while ensuring the potential impacts of FOFA are factored in to pricing models, Russell stated.

www.moneymanagement.com.au May 19, 2011 Money Management — 23

ResearchReview The world in their hands Research Review is compiled by PortfolioConstruction Forum in association with Money Management. PortfolioConstruction Forum asked the research houses: An issue that confuses advisers is widely different ratings for the same fund. The Five Oceans Wholesale World Fund is a case in point, with ratings from investment grade to highly recommended. What rating has your firm assigned it? What does that signify generally? What are the strengths and weaknesses of this fund that result in this rating?

Lonsec

Rating Highly recommended. This rating indicates Lonsec’s high conviction that the fund can achieve its objectives and, if applicable, outperform peers over an appropriate investment timeframe. The manager or product has strong competitive advantages in people, process and product design and has no areas of material weakness. The investment is a preferred entry point to access this asset class or strategy.

Rationale The fund is a benchmark unaware, concentrated, longbiased long/short global equity product. The investment team is centrally located in Sydney and Lonsec considers it to be high quality and suitably resourced to implement this investment strategy.

Key strengths include the considerable investment knowledge and experience of the portfolio managers Chris Selth, Kim Tracey and Piers Watson, who each average 16 years of portfolio management experience.

The investment process is logical, thorough and well implemented. The research and portfolio construction process is based on leveraging off the knowledge, intuition and skills of the lead portfolio manager and supporting key portfolio managers. The investment process focuses on bottom-up fundamental research with a strong

Standard & Poor’s

Rating Four stars. This rating reflects S&P’s high conviction that the manager will consistently generate risk-adjusted returns in excess of relevant investment objectives and relative to peers.

Rationale This global equities fund employs a highconviction fundamental stock-picking approach qualified by macro views. It aims to add value by exploiting structural shifts and changing market dynamics. The investment process is clear and rigorous, and supported by industry-standard systems.

The portfolio manager and risk manager

emphasis on valuation. Research is a rigorous process focusing on a business’s position within its market, market pricing, and the broader economic and social environment in which it operates. An important component of Five Oceans’ research process is the focus on the identification of catalysts to release value. Lonsec believes this provides a strength, not only in terms of a robust sell discipline, but also with the timing of stock purchases (ie, avoid buying too early).

Given the absolute nature of the strategy, the fund is suitable for investors who are seeking some downside protection and capital preservation via the manager’s ability to reduce the fund’s net equity market exposure (beta) and its ability to exploit shorting opportunities.

Shorting can be implemented within the portfolio by way of standalone shorts, stock hedges or pair positions, as well as futures and options hedging. Another strategy that the manager brings to the fund is the ability to actively manage currency as a way to reduce risk and protect capital. Five Oceans can hedge the full gross exposure of the fund back into Australian dollars, or currencies that it believes offer better value.

In addition, Lonsec believes the firm’s culture, boutique nature and high alignment of interests via co-investment in funds and equity participation bodes well for investors.

have a good grasp of global macro themes and efficient hedging mechanisms.

The fund has been in operation since July 2006, allowing S&P a high-conviction view on risk-adjusted performance. The fund’s absolute return focus and high-conviction style allows it to make bold allocation choices, which produced mixed results for investors in the early months of its life.

However, results have improved in the period since the last review. Recent overall portfolio positioning and hedging decisions have revealed the manager’s considerable skill from the top-down as well as from the bottom-up. This is emerging as a significant point of difference among peers.

Five Oceans is staffed by a mid-sized, high

24 — Money Management May 19, 2011 www.moneymanagement.com.au

Van Eyk

Rating BB. This rating indicates that van Eyk has identified strengths with regard to people, process and business management, but has less confidence in the manager outperforming its benchmark in comparison to A-rated managers, on an after-fees basis. Only 29 per cent of strategies were awarded a higher rating in the relevant review.

Rationale The portfolio manager, Christopher Selth, is experienced and able to effectively combine detailed stock knowledge with a strong awareness of global trends.

