financial planning magazine - dec/jan 2011/12

VOLUME 23 | ISSUE 11 | DECEMBER/JANUARY 2012 | $10.00

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THIS ISSUEOutlook for 2012: expert predictions on the investment climate in the coming year

Discretionary trusts: are they still attractive as a planning tool?

Academics come together to support the profession

Rewarding excellenceInaugural FPA Best Practice Award

winners honoured

Never Stand Still

Australian School of Business Master of Financial Planning

Australian School of Business

The Australian School of Business introduces a new program in 2012 – Master of Financial Planning.

If you are a graduate or a professional and would like to

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10 Outlook for 2012 Experts make their predictions on the factors

infl uencing the investment climate in the coming year.

13 Towards a new vision for fi nancial planners

FPA chief executive Mark Rantall refl ects on what has been achieved in a watershed year for the association and what’s ahead.

15 Rewarding excellence FREYA PURNELL profi les the winners of the

inaugural FPA Best Practice Awards.

24 Running Between the Raindrops The extraordinary life of Gwen Fletcher AM is

the subject of a new biography, and JAYSON FORREST spoke with the lady herself about her contribution to the fi nancial planning profession.

26 FPA 2011 National Conference Last month, fi nancial planning professionals

from around Australia gathered for three days of learning, sharing knowledge and networking, as well as a celebration of best practice at the annnual Gala Dinner.

28 Trusts SHANNON RIPPON explores whether

discretionary trusts are still an effective vehicle for asset protection, while CAROLINE MUNRO looks at how changes to the law may affect how fi nancial planners use trusts in the future.

33 Academics add voice to profession JAYSON FORREST reports on the inaugural

Financial Planning Research Symposium, held at Griffi th University in Brisbane last month.

Regulars4 CEO Message

6 News

8 Opinion

36 White Paper

40 Practice Management

43 Regulation Update

44 Centrelink

45 Chapter Event Review

46 Event Calendar

EDITOR Freya Purnell Locked Bag 2999, Chatswood NSW 2067 Phone: (02) 9422 2053 Facsimile: (02) 9422 2822 [email protected]

PUBLISHER Jayson Forrest Phone: (02) 9422 2906 Mobile: 0416 039 467Facsimile: (02) 9422 2822 [email protected]

ADVERTISING Jimmy GuptaPhone: (02) 9422 2850 Mobile: 0421 422 [email protected]

ADVERTISING Suma DonnellyPhone: (02) 9422 8796 Mobile: 0416 815 [email protected]

© Financial Planning Association of Australia Limited.

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general nature only and is not intended to be comprehensive

nor does it constitute advice. The material should not be

relied on without seeking independent professional advice

and the Financial Planning Association of Australia Limited

is not liable for any loss suffered in connection with the use

of such material. Any views expressed in this publication

are those of the individual author, except where they are

specifi cally stated to be the views of the FPA. All advertising

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agreement with the FPSB.

24

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Features December/January 2012

Financial Planning is the offi cial publication of the Financial Planning Association of Australia Limited (ABN 62 054 174 453)Web: www.fpa.asn.au | E-mail [email protected] | Level 4,75 Castlereagh Street, Sydney NSW 200 | Phone (02) 9220 4500 | Facsimile: (02) 9220 4580

Average Net DistributionPeriod ending Sep’1110,818

financial planning | DECEMBER/JANUARY 2012 | 3

CEO MESSAGE

4 | financial planning | DECEMBER/JANUARY 2012

That is a common vision shared by government, regulators, professional financial planners and all of us at the FPA.

If you attended our 2011 Annual National Conference in November, you received our message loud and clear that at this time of great transformation in the financial landscape, we believe it’s imperative to all work together and raise the bar of our profession to create a bright and healthy future for financial planning.

I am immensely proud of the FPA members, staff and partners who attended and supported the Conference. In my view, it was our best-ever event and perfectly showcased our leadership position in helping financial planning to become a universally respected profession.

The active participation of all those who attended showed me that this is a goal that is well within our reach, and that we already have many role models within the FPA member community.

Whether members were discussing strategies on how to embed the Code of Professional Practice in their business, contributing questions to the heated debate in our Q&A panel or networking with colleagues to share ideas on what works in each other’s practices, everyone left the event with heads lifted a little higher and more equipped to take on the challenges of their profession.

Minister aligns with FPA missionIt was heartening to hear Minister Shorten’s recognition in his address at the Conference of the informed guidance provided by the FPA in shaping regulatory reform. The Minister expressed his support for the recommendation made by ASIC’s Advisory Panel on Standards and Ethics for Financial Advisers. It proposes that any person providing financial advice would be required to comply with an ASIC-approved code of Professional and Ethical Conduct.

Importantly, the Minister has acknowledged that the FPA’s Code of Professional Practice sets an ideal benchmark for this undertaking. He reiterated that the FPA’s Code is widely recognised as world-class and already forms the standard against which Financial Ombudsman Service determinations are made.

The Minister also supported the FPA’s advocacy to restrict the use of the term ‘financial planner’ in law. As a result of the active dialogue between the FPA and the Minister’s office, this change has been incorporated in the Future of Financial Advice (FoFA) reforms, and will make a fundamental difference to consumers and professional planners alike.

The endorsement of the FPA’s role by Minister Shorten has made our efforts on your behalf well-worthwhile. In the last year alone, we have met with Treasury and other politicians over 100 times. We have produced more than 50 submissions to shape new legislation and sat on over a dozen Government

committees. We have also issued over 70 media releases to broadcast our views as widely as possible.

This Conference proved to be a galvanising moment for FPA members and our profession, and the Minister’s comments vindicate the steps we’re taking to lead you through the changes we’re all facing.

Advertising campaign a hit with consumersI am delighted to tell you that our consumer advertising campaign has worked, and it has worked well beyond our expectations. Firstly, we negotiated an extra $1 million of media value from your advertising levy contribution. This gave us six weeks’ worth of TV advertising instead of five, among other benefits.

Secondly, in under two months, we delivered a 14 per cent improvement in brand awareness. And the more often consumers saw the ads, the more they understood our key messages: ‘Not all financial planners are the same’ and ‘always look for a member of the FPA’.

Thirdly, members also told us that, for the first time, they were asked, “Are you an FPA member?”

And last but not least, we found that consumers are indeed hungry for a source of trusted advice. Our online advertising generated a click-through rate that was four times the finance industry benchmark. That gave our members an additional 20,000 visitors to our website and over 1500 additional Find-a-Planner searches.

For a brand awareness campaign, this was an unexpected but very welcome bonus for you.

Consumer research has told us that the strength of the campaign lay in the clear and simple messages we communicated. However, we have a long way to go yet before we get real, long-standing awareness among Australians that FPA members are who they should turn to for trusted advice.

When the time comes for us to ask you for further financial contributions to continue spreading this message about your high professional standards, we trust that you won’t hesitate to give us your support.

In closing, thank you for your support and engagement with the FPA in 2011. In 2012, I am certainly looking forward to making further progress on the road to transforming financial planning into a universally respected profession. On behalf of everyone at the FPA, I wish you and your families a merry Christmas and a safe and happy New Year.

Mark Rantall CFP®

Chief Executive Officer

FPA CONFERENCE RAISES THE BAR FOR THE PROFESSIONThere is no dispute that Australians deserve to look forward to a comfortable and secure financial future in retirement.

In its latest funding round, Future2 has announced six grants totalling $50,000, giving vital support to grassroots projects working to transform the lives of disadvantaged young Australians who are at risk.

The six were selected from 33 applications, each endorsed by a local financial planning professional.

Four grants of $10,000 each have been awarded to new applicants, with two $5000 grants going to organisations that were recipients in 2010 and whose programs had outstanding, tangible outcomes for the young people involved.

The grants for this year are:

• $5,000 for the Australian Children’s Music

Foundation‘s Youth at Risk Music Program;

• $10,000 to Baptist Union of Queensland Community Services Group for the Glendyne mentoring and youth development program;

• $10,000 to Blue Mountains Disability Services for Stepping Stones, a project to create youth employment in horticulture;

• $10,000 to Byron Bay Community Association Inc for Vision of Hope, a cafe-based mentoring program;

• $5,000 to Family Resource & Network Support Inc to help young people with disabilities live more independent lives by developing their ability

to handle money; and

• $10,000 to Live Free Tassie for Breaking the Welfare Cycle, a program to help young drug and alcohol addicts into productive lives.

The larger allocation of funds this year – the fifth time the grants have been made – was a response to greater demand for support and growing awareness of Future2 among financial planners.

“Clearly many not-for-profit organisations depend heavily on funds from private foundations and Future2’s focus is on helping those for whom a relatively small grant will have a major impact,” said Future2 chair Steve Helmich.

Nicole Wong of Affinity Wealth Services is the winner of the inaugural Asset FPA Paraplanner of the Year Award.

Ashley Baum, technical adviser, Plan B Wealth Management, and Matthew Parrella, senior paraplanner, Finovia, were also finalists for the award.

Entrants had to demonstrate the strategic insight, critical thinking and problem-solving skills that set them apart from their peers, through completing set tasks in areas such as analysing a scenario or issue posed, identification of risks, consideration of different financial product solutions, and explanation of the advice to the client.

Wong was highly commended by the award judges for her fact-finding skills, her “insightful explanation of key issues”, her clear demonstration of strategies to manage risk and well-articulated superannuation strategies.

“Nicole demonstrated her ability to think critically and was able to express her views succinctly, whilst getting to the heart of the strategic advice issues,” the judges’ feedback said.

Wong, who has been a paraplanner for almost four years, entered the award to assess the level of her technical ability relative to her peers.

“Certainly my work colleagues are very proud of what I’ve achieved, and personally it is quite an achievement as well, in recognising the skill that I have,” said Wong. “I am now looking for the next step to go into a client-facing role as a financial planner.”

FPA names Paraplanner of the Year

Future2 Foundation awards $50,000 in grants

Legislation on the gradual increase of compulsory superannuation contributions from 9 per cent to 12 per cent was passed by the House of Representatives in late November.

The legislation includes measures to remove the age limit for the Superannuation Guarantee, which is currently age 70, as well as removing superannuation contributions tax for people earning less than $37,000 per annum.