Selth is supported by competent senior investment team members, although the team is slightly small when compared to some other, more highly rated managers. The team travels less extensively than some of its higher rated peers and may lag in identifying insights into local consumer trends and market dynamics. The team of supporting analysts has expanded in recent years, which is a positive development.

A competitive strength in the investment process is the integration of top down insights and collaboration with industry experts to identify themes.

A key drawback is the base fee of 1.25 per cent, which is high relative to peers. In addition, a performance fee of 20 per cent of returns over 5 per cent is charged.

quality, and seasoned team of analyst/portfolio managers, in whose abilities S&P has confidence. The team is impressive relative to peers in terms of the experience and calibre of its members, although it is relatively small compared with peer funds. It exhibits a strong and independent boutique culture, and is majority owned by the six senior executives. Team members are provided incentives and fund performance fees are calculated with reference to an absolute return benchmark. This aligns the interests of investors with those of the investment team.

The fund does display some weaknesses and risks.

The main weakness is its use of a traditional prime broker model, which introduces asset custody risk due to securities being commingled with other clients’ assets.

S&P views this as less than best practice, which provides for asset segregation and identification held separately from the prime broker so client assets are not commingled.

There are also certain risks associated with the fund that investors should understand. It can take short positions which have unlimited loss potential and introduce credit risk; it may make long/short pairs trades where money can be lost in both positions; it uses derivatives; and, there is foreign exchange risk.

Zenith Investment Partners

Rating Recommended. This rating indicates Zenith’s view that a fund is a strong investment within its respective asset class, typically rating first quartile on most criteria.

Rationale The ownership structure of the business (75 per cent ownership by staff, 25 per cent by Challenger) provides a greater incentive structure for the investment team while also having the backing of a larger, stable financial house.

The investment team is of high quality with a good depth and blend of experience (five seniors and four more junior members), led by an experienced and highly regarded lead portfolio manager, Chris Selth. Zenith also regards the BT pedigree of four of the five senior members as a positive, recognising that the training provided by the organisation appears to have instilled a solid base for investing globally.

The research produced by the team is among the highest quality Zenith has seen in terms of clarity, depth and breadth.

Another key positive is the manager’s approach of investing from the standpoint of an Australian investor, recognising that movements in the Australian dollar can materially affect returns to Australian investors (a point ignored by many overseasbased managers).

A weakness is a comparatively small team for a global equities manager. Also, the business has broadened its mandate offerings in recent years (to include 130/30, China Fund, Asia Fund), which may leave the investment team stretched in coverage and focus. Finally, the relative level of funds under management (approximately $250 million at the time of Zenith’s review in June 2010, although this has increased since) results in the staff equity having low current value, possibly not acting as a strong retention mechanism.

Morningstar

Rating Investment grade. This rating indicates Morningstar’s view that it is a competent strategy that either fails to stand out, or has offsetting positive and negative factors.

While not a strategy Morningstar would recommend, it should get the job done.

Rationale The strengths of this strategy are the experienced and insightful investment team, the flexible mandate both in terms of risk constraints and derivative and shorting ability, and strong performance since inception.

However, weaknesses are the poorly structured performance fee, the flexible mandate can be a double-edged sword, and variable market and currency exposure can make it hard to deploy in a portfolio context.

Mercer

Rating Not disclosed. Mercer was unable to participate in this question due to a global policy that its ratings cannot be disclosed to non-subscribers.

India, the elephant in the room India’s industrialisation of the past 15 years is a compelling story that has drawn inevitable comparisons with China, but there are several risks to watch for, writes Chris Watling.

D

istinct moments in time define countries. For India, there have been two key moments in history in recent decades. First, there was the collapse of the Berlin Wall in November 1989 marking the failure of the communist model, with which India had been associated, and that model’s subsequent demise across most of the world.

Secondly, there was Dr Manmohan Singh’s reform budget in 1991, in response to the country’s economic crisis. That budget, by turning India away from its communist economic management of prior decades and towards an opening up of the Indian economy, began the process of liberalising the Indian economy and the reform momentum which has led to economic growth rates which are today close to 10 per cent per annum.

On a purchasing power parity basis, India accounts for 5.1 per cent of world gross domestic product (GDP) – almost as much as Japan. In nominal GDP terms, in 2009 India was the eleventh largest economy and in 2010 overtook Spain’s economy. By 2012, its economy will be larger than Canada’s, and by 2015, it will have overtaken Italy. If Goldman Sachs’ forecasts are right, by 2050 India will be the third largest economy in the world, after China and the US. More importantly, given its rapid growth rate, India’s contribution to global growth is significant.

The question of whether India is able to sustain high economic growth rates and for how long is therefore a critical one for investors.

In many ways, India’s story is similar to China’s – just 10 to 15 years behind, given its reform process started 10 to 15 years later.

Like China, India is a populous, yet poor, nation with over a billion people. Like China, it is an urbanisation story with rapid growth rates driven by a marshalling of previously unmarshalled resources – ie, moving workers from the fields into the cities; educating the population; expanding the infrastructure. With these changes comes the emergence of the middle class and the release of pent-up demand for housing, cars and other durables, accompanied by financial deepening and increasing access to consumer finance.

The differences are stark

China is industrialising under an autocratic regime where property rights and individual civil liberties are not respected. As such, clearing land to make way for new infrastructure is easy. Shifting millions of workers thousands of miles is considered normal (witness the tens of millions Chinese migrant workers) while the decision as to where to build new roads, railways and airports doesn’t require extensive consultation and is therefore a relatively

quick process. Indeed, almost all newly industrialised Asian economies industrialised under some form of autocracy.

“It is startling that nearly all of the economies that experienced the Miracle (ie, rapid industrialisation) either had dictatorial regimes (South Korea, Taiwan, China, Indonesia), periods of military rule (Thailand), or systems with limited freedoms dominated by one political movement (Singapore, Malaysia). Even Japan was a kind of one-party state. Though the country holds free elections, the same party has controlled the government since the mid1950s (save for a short period in the early 1990s),” writes M Shuman in his 2009 book, The Miracle – The Epic Story of Asia’s Quest for Growth.

In contrast, India is industrialising as a democracy and alongside that, has strong civil liberties and property rights laws. So, while India is in some sense following the Chinese and Asian model, in many ways, its approach is unique.

In short, there are three key risks to India continuing its rapid economic growth.

3 per cent of GDP this year – that is, most of the government’s fiscal deficit is funded internally. Given India’s high household savings rate, this is not surprising. Household credit levels are very low, reflecting limited financial deepening to date. For example, only five per cent of Indian households have mortgages, while total household debt is only 10 per cent of GDP.

Fiscal deficit risk

Democratic risk

For the past two decades since reform began in 1991, India’s government has consistently spent more each year than it has raised in tax revenues. In other words, its fiscal deficit is high – and has been for two decades. Government spending has tracked between 23-28 per cent of GDP while tax revenue has been between 16-20 per cent since 1991. As a result, the government’s fiscal deficit (according to IMF data) has tracked between 4-10 per cent of GDP (9.2 per cent in 2010). To date, India has been able to offset these deficits by selling assets, so government debt to GDP is at broadly similar levels as in the early 1990s at just above 70 per cent. Clearly, however, this policy has a limited shelf life.

It is of some macroeconomic comfort that despite a 9-10 per cent fiscal deficit, India’s current account deficit is only expected to be

Commodity price risk

India is also vulnerable to commodity price (and especially) oil price spikes. India has limited oil production relative to its needs, with just 0.5 per cent of the world’s proven oil reserves. A decade ago, India imported just over 1.5 million barrels of oil per day (MBPD). By the end of 2010, it was consuming over 3.5 MBPD, but producing just 0.75 MBPD internally. Consequently, India imports just under 3 MBPD, up from 1.5 MBPD a decade ago. In aggregate, this costs India approximately US$98bn per annum, accounting for the majority of India’s trade deficit. And it creates vulnerability for India to oil price shocks.

As noted, unlike most of its Asian neighbours, India is a strong democracy. While three to four parties dominate nationwide politics in India, there are thousands of active political parties campaigning and winning power at the different national, state and local levels. A key risk to India’s continued growth is that we see a change of government away from a reform-minded government to a more left-leaning, nonreform minded party, which could halt or indeed reverse the reform momentum.