“The FPA welcomes the Government’s passing of the Superannuation Guarantee Bill and the measures incorporated to assist our ageing population with the incentive to remain in the workforce, as well as maximising the retirement benefits for low income earners in Australia,” said Mark Rantall, CEO of the FPA.

“This legislation better

supports all workers without discriminating against age or wage. The FPA supports initiatives taken by Government to assist Australians in planning their financial futures and ensuring they are better prepared for retirement.

“An increase in the Superannuation Guarantee and encouragement to seek professional financial advice will enhance the quality of life during retirement, ensure income adequacy, reduce longevity risk and decrease reliance on the Age Pension for Australia’s ageing population. It is timely that the Government is addressing this national issue now.”

The Bill was expected to also pass the Senate. The majority of its measures are expected to take effect from 1 July 2013, with the low income rebate commencing from 1 July 2012.

Superannuation Guarantee Bill passed by House of Reps

NEWS


Nicole Wong, Affinity Wealth Services

The Financial Planning Standards Board (FPSB), which owns the CFP®, CERTIFIED FINANCIAL PLANNER® and CFP Logo marks outside the United States, has named AMP Financial Services financial planning, advice and services director, Steve Helmich, as its Board chairperson-elect in 2012.

Helmich will serve as 2012 chairperson of the FPSB Council, an advisory body of the FPSB Board of Directors, before assuming his duties as Board chairperson in 2013.

“FPSB’s 2011 global job analysis research showed that nearly 30 per cent of CFP professionals work in firms with 100 or more employees. With his successful financial planning model at AMP, Steve has demonstrated how CFP professionals can add value at large firms,” said Corinna Dieters, 2011 FPSB

chairperson. “Steve’s background and knowledge will benefit the FPSB Council as our members continue to develop their outreach programs to financial services firms.”

As a member of the FPSB Board of Directors, Helmich has served as a member of the 2010 and 2011 FPSB Compensation and Succession Planning Committees.

“I share FPSB’s vision to establish financial planning as a distinct professional practice globally,” Helmich said, “and I believe that CFP professionals embody the high level of professionalism that consumers deserve in financial planning relationships. I look forward to helping FPSB members demonstrate the value of financial planning and CFP certification to all of our key stakeholders.”

Helmich appointed FPSB Board chairperson-elect

NEWS


The second tranche of Future of Financial Advice (FoFA) legislation was tabled in Parliament in late November, including reforms such as the banning of conflicted remuneration payments that influence financial advice, and amendments to the ‘best interest’ duty, with the aim of encouraging actual behavioural and motivational change rather than a ‘tick-a-box’ style of compliance.

The Financial Planning Association (FPA) has responded in support of the reforms, noting the Government’s effort to improve the quality and availability of financial advice for all consumers.

“As a whole, the FPA believes that the reforms announced in FoFA Tranche 2 are supportive of the financial planning profession, our members and all Australians,” said FPA CEO Mark Rantall.

The FPA has welcomed the banning of investment commissions and other conflicted remuneration, in line with its own remuneration policy, which is due to commence on 1 July 2012.

“We released our remuneration policy

on banning investment commissions to members in 2009, which laid the groundwork for transparent payments, giving our members a head-start for the transition,” said Rantall.

Recent research conducted by Investment Trends shows that over half of CFP® professionals are already deriving their revenue from fees, rather than commissions, compared to the industry average of 43 per cent.

“The FPA and our members have led the way in the banning of commissions and believe that this industry move will promote trust and confidence in financial advice and provide a better outcome for all Australians. It is clear that FPA members are leading the profession in these transitions and we welcome the Government initiatives to encourage this with all financial planners,” Rantall said.

The FPA has also outlined areas of the reforms that have raised concern.

“The FPA supports the majority of the measures in banning soft dollar benefits, and they mirror existing FPA standards set by an industry

benchmark. However we do not agree that ‘location’ should be a factor – the FPA believes that if a financial planner can participate in a legitimate professional development conference, it should be irrespective of whether it is in Australian or overseas,” Rantall said.

“The FPA has a concern with the definition of group risk and believes the current definition within the legislation could cause some unintended consequences and costs for consumers as a result.”

The FPA will now review the legislation in detail, especially in respect to transition and the practical application of the amendments.

Profession welcomes the next stage in financial planning reforms

Following a successful pilot of its Accredited Estate Planning Strategist (AEPS®) Program, the FPA has reviewed the experience criteria for the designation in response to member feedback.

The AEPS program is delivered through a series of workshops over a six-day period, with two assignments and an exam. In line with the FPA’s other specialist designations, candidates must complete the 4Es – Ethics, Education, Examination and Experience, before receiving the AEPS designation.

The new experience criterion which requires candidates to have one year’s full-time (or the equivalent part-time) relevant client-facing experience in various designated areas of estate planning advice, will now make the designation more attainable for members seeking to provide advice in this specialist area.

For planners looking to undertake the education component of the AEPS designation, registrations are now open for several summer school sessions:

• Six-day UTS Summer School Workshop – Sydney: 15-16 December 2011, and 30 January – 2 February 2012

• Six-day UTS and Estplan Summer School Workshop – two-day workshop in either Sydney or Melbourne plus four-day workshop in Sydney: 16-17 January (Melbourne – Estplan) or 18-19 January (Sydney – Estplan), and 30 January – 2 February 2012 (Sydney – UTS)

• Four-day UTS Summer School Workshop (for those who have already completed the Estplan two-day course) – Sydney: 30 January – 2 February 2012.

For more information about the designation and available courses, visit www.fpa.asn.au.

AEPS criteria revised; summer school registrations now open

–– “It is clear that FPA members are leading

the profession in these transitions...”

Mark Rantall


Financial planners are likely to face another challenging 12 months ahead with the implementation of the long-awaited Future of Financial Advice (FoFA) reforms, continued market volatility, and a declining consumer appetite for growth assets. These factors have combined to radically change the financial services industry in Australia. There is now a fundamental shift occurring in terms of how advice is provided and how planners continue to meet the increased expectations of clients.

The greatest challenge for 2012 for the industry as a whole will be maintaining the public’s confidence in investing in growth assets. After four years of difficult markets, consumers are now focusing on reducing debt, tightening discretionary spending and reducing or even ceasing additional contributions into superannuation. The constant ‘media noise’ in relation to sovereign debt issues and public discontent in Europe has

ensured that clients are in ‘safety mode’, preparing for another bear market storm.

Difficult periods such as this also represent a great opportunity to demonstrate to clients the value of proactive strategic financial advice, which is not related to simply investing money on behalf of clients. By increasing the client value proposition, this will strengthen the adviser-client relationship and provide a platform for growth when investor sentiment inevitably changes.

As clients demand greater control, there is likely to be an increased demand for self-managed superannuation funds, and advice on specific issues rather than comprehensive financial advice. If the prolonged market downturn continues, the demand for cash, bonds, term deposits, and physical commodities such as gold is also likely to increase.

What is your view on the outlook for 2012? What will present the greatest challenge and where will there be opportunity?

LOOKING AHEAD TO 2012Q

Charles Badenach CFP®

Private Client Adviser and Principal, Shadforth Financial GroupLicensee: Shadforth Financial Group

OPINION

Confidence is severely lacking in financial markets at the moment. The continuous stream of bad news is affecting investor sentiment. Things haven’t been this bad for about 20 years in Australia. The last time things were grim for Australian shares, international share markets fared relatively better. This time around, the Australian economy is doing much better than other developed economies around the world and yet our share market performance is comparable to the major stock markets. One of the reasons is because about 40 per cent of investors in the Australian stock market are based offshore.

So will 2012 be any different from 2008 to 2011? It all depends on whether investor sentiment can be turned around quickly. The challenges to more positive investor sentiment remain the stories of 2011 and the prior years. If the US and European political impasses continue, 2012 may not be any different to 2011. As I write, the coming year is poised to offer more political battles that will keep debt issues in the public eye. The US presidential election looks set to be fought on which party has the best solution to America’s US$14 trillion government debt. In Europe, if Greece doesn’t default, implementation issues for the current EU

plan may continue to be debated by observers and fought against by the Greek population.

There is also the possibility of another negative event from left field (for example, the Japanese earthquake of March 2011) affecting market sentiment. Hopefully this factor doesn’t eventuate.

The opportunity for investors is to invest conservatively. Income in the present environment is key and if the asset (a good share, for example) has a good yield with decent long-term prospects for the company, now might be the time to move some money from cash to shares. However, the appetite to do so is dependent on investors’ objectives and the ability to sleep easily at night in the face of heightened volatility.

Daryl LaBrooy CFP®

Financial Adviser, Hillross Financial ServicesLicensee: Hillross Financial Services

–– “The greatest challenge for 2012 for the industry as a whole will be maintaining the public’s confidence in

investing in growth assets.”


Having been through all of the market crisises since joining the industry in 1983, none of them has had anywhere near the same level of long-term client impact as the current post-GFC downturn. It is indeed a unique time in the history of financial services in Australia.

Those clients who in past times would be happy to stay the course after some calming words from their financial planner are now older – some much older – and their risk tolerance doesn’t stretch to a fourth year of bad returns. The number of clients indicating their lack of comfort increases with each negative market event. Like so many

planners, we now hold more assets in cash and fixed interest than at any time in our history. I question whether some of those clients now aged 70 and over will ever return to the balanced portfolio approach.

During the turbulence, we have continued with our reports, newsletters and annual client briefings and added to our financial planning team so that clients can continue to be serviced as frequently as they need to be. And that is our plan for 2012 as well; more of the same. Client satisfaction is still the best driver of any business, and in the middle of this year, we surveyed our client base, with very

good feedback. If you haven’t done this formally, perhaps you should and see what your clients are really thinking about you and your service levels. Our clients clearly value our regular ‘touch’ approach and I am sure most will.

We are often critical of the popular media for their coverage of this financial morass, but this time around, in my view, it has had a silver lining for us. Clients see the troubles in Europe daily in the media and think to themselves, “There’s not much my planner can do about this; these damn fools won’t even help themselves.”

None of us has any idea when all of the issues will be resolved, and now we hear that Europe’s problems may require a decade to recover from. Second-guessing what markets might do, especially in this type of environment, could spell disaster for us and our clients. It is regrettable that ‘long term’ now appears to be just a month or two.