Chris Watling is CEO of London-based Longview Economics and a regular speaker at the PortfolioConstruction Forum Conference.

In association with

www.moneymanagement.com.au May 19, 2011 Money Management — 25

ResearchReview

Research round-up PortfolioConstruction Forum asks the major research houses about their most recent projects and appointments.

Lonsec

• Hedged global equities have provided consistently stronger returns than unhedged over the past decade, according to Lonsec’s recent review of the effect of currency on portfolios. This was driven in large part by the depreciation of the US dollar versus the Australian dollar, although that relationship did not hold in the previous decade – in fact, it reversed. Given that Australian equities generally constitute a material component of a client’s equities portfolio, some unhedged global equity exposure makes sense from a diversification perspective.

• Fundamental global equity fund managers have beaten their quantitative manager peers in terms of outperformance consistency in recent times. Lonsec’s new outperformance study found that for periods to January 2011 which include data for 2007 and 2008, the average quantitative manager outperformed its benchmark in less than 50 per cent of months, while for more recent periods, outperformance has been greater than 50 per cent. By contrast, the average fundamental manager (those which rely on traditional investment analyst generated stock research) outperformed the benchmark in over 50 per cent of months, save for the most recent one-year period.

• Nicholas Yaxley has joined Lonsec’s equities research team to focus on researching listing fixed interest and hybrid securities. Yaxley was previously an analyst at Black Swan Capital Partners and a credit analyst with JP Morgan Asset Management.

Morningstar

• A report by Morningstar on the performance fees charged by large-cap Australian equity funds has revealed a lack of consistency in performance fee structures and a corresponding lack of “any clear regulatory guidelines as to how the complex components of the performance fee structure should be displayed”. Morningstar broke down a typical performance fee into its essential components and calculated the impact of different fee structures on investors’ funds over a decade. One of the highest impacts is the benchmark used by the manager. For example, with a 20 per cent performance fee on $100,000 over a decade, the difference between an absolute and index-linked performance benchmark could be up to $46,000. “Ensure that the fund manager has to beat a reasonable hurdle before starting to accumulate performance fees,” Morninstar’s Best Practice in Managed Fund Performance Fees report concluded.

Standard & Poor’s

• Active international equity managers are trending toward mandates that are less

Overall, international “equity fund managers are broadening their investment mandates to allow more flexibility in constructing portfolios.

”

sensitive to a benchmark, taking on more active risk, with an increased level of investment in non-index companies, according to S&P’s review of the sector.

Overall, international equity fund managers are broadening their investment mandates to allow more flexibility in constructing portfolios. “Increasingly, fund managers are adopting a fundamental assessment of risk, in the belief it gives greater insight into the future success or failure of a company instead of a measure of risk based on a fund’s position relative to the benchmark,” according to S&P.

Van Eyk

• All three Australian equities funds management styles – growth, value and neutral – underperformed their benchmarks in 2010, according to van Eyk. Styleneutral managers outperformed growth and value styles, earning seven out of 12 ‘A’ ratings handed out in the review of 42 strategies. “Style-neutral managers showed a greater propensity to query independent data points and research sources in their analysis, giving them a competitive advantage in stock selection,” van Eyk said. “Given market volatility and uncertainty regarding trend, managers capable of capitalising on a range of market conditions will be most competitive going forward. This favours styleneutral managers as they can invest in either value or growth opportunities.”

• Only a minority of Australian equities concentrated fund managers achieved their alpha objectives in 2010, van Eyk noted in its review of the sector. However, the average concentrated manager

26 — Money Management May 19, 2011 www.moneymanagement.com.au

performed better than the average core manager. The average concentrated manager displayed much stronger upmarket consistency than down in 2010, outperforming more than 60 per cent of the time in months when the market return was positive, but underperforming more often than not in months when market returns were negative. “Most of the concentrated managers are also overweight the consumer discretionary sector, health care and industrials,” van Eyk said.