Peter Dunn CFP®

Managing Director and Representative, Moneyplan AustraliaLicensee: MoneyPlan Australia

Would you like to join our panel of FPA members willing to give their opinion on topical issues? Email [email protected] to register your interest.

THE YEAR AHEAD

Which asset class will see the most growth in 2012, and which will see the least growth (or the greatest contraction)?

Kate Howitt: Since the major factors that will impact markets are so binary in nature – Euro consolidation or break-up, US recovery or reflation, Chinese tightening or reflation – it’s no wonder that macro crystal-ball gazing is even more error-prone than usual. Given this uncertainty, what do we know? Our read of the Reserve Bank of Australia (RBA) is that they remain comfortable with an ongoing gradual decline in real residential property values, so property is unlikely to be the stand-out asset class. Given the macro uncertainties, it is also hard to see cash returns trending up from here.

That leaves us with equities. Why would you possibly want to buy equities when the world is so grim? We know that the local equity market is offering close to a 5 per cent yield overall, with even higher yields from blue chip stocks such as the banks, Telstra and REITs. And we know that our banks are some of the strongest in the world, corporate gearing is at 30-year lows and earnings are generally below cycle peaks. In 2008 we all experienced the risk of holding equities, but now the market offers reasonable valuations, yield support, solid fundamentals and the potential for reflationary policy moves. These factors suggest it may not be too long until we are back to the situation in 2009, where there was a greater risk to not holding equities.

Dale Gillham: It is actually quite hard to say which asset class will rise. Investor confidence is very low and as such, I believe investors will continue to

move funds into cash during 2012. Our economy is showing signs of weakness and Asia, especially China, is expected to slow, which will cause more jobs to be lost in Australia in the coming year. Given this, interest rates are likely to continue to fall and our share market will not be strong, in fact I believe 2012 is likely to be more bearish than bullish. That leaves property, and while falling interest rates will be somewhat of an incentive to buy, if job losses continue, I cannot see much upside in this sector. So what will see the most growth? Property, but growth will be patchy at best. What will see the least growth? The share market – I expect this will be the biggest asset class to fall in 2012.

Shane Oliver: 2012 will be a difficult year. I think Australian shares have the best potential next year, because they have had a terrible year in 2011. But the market is now incredibly cheap, dividend yields are extremely attractive, and it is likely to push high by year-end. The uncertainty though is that the European situation is continuing to spiral out of control. Therefore it could well be a year of two halves – where the first half is pretty terrible and things continue to worsen, and then we’ll see a really strong rebound at the end of the year as the gloom starts to lift.

We would be least comfortable with international bonds. The odds are that there will be upwards pressure on US bond yields next year, as the debt problems of Europe spread to America, or alternatively, growth will start to improve, which will also put upwards pressure on bond yields.

Joseph Brennan: We have studied a lot of variables – growth rates, interest rates, economic variables – to try to find factors that have some type of predictive relationship with future equity returns. Our empirical data suggests that the price an investor pays for growth is far more important than the level of expected growth. We recommend investors avoid chasing investments based on return expectations – rather, understand the risk and expected return characteristics of all the asset classes in their portfolio and rebalance back to policy weights when appropriate.

Philippa Sheehan: Whether an asset class grows or contracts in 2012, it is important to remember that diversification across asset classes remains the best possible means for investors to achieve their long-term goals.

OUTLOOK FOR 2012With so much uncertainty in the investment climate, it is almost anyone’s guess how things will unfold over the coming year. Financial Planning asked some investment experts to make their predictions on the opportunities for growth, areas that will struggle, and how they might respond to some key market events.


Kate Howitt, portfolio manager, Australian

equities, Fidelity Worldwide Investment

Dale Gillham, chief analyst, Wealth Within

Dr Shane Oliver, chief economist and head of

investment strategy, AMP Capital Investors

Joseph Brennan, principal, chief investment

officer – Asia Pacific region, Vanguard

Investments Australia

Philippa Sheehan, managing director, My Adviser

Our experts

We’re keeping our eye on emerging markets and watching for continued growth. It’s interesting that some developed countries are exhibiting the characteristics traditionally associated with emerging markets, and some emerging markets are proving to be more sustainable than traditionally thought.

This is because some emerging markets are beginning to exhibit gross domestic product growth well above that of some developed nations, and have balance sheets that indicate they are robust and well-managed compared with past efforts.

An asset class that we think will potentially underperform in 2012 is global equities, particularly in developed markets. The deleveraging necessary particularly in relation to sovereign debt issues will lead to little immediate comfort for investors.

What will be the most critical factors affecting the stability of financial markets over the coming year?

KH: There are four interconnected issues that will drive markets in 2012. First, it will become clear that ‘halfway house’ solutions for the Euro won’t work, so 2012 will either see a push towards European fiscal integration or the dismantling of the single currency in its current state. This European resolution, whichever way it goes, will have significant impacts for the rest of the global economy, so the second factor markets will grapple with is the ability of the US economy to maintain its current slight positive momentum. Election-year inertia means fiscal policy is unlikely to be a factor, either in stimulating the economy or in implementing the cuts required by the extension of the debt ceiling.

The third major factor will be the outcome of the current policy debate in China between reformers who would like to see a faster rebalancing of the Chinese economy towards consumption by continuing the squeeze on investment, and the provincial authorities who are supportive of reflationary policy moves. The outcome here has obvious implications for China’s demand for raw materials and hence Australia’s terms of trade.

Fourth, the net outcome of these situations will be seen in the currency markets. Further ‘money printing’ stimulus by the Fed would, in isolation, weaken the US dollar. But with risks to the Euro in its current form, the US dollar is reinforced in its role as the world’s

reserve currency. In turn, the Australian dollar will respond: a stronger US dollar and ongoing restrictive Chinese policies would weaken the Australian dollar, while significant reflationary moves by either the Fed or the Chinese authorities could see the Australian dollar sustained back above parity for much of the year.

DG: I expect 2012 to be the year of ‘show and tell’ where governments finally deal with the issues at hand rather than avoiding them as they have been doing, and this will allow world economies to readjust to a new paradigm. Initially this will bring instability to our markets, however it will lead to stability and the start of a new prosperous period for Australia by the end of 2012 that will run up to at least 2020.

SO: The resolution of the European problem and how that unfolds is the big issue. I think it is going to cause continued volatility in markets for some time to come, but is most likely to be resolved in the middle or second half of next year, and then the stabilisation could start to become a strength. Basically the uncertainty is whether Europe has a mild recession or a deep one, and the degree to which that affects the US, China and Australia.

JB: The most impactful macro issues that the market is currently grappling with are the pace and breadth of the US recovery – given high unemployment, weak housing, weak consumer spending, and fiscal drag; Euro contagion, in terms of fiscal health and associated banking sector issues; the price of oil; and China’s growth and the potential for faster yuan appreciation.

Of these issues the market’s concern over Europe’s financial system issues is contributing the most to recent volatility and is probably the most critical issue for the coming year.

PS: The continued uncertainty surrounding the state of play in Europe is the most critical factor. It is looking more likely that the EU’s attempt (or lack thereof) to solve Europe’s monetary crisis will result in a double dip recession.

What is the outlook for interest rates in Australia in 2012?

KH: Highly efficient monetary policy transmission is one of the key structural advantages of the Australian economy, but makes predicting RBA-moves well in advance a much harder game! It seems clear that the RBA doesn’t want to see house prices grow to any meaningful extent, in the interest of restraining

household debt levels. Conversely, we know that the RBA will be responsive to any further

weakening in the economic outlook for Australia.

DG: The outlook has to be down, and I would think that we would go back to

rates that we saw in 2008/09. In essence, if rates do not fall, we will see increased defaults

on housing loans, and neither the banks nor the government want that.

SO: They will be going down, probably another 75 basis points from here to 3.75 per cent. It all depends on the situation in Europe – if they have a milder recession, we might even see one or two more rate hikes, but if it is a deep recession and that flows through to China and the US, and therefore our own growth, we will see greater cuts. The backdrop locally is that the mining boom is continuing, and inflation worries over the last year seem to be receding.

JB: While Australia’s economy has been amazingly resilient throughout the past few years, our outlook is still closely tied to overseas conditions and events, particularly in Asia and Europe. The RBA has been in an enviable position compared to other developed country banks, as it has been able to adopt monetary policy that has balanced its view of future inflation and price stability with economic growth. The RBA, at its November 2011 board meeting, stated that a more mixed approach to managing cash rates (combining its usual inflationary band and with increased emphasis on monitoring Australian unemployment levels) will likely prevail in the short-term.


Dr Shane Oliver, AMP Capital Investors

Continued on p12

PS: It is anticipated that interest rates will initially fall in 2012 as the RBA attempts to address the issues associated with a two-speed economy, with rate rises likely towards the end of the year as wages pressures brought on by industrial action feed through into infl ation.

Hypothetical: If the Australian equity market dropped 20 per cent tomorrow, how would you respond?

KH: Use cash to buy stocks with solid business models, sound balance sheets and good yields. Macquarie Airports Limited, Wesfarmers Limited, Suncorp Group Limited, Commonwealth Bank of Australia, Rio Tinto Limited, Iluka Resources Limited and Oil Search Limited look attractive.

DG: I believe the probability is there, and we could see a 20 to 30 per cent drop in the share market in 2012. I am an active investor and so fi rstly I am not fully invested in shares for either myself or my clients, and secondly, I would move to 100 per cent cash very quickly if required. When I am teaching people to invest and trade, I stress that it is not what you make that is important, but what you do not lose, and this means preserving capital. On the fl ip side, I believe that next year is the last time we will see volatile markets for a while, and so anyone with a ‘buy and hold’ strategy with at least a fi ve-year horizon could simply ride out the turmoil and not really be affected too much.

SO: A 20 per cent drop would almost take us back to the lows we saw in the GFC, in late 2008 and early 2009. It would take the price/earnings multiple on Australian shares, which is currently around 10 times, to around eight times, which is historically what you see at market bottoms. It would push the dividend yield, currently 5 or 6 per cent, to 8 per cent in Australian shares. It would therefore establish tremendous value in the Australian share market, so I would put more money into the market.