• Lyndall James has joined van Eyk as national business development manager for the van Eyk Blueprint Series. James is a past NSW Money Management BDM of the

Reports released in April

• Lonsec – Month in review, quarterly outlook • Lonsec – Model portfolios mid-cycle review • Lonsec – Global equity sector review • Lonsec – Small-cap Australian equities sector review • Morningstar – Monthly economic update • Morningstar – ETF Monthly • Morningstar – Global listed infrastructure sector review • Morningstar – Large-cap Australian equities sector review • S&P – Monthly economic and market report • S&P – International equities large/small cap sector review • S&P – Alternative strategies multi-asset sector review • S&P – Mortgages sector review • Van Eyk – Investment outlook report • Van Eyk – Australian equities sector review

Year, and has previously worked as a BDM for OnePath and National/MLC.

Zenith Investment Partners

• Zenith has upgraded its online toolset, adding a new Fund Surveys tool that allows subscribers to create and save their own list of funds to compare risk and performance.

• Zenith has appointed Christopher Huang as a data analyst. He previously worked as a research analyst at Australian Stock Report conducting fundamental and technical analysis on financial securities, and giving general advice to retail clients.

He is a Level 1 CFA candidate.

• Van Eyk – Australian equities concentrated sector review • Van Eyk – Global macro sector review • Zenith – CTA/Macro sector review • Zenith – Quarterly asset class forecast report

Upcoming in May

• Lonsec – Australian property securities sector review • Lonsec – Preset model portfolios • Morningstar – Global listed property sector review • Morningstar – AREIT sector review • Morningstar – Investment conference • S&P – Australian fixed interest sector review • Van Eyk – ETF sector review • Zenith – Property securities sector review • Zenith – Australian equities long/short sector review

In association with

Appointments

Please send your appointments to: milana.pokrajac@reedbusiness.com.au

JONATHAN Armitage has joined MLC Investment Management as portfolio manager, moving from Schroders’ global equities division in London.

He had worked as global equities expert for Schroders, gaining 18 years experience in equities across several international markets including New York.

Most recently he was head of US equities and a global portfolio manager as part of a team managing US$12 billion in assets.

Armitage will start on 1 August and report to MLC chief investment officer Nicky Richards, who joined MLC in January from Fidelity in London.

According to Richards, the appointment of Armitage completes a wave of enhancements to MLC’s portfolio management team across the major asset classes.

Richards also foreshadowed enhancements to MLC’s range of investment products.

FORMER Perpetual executive, Michael Miller has moved to Suncorp, where he has taken up the role of chief financial officer (CFO) of its commercial insurance division.

Miller had spent nine years at Perpetual filling various group executive, CFO and strategy roles.

Prior to his most recent role at Perpetual, he was the deputy CFO group finance and had also spent time working with Deloitte in Brisbane, London and Sydney.

Suncorp commercial insurance chief executive officer Anthony Day said Miller had “extensive leadership experience and a broad financial services background”.

Miller took over from Matt Pearson, who now heads up the commercial claims division.

AXA has announced the appointment of two business development consultants, Clint Thomasson and Peter Vlachos.

They will aim to extend the reach of the AXA distribution team and assist in driving sales across all product lines to the AXA/AMP network, as well as to independent financial advisers.

A further focus for this role is building on existing relationships and uncovering new opportunities.

AXA stated Thomasson brought valuable financial planning experience to the team, having been with both ANZ and AMP – earning the AMP new planner of the year award in 2009.

Vlachos joined the team from iSelect where he was a risk insurance adviser. His background also includes financial planning, para-

Move of the week RUSSELL has announced the appointment of John Nolan as practice development manager, intermediaries. Nolan will be responsible for rolling out the new service in the local market. He has 18 years of financial services experience, including head of advice capability at ipac securities and senior positions with AMP Financial Planning and Asgard Wealth Solutions. His focus at Russell will be on developing, delivering and implementing effective practice management solutions to advisers, licensees and key clients.

Russell’s managing director for retail investment services, Patricia Curtin, said the changing regulatory landscape made the introduction of the service all the more relevant.

“We are committed to supporting advisers in this process and are confident John has the experience necessary to provide them with the right tools for success,” Curtin said.

planning and business development roles.