JB: Rebalancing is an important component of any long-term plan. A 20 per cent change in the value of a portion of an investor’s portfolio should, all else being equal, trigger a rebalancing opportunity to return the portfolio back to its intended long-term asset allocation. This would generally entail buying more of the asset classes that have declined in value and potentially selling those that have appreciated – a tough approach that challenges behavioural biases. As diffi cult as this may be, we urge investors to stick to a sound long-term investment plan. This has generally proven to be the best course of action, regardless of what’s happening in the markets.

PS: Large daily fl uctuations in equity markets have become a regular occurrence. This noise often diverts clients from their medium- to long-term goals. We’ve all seen equity markets drop, as well as recover. History shows us the same. It’s trying to time the recovery that may lead to missing out.

So we would reiterate that any amendment to an investor’s long-term strategy should not be made for reactionary or emotional reasons – it should be made deliberately to keep on track to achieve objectives.

Hypothetical: If there was fi nally a resolution of the Eurozone debt crisis, what would you expect to see from the market and what would your response be?

KH: Markets tend to ‘climb the wall of worry’. So even though Europe is unlikely to be ‘solved’ in any quick way, an end to the uncertainty would give rise to a relief rally. We would sit back and wait for hot money fl ows back into the equity market to push valuations back to a level that better refl ects the resilience of underlying cashfl ows.

DG: Firstly I expect a dip in the market or a fi nal ‘fl ushing out’, so to speak, which is quite normal. At this time, investor confi dence will be at an extreme low and so I would not expect investors to be even looking at entering the market, but rather astute fund managers will be. Therefore, I would expect that we would get a slight upward burst in price before the market settles into a long-term sustainable trend. My

response would be to get into the market, and look to increase my exposure to it the more the uptrend unfolds. In my opinion, the resolution would signal an end to the volatility we have been seeing. After all, when everyone who was ever going to exit the market has exited, then it will rise. Given this, any last fl ushing out of sellers that occurs will signal a market bottom and so trigger the start of the investing cycle again.

SO: If you go back to October, we saw decent gains in the share markets around the world on expectations the Europeans were likely to get their act together. I think getting Europe under control would mean the European Central Bank acting as bond buyer of last resort for all the troubled countries in Europe.

This would have two effects – it would help to stabilise bond markets and inject a massive amount of liquidity into the European economy, which will help ameliorate recessionary pressures. That type of response would result in a huge rebound in markets. The initial response from the Australian market could be 5 to 8 per cent, and then over the next six months, it could easily be up 20 to 25 per cent. Australia could then

go back to focusing on the strengths in our trading partners, Asia, and investing, rather than

worrying about the politics in Europe.

JB: Since the market pretty effi ciently discounts the future, by the time news is fully public, it is generally already

refl ected in the price of assets. Most likely, by the time a truly credible resolution

became public, the market would have already discounted the news and the reaction would be muted.

PS: The Eurozone debt crisis is only one aspect of the overall need to deleverage economies. This process will not occur overnight and we look forward to supressed returns over the medium- to long-term.

It’s an interesting hypothetical because an argument could be made that the effect of this crisis has become so widespread, a resolution would potentially mean resolving a whole range of other issues. If that were the case, we could potentially expect a lesser degree of volatility in the markets caused by the Eurozone.

Whether the crisis is solved or not, our response would be the same as it’s always been – diversify your investments, invest with the appropriate amount of risk, and get holistic fi nancial advice. •

THE YEAR AHEAD


Dale Gillham, Wealth Within

–– “Th e market’s concern over Europe’s fi nancial system issues

is contributing the most to recent volatility and is probably the most critical issue for the coming year.”

Joseph Brennan, Vanguard Investments Australia

THE YEAR AHEAD

TOWARDS A NEW VISION FOR FINANCIAL PLANNERSAs one year draws to a close and a new one beckons, it is time to reflect on what has been achieved in what will be remembered as a watershed in the history of the FPA. Freya Purnell spoke to FPA chief executive Mark Rantall about the story so far and what lies ahead.

The new vision for the professionIt is only a year since the FPA heralded a new era. At the beginning of this journey, the focus was the need to become a professional association for individual financial planning practitioners.

Having devoted much time and energy over the last year to achieving this goal, the FPA is now able to articulate even more clearly what that exciting future might look like – with financial planning recognised as a universally recognised profession.

FPA CEO Mark Rantall explains.

“We envisage that in the next five to 10 years, there will be around 20,000 Australian financial planners. These professionals will be distinguished by law from product advisers, salespeople and others who are less qualified and experienced, and we envisage that most, if not all, will be CERTIFIED FINANCIAL PLANNER® professionals,” Rantall says.

“We foresee that these financial planners will belong to a recognised professional body – galvanised by their

common purpose in upholding the highest professional standards and speaking with a single voice.

“And in the future, we predict that Australian universities will be widely offering degrees in financial planning and kids will accept financial planning as a profession in the same light as accounting and medicine. We have 500 students doing this now across 15 institutions, and this will only grow as we accelerate our efforts.”

With professional discipline the expectation of all members, Rantall says, in the future FPA members will not be among those banned by the Australian Securities and Investments Commission (ASIC). This is already becoming a reality – of the 16 ASIC bans imposed in the 2010 calendar year, not one was an FPA member.

“In the future, we imagine that the consumer community will understand that we have a Professional Code of Practice and we place the interests of Australians before our own. This community will also respect us for the difference we make in people’s lives,

and they will trust financial planners because they are members of a professional body and this means something to them,” Rantall says.

Progress towards this visionLooking back on the last 18 months as FPA CEO, Rantall says he is proud of what has been achieved so far.

“It’s been a truly extraordinary time where we’ve gone into bat for our members, and we’ve done it with force. We had to pull apart and reconstruct the association so that we had one and only one focus going forward – our individual practitioner members,” he says.

The FPA’s work over the last year has centred on a few key messages: that it believes that incidents where people are ripped off by crooks can only be prevented in the future if the term ‘financial planner’ is restricted to those who work to higher standards of education, experience and ethics than required by law, and it urges consumers to look for an FPA member who


Continued on p14

THE YEAR AHEAD


works to these high standards when they need financial advice.

“These are the messages we say over and over again in the media, in advertising, and in our discussions with Government and regulators,” Rantall says.

The FPA received a welcome endorsement of both its stance on professionalism and of its mode of engagement with Government on the regulatory pathway from Assistant Treasurer and Minister for Financial Services and Superannuation, the Hon. Bill Shorten, who addressed delegates at the 2011 FPA National Conference in November.

Minister Shorten said he is “indebted” to the work of the FPA, and that it had “influenced the Government’s thinking heavily”. While he acknowledged the Government held “certain high-minded principles” when initially considering reforms to the provision of financial advice, he said the FPA had explained the consequences of the proposed changes.

“There’s no doubt in my mind that as we go through the various propositions in FoFA and MySuper, that the FPA has given me the most influential counsel of any that I’ve received on a lot of the issues,” Shorten said.

He added that while the FPA hasn’t agreed with each proposition advanced by the government, “they’ve also certainly tried to be constructive”.

“The FPA has made it very clear to me that it’s one thing to say we should change, but it’s another thing to also respect that people who have built up business models over a period of time just can’t simply change things, you certainly just can’t simply retrospectively go back and unwind arrangements, so I found the FPA to be strong but sensible.”

Shorten acknowledged the FPA’s leadership position in instituting a Code of Professional Practice, and said it sets an ideal benchmark for a proposed ASIC-approved code of professional ethical conduct, for any person providing advice.

“Your Code is widely recognised as being

world-class. It’s certainly the standard against which the Financial Ombudsman Service sets its determinations.”

When it comes to limiting the use of the term financial planner under law, Shorten also said that the FPA was “absolutely instrumental” in placing this on the reform agenda, and “on no day of the week since I’ve been Minister, hasn’t been pushing and prodding us” to consider enshrining the term in the Corporations Act.

Conveying the vision to clients, consumers and the communityWith consumer trust in financial planners suffering, one of the objectives of the new vision was to also communicate to the community at large the higher professional standards embodied by FPA members. In April, when members delivered the mandate to change, they also agreed to a national consumer advertising campaign around the FPA brand as a trusted mark.

This campaign has proved to be a resounding success. The advertising levy contribution made by members funded a cross-media campaign, and through careful negotiation an extra $1 million of media value was obtained, which allowed for six weeks’ worth of television advertising instead of five, among other benefits.

In under two months, the campaign delivered a 36 per cent improvement in consumer awareness of the campaign, and a 14 per cent boost in the awareness of the FPA brand. Research also showed that the more consumers saw the ads, the more they understood the campaign’s key messages – ‘not all financial planners are the same’, and ‘always look for a member of the FPA’.

Some FPA members gained new business as a result of the advertising campaign, while others were asked for the first time, ‘Are you an FPA member?’.

The campaign also resulted in a click-through rate from online advertising that was four times the finance industry benchmark, with an additional 20,000 visitors to the FPA website and over 1500 additional Find-A-Planner searches, proving that “consumers are indeed hungry for a source of trusted advice”, Rantall says.

“It’s vital that we don’t lose the momentum we’ve gained so far with Australians who are now just that little less sceptical of financial planners and a little more clear about where to turn for advice they can trust.”

Looking aheadRantall believes there are two options for the financial planning profession, when looking to the future: “There’s the picture in which a healthy new generation of financial planners are committed professionals who work to clear and enforceable standards. They are supported by a strong professional body and have earned consumer trust and confidence.

“Or there’s the other option, in which financial planning dissolves into oblivion with no future pipeline of new blood and where financial planners have all but lost the battle for trust, credibility and respect. We will have failed.”

Of course, Rantall does not consider the second scenario a viable option, and nor should it be, with FPA members already acting as the trusted, reliable advisers consumers are looking for. He instead encourages FPA members to step up and help the association to make this bright new vision a reality.

“I ask you to take an active part in your profession. Rise to the challenges that we’re all facing. Only by working together can we raise the bar and create the profession we deserve. Be an advocate to those who aren’t yet on the bus. Live up to your commitment, and do the best you can to play your part in building your profession.” •

Mark Rantall, FPA

REWARDING EXCELLENCEIn the inaugural Best Practice Awards, the Financial Planning Association has recognised five exemplary members for their outstanding commitment to Australians when delivering a higher standard of professional and trusted financial advice. Freya Purnell profiles the winners.