Asia Pacific division of SAP. She had also worked at Oracle Corporation in Europe and Asia, as well as other organisations, garnering over 18 years experience in the information technology industry.

WEALTH management software supplier, Bravura Solutions, has appointed its chief financial officer, Rebecca Norton, to the board of directors.

Chairman and interim chief executive officer, Brian Mitchell, said Norton, who will be an executive director, had been instrumental in creating financial stability within the company since she joined in 2009.

Prior to Bravura, Norton had a dual role of chief financial officer and chief operations officer in the

THE Australian and New Zealand Institute of Insurance and Finance (ANZIIF) has announced the appointment of Christopher Trott as its general manager of information technology and e-business, to assist the Institute in implementing its online strategy.

This newly created position would help drive ANZIIF’s online

Opportunities BUSINESS DEVELOPMENT EXECUTIVE Location: Melbourne Company: Kaizen Recruitment Description: Our client has created a new role for a business development executive.

In a varied and multi-functional role focused on maintaining business growth, you will be working closely with the managing director in a role designed for success.

Working across multiple financial products you will be working with equities, derivatives as well as FX and alternative investment products.

You will work with an advisor group to implement initiatives, engage in the longer term and you will build a business development team to facilitate this function.

The right person for this job will have a strong understanding and experience working in financial markets, ideally in a sales or business development role. Additionally you must possess excellent communication skills, business acumen and a passion for building a long and successful career in private wealth.

For more details and to apply, contact Davidmay@kaizenrecruitment.com.au or visit www.moneymanagement.com.au/jobs

FINANCIAL PLANNING Location: Melbourne Company: AMP

John Nolan

membership services and education delivery plans over the coming year.

The institute said Trott had experience in strategic analysis, information structure and function design, risk and security audit and analysis, usability and e-learning.

He had previously worked for National Australia Bank as the delivery manager for personal banking channels, and ANZ Private Bank as the manager of business systems.

ANZIIF chief executive officer, Joan Fitzpatrick said Trott would be instrumental in assisting the institute with developing new services.

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

Description: Financial planners have an opportunity to join AMP’s fully serviced and customer oriented centre with on-site marketing, administrative and technological support. This ensures that financial planners have more time to focus on advising their clients and growing their business.

To be considered for this opportunity, you need to have a Diploma of Financial Services (Financial Planning) or the equivalent RG146 compliance. You will also have a minimum of two years of clientfacing, financial planning experience.

Desire to run your own business is essential.

AMP will be holding an information evening on Tuesday 24 May, 2011.

For more information, contact morgan_foster@amp.com.au or visit www.moneymanagement.com/jobs

FINANCIAL PLANNER

Location: Sunshine Coast, QLD Company: East Coast Human Resource Group Description: Located on the Sunshine Coast, this firm offers a unique and exciting challenge for suitable professionals to work within a dedicated team.

As the financial planner, you will be

responsible for providing a comprehensive range of options for your clients, using your extensive and proven experience in financial and strategic planning.

Essential position requirements: Our client offers the opportunity for you to work with a dedicated team of professionals, and offers a supportive work environment, progressive opportunities and performance recognition.

To find out more information and to apply, please visit www.moneymanagement.com.au/jobs

PARAPLANNERS

Location: Canberra, ACT Company: Hays Recruitment Description: This Canberra firm provides wealth management solutions across several Australian locations. Their business model is built on a referral base and a commitment to providing expert advice. To build on their success, they are looking for an expert paraplanner to join their team of professionals. A strong background within financial services is a must – together with demonstrated leadership skills and an energetic and client-focused attitude with the proven ability to work effectively in a team environment. In return, this organisation can offer you significant

business opportunities, transparent career progression and support with escalating compliance demands.

For more details and to apply, visit ww.moneymanagement.com.au/jobs

COMPLIANCE TEAM LEADER – LIFE INSURANCE

Location: Melbourne Company: Bluefin Resources Description: Our client, a leading insurance company, is offering an opportunity for a senior compliance officer, who will be provided with on-the-job training.