The FPA Best Practice Awards, replacing the previous Value of Advice Awards, recognise the superior outcomes for clients when professional financial planning expertise is provided in line with the FPA Code of Professional Practice and Code of Ethics. Entrants are also judged on areas such as practice management, business model, professional development, client testimonials and work with the local community.

The winners of the Best Practice Awards were announced at the FPA National Conference 2011 Gala Dinner, held in Brisbane in November.

FPA CEO, Mark Rantall, highlighted the high quality of entries received in response to the Best Practice Awards, which demonstrated the higher standards of professionalism and commitment FPA members provide to their clients.

“The standard of the submissions was outstanding, and further reminds us of the valuable advice and service our members offer Australians,” Rantall said.

“Each Best Practice Award winner has gone beyond the call of duty in their provision of financial advice to Australians and, as per FPA standards, has continued to put their clients first. It has been proven that consumers with a financial planner are financially better off than those without advice. These winners prove that, and carry the torch of professionalism on behalf of the FPA and our members.”

For the first time, the FPA also presented Best Practice Awards at a Chapter level, to recognise achievements at the grassroots local level. The National award recipients were selected from the Chapter winners.

FPA BEST PRACTICE AWARDS


Pippa Elliott CFP® began her business, Momentum Planning, back in 2002, and says it was quite a tough journey initially. “Being female, being young, being fee-for-service and doing lifestyle planning made it very hard to get those first five clients,” she says.

But a coach’s advice to “build it and they will come” has proven true – the business has now grown to service 113 client groups, with 192 people under advice. Elliott’s approach has seen her attract a younger client base, with 54 per cent under 50 years of age, and they have some common traits: “They have a vision to fulfil their lifestyle and financial potential and seek a long-term relationship that will continually support them. Many are time-poor when it comes to managing their personal finances, but know that they need to take action. The biggest risk they can take in life is to do nothing, so we continually encourage them to take the next step,” Elliott says.

“Our consultative approach allows them scope to explore many varied options, so that they can be assured of an independent analysis.”

She says Momentum differentiates itself from other planning practices through its many stages of client contact.

“The very first step is to decline working with clients that we believe will not gain value from our service for the fees we charge. Secondly, we have a two-adviser approach from the initial introductions, so that the

client is comfortable with and able to access an adviser who is familiar with their personal scenarios at any time,” Elliott says.

Momentum also conducts a minimum of three appointments – including discovery, current situation and strategy meetings – before providing an initial Statement of Advice

(SOA), and reviews clients every six months.

“At each review we ask which of their goals have been achieved in the last 12 months and tracking where net wealth was expected to be, versus where it actually is. A successful relationship is therefore measured by whether or not the client has met their desired outcomes, not performance of investments,” Elliott says. “We cannot control what the markets do – we can only control how much exposure the client has to those markets and that they engage those markets in an appropriate way, given their circumstances.”


Judges’ feedback

“Excellent outline of philosophy and process to ensure client is put first”

“Clear to client and sets out what will be done”

“Numerous strategies considered starting with a baseline – good discussion with

client on strategies”

“Good example of mentoring an employee within the group”

The FPA CFP® Professional Best Practice Award recognises worthy CFP professionals who have demonstrated the highest professional standards embodied by an FPA member.


FPA CERTIFIED FINANCIAL PLANNER® PROFESSIONAL BEST PRACTICE AWARD

National Winner: Pippa Elliott CFP®, Momentum Planning (WA)


Momentum’s advice is holistic, and they model various strategies – in isolation and blended together – for the client during the advice process.

“We show the client the strategies in isolation for the purpose of educating them on the impact of different strategies. The blends are more aligned to our investment philosophy of diversification and we seek feedback from the client on how they feel about the blends,” Elliott says.

However, the decision on the overall plan is left to the client, as they take more ownership over it when they make the choice themselves, according to Momentum.

“We believe that if a client does not engage in this process and own their decisions, they may not stay committed to it.”

Having offered a fee-for-service model since inception, Momentum’s clients pay flat monthly fees, based on the complexity of the client strategy, and these fees are charged monthly and reviewed annually.

“We must provide client value, or they will cease paying us. All commissions are rebated to clients, including insurance commissions,” Elliott says.

Given its focus on holistic lifestyle planning, Momentum encourages clients to keep the lines of communication open and contact their financial planners before making any financial

decisions, so that they are able to discuss the implications.

“By having flat fees rather than time-based fees, clients don’t hold back from calling or asking for a meeting when their circumstances change.”

In recent years, the business made a major change to its investment approach, from a core and satellite approach to a low-cost, highly diversified asset class approach, and Elliott describes this as the “best move the business has made”.

Clients appreciated the cost savings and the extra time it has freed up for planners to discuss their lifestyle outcomes, and from a business perspective, the move has improved efficiency, reporting and management.

“We can now spend more time on developing

our skills in advanced strategies for aged care, estate planning and self-managed super funds, all of which are very valuable to our clients and possibly not achievable if we were still busy picking managers, funds and stocks,” Elliott says.

In a notoriously male-dominated sector, Elliott says she is pleased to see many more women entering the profession. All of Momentum’s staff are women.

“I think women have some really good strengths to operate in this space. The empathy and the communication skills that come naturally to women is a positive, but I look forward to seeing a few more of us,” she says.

Having won an FPA Value of Advice Award a couple of years ago, Elliott knows this new award will have a positive effect on business.

“I benefited from that from a client rapport perspective, just concreting that it’s a great place to be,” she says.

But it has much more significance for Elliott personally.

“It is just a huge opportunity to keep working towards what we are all here for, to raise the bar and see our industry develop into a profession. I’m just excited to be a part of the process of showcasing what professional advice looks like and that it is possible to deliver that in a profitable way. I’m keen to share that message.”

Adelaide: Andrew Harris CFP® Minerds Bell Consultancy Group

Brisbane: James Kenny CFP®

Tupicoffs

Gippsland: Anna McGregor CFP®

Money Sense Financial Group

Mackay: James Harris CFP®

Brown & Bird Financial Planning

Melbourne: Russell Lees CFP®

Donnelly Wealth Management

Sunshine Coast: Greg Tindall CFP®

Macquarie Private Wealth

Sydney: Gregory Cook CFP®

Eureka Financial Group

WA: Pippa Elliott CFP®

Momentum Planning Pty Ltd

Western Division: Peter Roan CFP®

Roan Financial Pty Ltd

FPA Certified Financial Planner® Professional Best Practice Chapter Award Winners

–– “By having flat fees rather than time-based fees, clients don’t hold

back from calling or asking for a meeting when their circumstances change.”

Pippa Elliott


Michael Smith AFP® has been a planner for over a decade, and established his own practice in 2007, with a holistic diversified model focusing on estate planning and succession planning, particularly business succession.

“One of our primary goals is to try to look after small businesses where we can, so we are meeting directly with business owners and generally through that relationship, they end up coming on board as individual clients,” Smith says.

With this succession planning and small business focus, Smith always works in collaboration with the client’s accountant and any other professionals they might deal with, including solicitors, mortgage brokers, stockbrokers and bankers.

“I talk to these professionals where necessary to make sure that I understand the client’s situation and also to make sure that what each party is doing makes sense in the overall financial plan,” he says, adding that often there is no-one pulling all the threads together to look at the client’s overall situation.

Smith has also undertaken the Life Risk Specialist designation course and further training in estate planning to become more educated in these areas.

“When working on a business succession

case, it is important that I don’t just focus on the insurance aspect because if the legal agreements aren’t set up correctly, the insurances won’t achieve the goals they were implemented for. This extra study has enabled me to identify gaps in agreements or areas that have not been made crystal clear, and also given

me the confidence and knowledge to be able to have discussions around this with the client’s legal team.”

Education is also an important part of his advice process.

“I believe it is important for clients to understand financial markets and the need for insurances, so that they ‘own’ the plan when it is presented to them. I spend as much time as is required to make sure the client understands the plan so that they feel a part of it and are excited about seeing it through,” he says.

Initially as the sole adviser in his practice, Smith has seen the value in outsourcing paraplanning to an external organisation, Boutique Financial Planning Services, which he says assists in making sure the best strategy is chosen.

“By having two qualified people look at the client’s situation, it ensures the process of determining the best strategy is quite rigorous and robust,” he says.

Smith began studying towards his CFP® certification when he was a salaried planner, but the demands of starting a business – as well as having three children in three years – has limited the time he has had available to devote to further education. However, now a second planner has joined his practice, he looks forward to returning to study next year.


The FPA AFP® Best Practice Award is intended to encourage and recognise the achievements of AFP professionals who practise excellence by demonstrating higher standards and a commitment to professional development, including a clear path to achieving CFP certification.

FPA ASSOCIATE FINANCIAL PLANNER BEST PRACTICE AWARD

Joint National Winner: Michael Smith AFP®, Pure Financial Management Pty Ltd (SA)

“I intend to complete my CFP certification as this is the pinnacle qualification for our industry,” he says.

In the same way as the practice has used its fee-for-service offering as a point of differentiation with clients since its inception in 2007, Smith plans to leverage the award to promote the business to potential clients.

“I have been a big believer in continuing to evolve the business and make sure we are either equal to or ahead of the rest. One of the best ways to benchmark yourself against your peers is to enter these types of awards,” he says. “It’s probably one of the biggest things that has

happened to our business since we started.”

While the award provides welcome confirmation that he is adhering to the highest professional standards,

Smith says keeping a focus on his clients is what has ensured his practice’s ongoing success.

“My motto has always been that if you work hard and do the right thing by your clients, the rewards will come. By working this way, everyone knows that the clients’ interests are first and monetary rewards come second. Our objectives are also set up this way so that we recognise and reward excellence service over earnings.

“I wouldn’t want to do anything else. I really enjoy helping people, and I truly believe that getting advice is an important ingredient in anyone’s life nowadays.”