You will be leading a small team that is responsible for ensuring the authorised representative teams have a clear understanding of what process and behaviours are required from a compliance perspective, and reducing risk. You will also be involved in stakeholder management and will be a key liaison point for compliance issues for sales teams.

Suitable applicants will have experience in compliance/quality assurance/call monitoring environments, ideally from the life insurance industry, though banking or financial services backgrounds will be considered.

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

www.moneymanagement.com.au May 19, 2011 Money Management — 27

Outsider

“

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

Tabloid advice OUTSIDERhas always wondered why financial advisers feel like it’s so hard to break out of the negative stereotype that has them lumped in with used car salesmen as shonks who can’t be trusted – but a recent report on a popular nightly current affairs program may have helped to shed some light.

Being something of an elitist when it comes to journalism, Outsider obviously gets most of his news from Australia’s last great bastion of quality independent reporting – Today Tonight. He was particularly enthralled by a recent story about a financially challenged couple who struck it rich with a

$3.6 million Keno win.

Outsider really felt for the couple, who, according to the reporter were feeling “pressures from financial advisers, real estate agents and, indeed, a tug of war with family” who were wondering “when am I going to get my share?”

It really got Outsider thinking:

those darned advisers, always after their cut. Seriously, if a couple of people in a financially precarious position strike it big, and decide they want to spend their windfall on luxury apartments, sports cars and holidays, that’s their business.

Surely they don’t need an adviser sticking his or her nose in? Doubtless they’ll be able to look after their family, ensure themselves financial security and a comfortable retirement and achieve all of their lifelong goals now with no outside assistance.

Particularly with the helpful advice of the Today Tonight reporter, who suggested they could “spend $2 million on an apartment [by the beach] and have $1.6 million left over”, before adding that “now all they need to do is spend, for the rest of their lives”.

With advice like that, who needs to pay for an adviser?

“I call it the US credit crisis – not the global financial crisis – because it was the US’s fault.”

Equity Trustees head of funds

management Harvey Kalman assigns blame for the GFC at the Deloitte funds management breakfast.

“As a property portfolio

Unmasking at the Masquerade OUTSIDER does enjoy a bit of glitz and glamour and so, it seems, does Money Management’s managing editor, Mike Taylor, who was seen rubbing shoulders with some of the industry luminaries who attended the eMerge Foundation’s Masquerade Ball at Sydney’s Sofitel Wentworth earlier this month.

As Outsider discovered, the eMerge Foundation has garnered the support of some serious financial services identities, including Stephen van Eyk, Ian MacRitchie from IMR Financial Advisors, Lonsec’s Steve Newnham, Tyndall’s Garth Hobart and a plethora of other funds management and advisory identities.

Outsider noted that while MacRitchie spent the early part of the evening behind an ornate mask, Taylor and van Eyk eschewed such devices and decided

Out of context

manager, excitement is not generally encouraged.”

Legg Mason’s head of property securities Ashton Reid prefaces his excitement about their product with a warning.

“And you’re looking for The usual suspects: Stephen van Eyk, Mike Taylor, Ian MacRitchie and Steve Newnham.

investment opportunities

to go au naturel.

The night proved to be a major success with the 420 guests raising $102,000 to sponsor teaching scholarships in East Timor but what Outsider found very impressive was the number of financial services types who found themselves being increasingly

because...?”

unmasked as the night progressed.

He was particularly impressed by the manner in which no one immediately recognised brillient’s Graham Rich – someone who Outsider reckons should be about as easy to disguise as a dreadnought in a yacht marina.

Platypus chief investment officer Don Williams tries to understand the logic for investing in Japan.

Have you been playing just one of our strings?

The new home of Adelaide Bank, Leveraged Equities, Sandhurst Trustees and Trinity3 will make orchestrating your clients’ investment strategies easy.

Find out more about Bendigo Wealth at www.bendigowealth.com.au or phone 1800 018 018.

It’ll be music to your ears.

Bendigo and Adelaide Bank Limited ABN 11 068 049 178 AFSL 237879. (S33616) (03/11)

Incorporating

28 — Money Management May 19, 2011 www.moneymanagement.com.au

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