Judges’ feedback

“Good focus on clients’ goals. Considers alternative strategies”

“Good example of mentoring a staff member”

Newcastle: Andrew Frith AFP®

Leanne Templeton Chartered Accountants and Business Advisers

Perth: Steve Salvia AFP® Southern Financial Strategies

South Australia: Michael Smith AFP®

Pure Financial Management Pty Ltd

Sydney: Jim Fenwicke AFP®

Fenwicke Financial Services (joint winner)

Sydney: Sam Henderson AFP® Henderson Maxwell (joint winner)

FPA Associate Financial Planner Best Practice Chapter Award Winners



After 20 years working in financial markets, Jim Fenwicke AFP® decided to enter the financial planning profession just a couple of years ago. But before jumping in, he did his due diligence. After completing the Diploma of Financial Planning and canvassing the views of others in the industry, he decided on a number of non-negotiable requirements – that he wanted to be self-employed, to be in a position to provide clients with the best quality strategic financial advice, to be largely unfettered in recommending financial products to complement the advice, and to operate on a fee-for-service basis.

“Fundamentally clients are looking for a trust relationship. Trust first, then technical competence, and then they make a decision about value for money or affordability. Conflicted remuneration systems are a major impediment to trust relationships and it is for this reason I established a business based on fee-for-service,” Fenwicke says.

He chose to build his business from scratch, instead of buying an existing book of business which would carry trail commissions, and since then has attracted a client base, the majority of whom are 40- to 50-year-old professional and small business people, as well as self-funded retirees.

Fenwicke says he has learnt to go beyond just the financial aspects of their client’s situation to deliver true satisfaction.

“Like the majority of financial planners, I am trying to have a positive influence on the financial lives of my clients, however, I really believe that this is not enough. A bigger balance sheet is not the path to happiness – unless I can have a positive influence on my clients’ lifestyle and wellbeing, then I am not satisfied,” he says.

“It’s actually engaging people, asking the questions and discovering what is important to people, and relating the advice to achieving those goals. I have found that they are so happy and appreciative – it’s not really about the money, although the money helps, but it’s not what makes people happy.”

As a relatively new planner, Fenwicke has certainly demonstrated his commitment to education – undertaking the Advanced Diploma of Financial Service (Financial Planning), CFP® units 1, 2 and 3, the FPA Life Risk Specialist accreditation and several segments of the FPA Accredited Estate Planning Strategist

accreditation (which he plans to complete by April 2012). In addition he has undertaken short courses in SMSFs and direct equities. He is currently studying CFP 4, and plans to complete his certification in 2012. He is also working with other planners in his office to become an FPA Professional Practice.

Fenwicke believes that receiving the award provides evidence that he is adhering to the right standards and providing good advice to clients.

“I’m just quite proud to have received the award, and to be recognised in the context of what the FPA is doing in professionalising standards across the industry is very pleasing,” he says.

“From a business point of view, there are a lot of potential clients out there who want financial advice but they just don’t know where to go to get it, and they need someone who they can trust. An issue with being a new planner is that clients want to know that you have a broad enough understanding of the content, and I think this recognition will help my business.”

Judges’ feedback

“Uses FPA Code of Ethics as basis to ensure clients’ interests are always put first”

“Extensive study being completed to deliver better outcomes for clients”

“On track to get CFP certification”

Joint National Winner: Jim Fenwicke AFP®, Fenwicke Financial Services (NSW)

FPA ASSOCIATE FINANCIAL PLANNER BEST PRACTICE AWARD


Established in conjunction with the Future2 Foundation, the Future2 Community Service Best Practice Award is presented to an individual that has – in a voluntary, pro bono or public service capacity – made an outstanding contribution to improving the circumstances of those in the community who are socially excluded or financially disadvantaged. In addition, the recipient of the award will have made a positive contribution to the reputation

of the financial planning profession. The award recognises either:

• Contribution to a charity, community group or not-for-profit organisation or contribution to the disadvantaged, or

• Contribution to needy individuals in areas such as financial life skills, personal financial advice and mentoring.

FUTURE2 COMMUNITY SERVICE BEST PRACTICE AWARD

One of the 2010 FPA Value of Advice award winners, Charles Badenach CFP®, has this year won a Best Practice Award for his pro bono work with the community – both through developing a financial literacy course for new migrants and working with schools to educate students on the common financial mistakes made by young people and how to avoid them.

Badenach first began working with migrants by contacting the Migrant Resource Centre to discuss how he could help its clients increase their financial literacy levels.

“A lack of financial knowledge and understanding caused many migrants to make very poor financial decisions such as purchasing depreciating assets on hire purchase or via a credit card with no prospect of ever being able to repay the loans; signing contracts for properties without understanding the implications of what they were doing; and failing to understand the importance of a budget which meant their salary or Centrelink benefit was spent well before the

next payment period,” he says.

Badenach created a financial literacy program consisting of three three-hour workshops, and now presents the program on a regular basis to each intake of new migrants into the state. The workshops cover issues such as: getting a job, budgeting, banking, savings, debt, buying a car, home ownership, insurance, tax, investing, superannuation, wills and death, Powers of Attorney, and avoiding scams. In addition, Badenach also presents one-off sessions by request on topics such as home ownership, getting a loan, or insurance.

At most workshops an interpreter is required. As Badenach says, “Running these workshops really takes you back to basics and make you realise how lucky we are to live in Australia with the opportunities that we all have.”

Badenach says previously, the organisation had not considered financial literacy as a key area for new migrants and refugees.

“The knowledge and understanding that these people now receive is significantly greater than previously existed. This will in turn mean that fewer migrants are likely to make the poor financial decisions that unfortunately have been common in the past,” Badenach says.

Educating young people is another passion for Badenach, and earlier this year, he authored a financial self-help book which provides an outline of the decisions that individuals need to make through life to achieve financial security.

Badenach has used the book as the basis for developing a financial literacy program in schools. He donates a copy of the book to school libraries, provides a one-hour lecture to students titled ‘Common financial mistakes made by young people and how to avoid them’, and offers the use of the book as a fundraising venture for the school.

Continued on p22

As a planner with 20 years’ experience, Ross Shepherd CFP® has been recognised for the work he did with an individual family – a pro bono case he undertook as part of the AMP and Cancer Council Pro Bono Scheme.

The Cancer Council referred Shepherd to a couple, Matt and Julie (not their real names), with two children who required considerable care, as one was epileptic and one was partly deaf. Julie had been diagnosed with terminal pancreatic cancer, and the family needed financial advice


Underpinning this work is a strong social conscience, as well as the personal satisfaction gained from helping others who are less fortunate.

“This is an area that I feel passionately about – that as a profession we can assist at a grassroots level,” Badenach says. “In society I believe the gap between the ‘haves’ and ‘have nots’ is increasing, and unless those of us with the knowledge and the skills are prepared to share that knowledge, the gap is going to

widen and that’s not good for society as a whole.”

While Badenach says it was fantastic to receive the award, the recognition is not the driving force behind his pro bono work.

He entered the award in an attempt to help counter the myth that the financial planning profession isn’t as actively involved in community service work as a number of other professions are perceived to be.

“While there are a lot of financial planners who do some absolutely fantastic work, the public only reads about the bad stories, not the good stories... That’s why I entered, to try to change the perception of the public by showing that we actually do care and we do make a meaningful difference to people’s lives.”

Badenach is a strong supporter of the FPA’s move towards professionalism and raising the bar.

“We should all be improving every year in terms of what we do. We still have a little way to go in terms of being recognised as a profession, but I think we are certainly moving in the right direction.”


FUTURE2 COMMUNITY SERVICE BEST PRACTICE AWARD

Joint National Winner: Ross Shepherd CFP®, TBA Financial Services (NSW)

Joint National Winner: Charles Badenach CFP®, Shadforth Financial Group (Tas)

Judges’ feedback

“Has developed programs and presented many sessions to different audiences

benefiting schools, new migrants, families and students”

to ensure their financial security after her death. Shepherd worked with the family to communicate with Julie’s multiple superannuation funds and ensure that terminal illness benefits would be available, as well as the appropriate Centrelink entitlements. Because of Julie’s employment history, and the fact that she had had to leave work due to her illness, there were some complications around her eligibility. Shepherd had to work quickly, as Julie was given only months to live.

“I felt I was privileged to meet such a brave and very ill young woman whose sole concern was for her family,” Shepherd says. “She had one wish before she died – that she would be able to buy a home for her family.”

Ultimately Shepherd was able to secure benefits of $820,000 for the family, which helped them to buy a home and move from their rented accommodation – in doing so, fulfilling Julie’s dream.

“The assistance we as a practice have been able to provide to the family has been hugely rewarding and humbling. With our knowledge and experience within the superannuation industry, we have been able to access financial entitlements that the family was previously unaware were available to them,” says Shepherd. “The benefit of this has been that since his wife passed away in July, Matt has had the opportunity to grieve with his children without the added burden of financial worries.”

Matt has now sought assistance from Shepherd in mapping out a plan for his family for the future, and they continue to work together on other aspects of his financial and estate planning needs.

While grateful for this award, Shepherd also does not actively seek recognition for his pro bono work, with his colleagues nominating him for the award.


Judges’ feedback

“Outstanding example of the ability to assist a client through pro bono”

“Went beyond the call of duty to chase every avenue and option for the client”

“Clear direct impact on client and her beneficiaries”

“A very humble story”

Adelaide: Maurice Nistico CFP®

Nistico Sen Financial Management

Albury Wodonga: Wayne Moriarty CFP®, Moriarty Financial Services

Gold Coast: Kate Kimmorley CFP®

Kimmorley Financial Management

Hobart: Charles Badenach CFP®

Shadforth Financial Group

Newcastle: Ross Shepherd CFP®

TBA Financial Services

Sydney: Geoff Havenstein AFP®

Lifetrack Financial Services

Western Division: Peter Roan CFP® Roan Financial Pty Ltd

Future2 Community Service Best Practice Chapter Award Winners

Is your client seeking to invest in residential property or purchase property in a SMSF?

PROFILE

It’s been seven years in the making but finally, Australia’s first lady of financial planning, Gwen Fletcher AM, has finished her biography – Running Between the Raindrops.

From front cover to back, Running Between the Raindrops is an absorbing read from one of the true pioneers of financial planning.

In a very honest and sometimes confronting account of her life, Fletcher outlines her early years growing up as a Baptist minister’s daughter, to her years working with the American army during the Second World War, to her stint working as a Parliamentary Minister’s assistant, through to her business years and finally, her involvement with financial planning.

Over the years, Fletcher’s professional dealings and friendships with many high-profile Australians, reads like a ‘who’s who’. From prime ministers, including Sir Robert Menzies and Ben Chifley, to sporting identities like tennis great Kerry Melville, to Aussie wartime heroine and French underground fighter Nancy Wake – Fletcher knew them all.

“Nancy was my heroine,” Fletcher says. “To me, her tenacity and doggedness in getting things done and her humility represent the finest qualities in an individual. She really was a national icon.”

Fletcher recalls it wasn’t until she was in her

forties that she first saw the potential and need for financial planning in the community. This motivated her to move from accountancy into this frontier industry, where she would dedicate – and some may say dominate – the better part of the next 50 years to developing financial planning into the profession it has become today.

Fletcher was instrumental in introducing a formalised education program for financial planners in 1983 through her Investment Training College, where she lectured in financial planning. Later, she was also invited to lecture at Macquarie University for its Graduate Diploma course in Funds Management for Personal Financial Planning and its Master of Business Administration program.

Significantly, Fletcher, after a long period of lobbying the US International Association of Financial Planners, was a key player in brokering the deal to bring the CFP® certification to Australia in 1990 – making Australia the first country outside the US to be granted this designation.

Fletcher also played a pivotal role in campaigning for and organising the merging of the International Association of Financial Planners (IAFP) and the Australian Society of Investment and Financial Advisers (ASIFA) to become the FPA in 1992.

“It was so important for the industry to be united and speak with one voice. It wasn’t helping anybody having two competing member associations with competing agendas,” Fletcher says. “I vividly remember a conversation I had with the chairman of the Australian Securities Commission (which later became the Australian Securities and Investments Commission), Tony Hartnell. He said, ‘Gwen, in order for you to get your message across to Government, you need to speak with one united voice. Disunity only confuses the issue. The profession needs to speak with one voice.’

“And he was right,” Fletcher says. “Tony’s advice resonated with both competing associations, which saw the merger of both to form the FPA in 1992.”

But she speaks with disappointment at what has again become a fractious profession, with

RUNNING BETWEEN THE RAINDROPS

GWEN FLETCHER’S STORYBy any account, Gwen Fletcher has lived an extraordinary life… made all the more extraordinary by her contribution to the financial planning profession at a time in life when most people are thinking of winding down. At last month’s FPA National Conference, Gwen gave delegates a preview of her biography, which will be officially launched at the FPA Sydney Chapter Christmas lunch this month. Jayson Forrest spoke to Gwen about the highlights and lowlights of her remarkable life.


Julie Bennett and Gwen Fletcher AM signing copies of her book

competing member associations and political agendas.

“It seems that egos and personal interests have taken over. We need to regain lost ground with the Government, regulators and consumers by taking a collegiate approach for the greater good of the profession. Not until we have a united voice will the Government listen to us.”

In 2001, Fletcher became the inaugural president of the Association of Financial Services Educators (AFSE). The AFSE was formed by a group of educators from industry and academia to foster the exchange of ideas and research in relation to financial services, and to support and act as an independent voice representing the interests of educators in the financial services profession.

In 2002, she took on the voluntary role of principal adviser to the FPA’s education in schools project. The project, called DollarSmart, was a financial literacy course adapted from the US program and designed to educate high school students. The program launched in May 2003 and was distributed to Australian high schools. While the first release targeted children in Years 9 and 10 (15- and 16-year-olds), Fletcher’s vision was to prepare a further edition for school leavers and then another for mums and dads.

For her tireless service to the development of the financial planning profession through the establishment of national organisations and training and education programs, and for her role as a mentor to women in the finance profession, in 2007, Gwen was made a Member of the General Division of the Order of Australia (AM).

This honour was followed two months later with an equally prestigious award, as Fletcher’s peers at the FPA USA presented her with the Heart of Financial Planning Distinguished Service Award. It was the first time someone outside the US had been presented with this award.

In nominating Fletcher for this award, Professor Tom Potts – a director of the financial services and planning program at Baylor University in the United States – said she truly deserved this honour in recognition of all that she had done

in advancing the financial planning profession.

“Gwen is often referred to as ‘The First Lady of Australian Financial Planning’, but she has had an impact globally as well,” Potts says. “She has been a pioneer and leader in Australian financial planning and she has also been active in promoting international cooperation in the development of the profession. Gwen definitely exhibits the FPA’s core values and she is universally respected and loved.”

Fletcher is reflective when asked to nominate the highlight of her professional career – it is perhaps an overwhelming question for a person who has achieved so much in her life.

“That’s such a hard question to answer. I think my personal highlight has been meeting and working with truly talented individuals who have all shared a passion for developing financial planning into the profession it is today. I also enjoyed developing an education program for planners, which included teaching. And, of course, meeting and later marrying my darling husband, John.”

And what’s her advice for any aspirants wanting to join the profession?

“You need to take a broad view. Financial planning is not just about investments, it’s the whole holistic approach to wealth creation. But most importantly, it’s about helping the client,” she says. “You need to take on a client for better or worse, regardless of their financial situation. We’re in the business of helping people.”

Running Between the Raindrops is a fascinating walk through time – not just of an exceptional lady’s life but of the financial planning profession. But it’s much more than just that.

It’s the account of how an individual with sheer drive and passion for improving the financial circumstances of everyday Australians helped build a profession.

Fletcher’s story is masterfully written and researched by Julie Bennett. It is available for purchase for $39.95 (including GST), with a hard copy version available at $49.95.

To purchase a copy, visit www.64media.com.au/buy/bookstore/gwen-fletcher/running-between-the-raindrops/.

All proceeds from Fletcher’s profits will be donated to Future2. Gwen Fletcher is the patron of Future2, the foundation of the Australian financial planning profession set up to assist disadvantaged young Australians.


FPA 2011 NATIONAL CONFERENCE


Last month, financial planning professionals from around Australia gathered for three days of learning, sharing knowledge and networking, as well as a celebration of best practice at the annual Gala Dinner.

Raising the bar: FPA 2011 National Conference

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6 7 81. Andrew Dunkerley (NGS Super), Maria Maganic CFP® (NGS Super), and Darryn Studdert CFP® (NGS Super).2. John Hewison CFP®, Nathan Lear CFP®, and Gleen Fairbairn CFP® (all from Hewison Private Wealth).3. David Southwood CFP® (BUSS (Q) Building Super) and Julie Dalling AFP® (QInvest).4. Tony McGovern AFP® (Local Super) and Ray Bailey AFP® (Local Super).

5. Nicole Aubrey (BT Investment Management), Mal Gee (ING Direct), Deirdre Keown (PortfolioConstruction Forum), and Krysytna Weston (PortfolioConstruction Forum).6. Brian Quarrell CFP® (Wheeler Financial Services), Roger Phipps (Bennelong Funds Management), and George Flack CFP® (Flack Advisory).7. Rene Canuto CFP® (Canuto Pty Ltd) and Delma Newton CFP® (Total Portfolio Management).8. Annick Douat (BT Dealer Groups) and Greg Szwarc (NAB).

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9. Brian Knight (Kaplan), Luke Knight (Kaplan), and John Moore (The Tax Institute).10. Luke Moore (nabinvest), Mel Alpar (MLC), Matthew Vandermeer (MLC), and Stuart Haigh (nabinvest).11. FPA chair Matthew Rowe CFP® opening the Conference.12. David Jepsen (DWL Financial Services), Nicole Morrell (Perennial), Michelle Walker, and Matthew Oake (DWL Financial Services).13. Plenary speaker Kieren Perkins OAM.

14. Mark Ballantyne (Financial Wisdom), Avril Baxter (CFS), and Jason Evans (Financial Wisdom).15. Tracey Franks (Lonsec), Susie Newham (AdviserVoice), and Greg Lanyon AFP® (Greg Lanyon Financial Services).16. Gerard Doherty, David Bolsom, and Nick McDowell (all from Fidelity).17. Lawrie Cogswell CFP® (Westpac), Grace Bacon CFP® (Commonwealth Private), and Antony Pupovac CFP® (Commonwealth Private).18. Barbara Calder CFP®, Steve Heywood CFP®, and Gary Knight CFP® (all from State Super Financial Services).

Discretionary family trusts are not uncommon in the asset management of a family, and are often created to obtain maximum tax benefits and asset protection.

The High Court case of Kennon and Spry, whilst providing family lawyers guidance on the definition of ‘property’ in the family law context, has further developed the law relating to the treatment of assets held within discretionary trusts. This case may also have wider implications for other areas of law.

The existence of a family trust has always been problematic in family law proceedings, as it is in the tax and bankruptcy arena, because the trustee of the trust, who holds the legal title of certain property, has an absolute discretion to apply the income or capital of that trust property to the beneficiaries of the trust. Therefore the beneficiaries under a trust do not actually ‘own’ anything until a distribution is made by the trustee, except the legal right to insist upon proper administration of the trust, and to be considered for distribution along with all other beneficiaries.

Traditionally, the problem for family lawyers was that if trust property was not deemed to be property available for division between the parties in property settlement proceedings due to the veil of a trust, the rest of the asset pool may be so negligible that there could be little else available distribute to the other spouse.

With discretionary trusts, it is important to note that in addition to the trustee and the beneficiaries, there is also an appointor who can remove and appoint trustees, and often, amend the terms of the trust. Therefore the appointor of a trust is often deemed by the Courts to be the ultimate controller of the trust.

Kennon v Spry involved a senior Melbourne QC who specialised in equity. Prior to his marriage, Dr Spry had set up a trust, of which he was the trustee. The beneficiaries of the trust were himself, his siblings, their children and their spouses.

Through a series of steps over a number of years, the husband tried to distance himself from the assets within the trust. He did this by, firstly, excluding himself as a beneficiary of a trust, then, when his marriage was in difficulty, by excluding his wife as beneficiary of the trust. Throughout this entire period, Dr Spry was the sole trustee of the trust. Finally, a few months after the couple had separated, the husband established four new trusts, one for each of the parties’ adult children, and applied to each of the trusts one-quarter of all of the income and capital of the original trust, being approximately $1 million, to each trust. The husband appointed himself sole trustee of each of the children’s trusts.

The result of Dr Spry’s various amendments to the trust, in his capacity as trustee, was that the property available for division between him and his wife under section 79 of the Family Law Act 1975 (‘the Act’) was reduced to $4.6 million instead of $9.8 million.

Pursuant to section 106B of the Act, the Family Law Courts have wide powers to set aside transactions that have the effect of defeating a claim of a party in property settlement proceedings, for example, by transferring ownership of those assets to third parties. In this case, the wife used section 106B to bring a claim in the Family Court for a property settlement, and she applied to set aside the husband’s various transactions in an attempt to recoup the significant trust assets as property available for division by the Court.

The matter proceeded all the way to the High Court of Australia. The High Court upheld the original finding of the Family Court – that the husband’s final two transactions, which had the effect of removing himself and the wife as capital beneficiaries of the trust and transferring the trust income and assets to the children’s trusts, were entered into to defeat the interests of the wife and to put the assets within those trusts beyond the reach of the Family Court.

Those transactions were set aside by the Court. It was held that the assets of the trust, which, by virtue of the reversal of the transactions, held all its original income and property ($9.8 million), constituted property of the husband. The Court then found that the husband controlled the assets of the trust by way of his power as appointor and trustee. All of the trust assets were included in the matrimonial property pool available for distribution

Are discretionary trusts still an effective vehicle for asset protection following the High Court case of Kennon and Spry, asks Shannon Rippon.

TRUSTS


Can you trust a trust?

between the husband and his wife.

Finally, it was held the husband had the power as trustee to appoint the whole, or part of, the trust assets to the wife in her capacity as a beneficiary of the trust.

This case demonstrates the potential pitfalls of parties attempting to use family trusts as a tool to defeat the interests of their spouses. The Court has undoubtedly continued its ‘trust busting’ approach which it has been developing through case law in this area for many years. The major consideration of the Courts will continue to be who effectively has control of the trust, and therefore ownership of the assets with the trust. The case also highlights the far-reaching powers of the Courts to reverse transactions made to defeat legitimate family law rights and interests.

The concept of control of trust assets also extends to appointors and trustees who are deemed to be mere ‘puppets’ of a party, or ‘sham’ trusts where there is a consistent pattern of distributions from a trust which are ultimately used for the benefit of a spouse, even though at face value that spouse does not control the trust. In these circumstances, trust assets will also be included in the matrimonial pool.

It is only in circumstances in which neither party has the real unfettered control over the assets of the trust and receives no distributions from a trust, either directly or indirectly, that trust assets will not be considered matrimonial property. However even in these circumstances the assets of a trust will not be ignored by the courts, but, rather, may be deemed to be a financial resource of the party which will influence the court’s division of the remaining assets in the matrimonial pool.

Undoubtedly the most crucial asset protection mechanism remains the use of Binding Financial Agreements, which can be used to complement the continuing benefits of trusts from a tax and estate planning point of view.


Continued on p30

–– “This case demonstrates the potential pitfalls of parties

attempting to use family trusts as a tool to defeat the interests of

their spouses.”

Binding Financial AgreementsThe question of asset protection before entering into a relationship is one that is often asked, but usually after the event – by which time it is often be too late.

However people entering into a marriage or de facto relationship (same-sex and opposite-sex couples) today may need to consider complicated issues. Many people starting new relationships, with assets or children from an earlier relationship, seek the security of a financial agreement.

The Family Law Act which permits couples contemplating marriage or living together in a de facto relationship to enter into a Binding Financial Agreement (‘BFA’) before a marriage or living together, to determine how their property would be divided in the event of their marriage subsequently breaking down.

Provided that the BFA has been entered into properly, which includes each party disclosing the assets in which they have an interest, and obtaining independent legal advice, only in very rare cases will the Court set aside such an agreement.

What issues can be covered in a BFA?BFAs can be prepared to include either all or only certain specific assets and resources in which the parties may have an interest.

The BFA can deal with:

(a) the division or protection of any real property (such as real estate), businesses, or personal property (such as furniture, jewellery, shares and cash);

(b) the division of superannuation;

(c) the treatment of inheritances, gifts or windfalls; and

(d) whether provision is to be made in the agreement for the maintenance of either spouse.

For those couples currently in or contemplating entering into a marriage or de facto relationship it is vital that proper consideration is given to asset protection.

Little known facts about spousal maintenanceNot many of us realise when we enter into a marriage or a de facto relationship that in certain circumstances, a spouse may be liable to maintain the other in the event that their marriage or de facto relationship breaks down.

Spousal maintenance is when one person provides ongoing financial support for their former

partner. The Family Court can make an order for one party to pay “spousal maintenance” to the other if, and only if:

1. One spouse (the applicant) is unable to adequately meet his or her own reasonable needs; and

2. The other spouse (the respondent) has the capacity to pay.

It is important to note that spousal maintenance is not child support. Child support is paid for the benefit of children. The Family Court can order a party to pay spousal maintenance in addition to any child support they may be required to pay.

Spousal maintenance is not automatic, and often is considered as part of an overall settlement of financial matters. It is most likely to be ordered in cases where one party is ‘house bound’ with the care of young children and therefore unable to exercise their income-earning capacity. On the other end of the spectrum you will often find

cases where one party, usually the woman, has been out of the workforce for a significant period of time raising the children and has become deskilled or unemployable due to age. A further example would be if one party was unable to work due to illness. These situations result in a disparity of income-earning capacities between the parties.

Notably a party’s income-earning capacity is quite distinct from a party’s income. A party who unilaterally reduces their income, by their own choice, perhaps in an attempt to avoid spousal maintenance obligations, will be deemed to earn a higher income because of their income-earning capacity. A party cannot simply ‘sit on their hands’; they must exercise their income-earning capacity to its full extent.

In determining the amount of spousal maintenance, the Court will give consideration to a standard of living that is reasonable in all the circumstances. Here, reasonable does not necessarily mean the standard of living that the applicant led prior to the breakdown of the relationship, however this is a consideration of the Court.

A party’s obligation to pay spousal maintenance may be discharged in various ways including through periodic and regular payments or by way of a lump sum payment. It may also exist for different periods of time. Although spousal maintenance is generally intended to operate only for a short period of time following separation to enable applicants to get back on their feet, in certain circumstances, it may be appropriate that spousal maintenance be paid for a longer period of time.

Usually the payment of spousal maintenance may be tailored to end upon the occurrence of a specific event, for example, the person receiving maintenance completing training or re-skilling, securing employment or commencing a new de facto relationship. •Shannon Rippon is a senior associate with Mills Oakley Lawyers. For further advice on the Spry decision, Binding Financial Agreements, spousal maintenance and other family law issues, please contact Shannon Rippon on 03 9605 0902 or email [email protected].

TRUSTS



The beauty of trusts is that depending on a person’s needs, they can have a discretionary or a fixed or a testamentary trust, or anything in between, says Diamond Conway partner and estate planning expert, Michael Schneider.

Treasury estimates that there are 660,000 trusts in Australia. Discretionary trusts are popular for families and businesses because they can help protect assets and are tax-effective, providing the trustee with flexibility in how income and capital is distributed. When used to own and operate a company, a trust can entail less regulation and can make it easier to wind up a company. The trust deed can be tailored to meet the needs of its principals and beneficiaries, and in the event of the death of the founder, the trust continues, helping the estate avoid triggering capital gains tax and stamp duty.

From a family law perspective, trusts can also go a long way to protect assets and are likely to become ever more popular with baby boomers, says Hall & Wilcox special counsel Emma Woolley. Baby boomers have an unprecedented level of wealth and they are concerned about ensuring that it passes into the hands of their children, she says.

“They are also concerned about asset protection for all the money that they have built up over time and trusts do offer some protection in that regard.”

Trusts are also coming to the attention of a broader range of people because financial planners are becoming more knowledgeable and understand their benefits, Woolley adds.

So trusts can be very attractive indeed. But tax changes in the pipeline may remove a bit of their shine.

Impact of legal changesThe tax laws surrounding trusts have been a bone of contention for some years. The Federal Government sought to address longstanding problems with interim changes before it embarked on a wholesale review. This all came about following a High Court decision in

Commissioner of Taxation v Bamford [2010] HCA 10 (known as the Bamford decision), which highlighted the fact that the amounts on which a beneficiary is assessed for tax do not always match the amounts they are entitled to under trust law.

Interim changes that have since been introduced include new rules allowing the streaming of capital gains and franked dividends. These changes have ramifications for financial planners because they only apply if a trust deed explicitly allows it.

Institute of Public Accountants senior tax adviser Tony Greco says the flexibility of trusts in general means that there are many different structures out there, so planners can no longer make assumptions that the trust deed allows for streaming. A financial planner’s priority is to read the deed to see what it can and cannot do, assuming the deed can actually be found. Greco notes that the Australian Taxation Office will specifically ask where in the deed it states that the trustee has the power to stream.

Timing is another important issue that financial planners now have to consider, he says, as there is a

timeframe in which resolutions have to be completed. And while amendments can be made to the trust deed to enable streaming, he warns against making too many changes.

“It can create a resettlement and that has some nasty capital gains consequences.”

Despite the tax changes and uncertainties, Greco is optimistic that the wholesale review will have positive outcomes.

“We can look forward to a wholesale rewrite of trust law to bring them into the 21st century,” he says.

Greco concedes that the implications of the wholesale review could be huge. This is evident in the options paper Treasury released towards the end of November which put forward a range of options in the way trusts could be treated going forward. On the release of the paper, Minister for Financial Services Bill Shorten said the review aimed to achieve fair and consistent tax outcomes, and he reaffirmed the Government’s earlier assurance that it would not tax trusts as companies.

The options paper stated that the review was not a crackdown on trusts, which Greco says gives some comfort that the broad benefits that have made trusts so popular in Australia will be retained, while some of the headaches caused by the tax rules over the years will be relieved. However, he is careful to point out that with the wide range of options set out, there are no certainties.

“This is going to be a long process and could go from being a minor facelift to full-blown surgery.”

Greco says that changes may take the shine off some of the more popular features of trusts.

“Advisers are probably in the difficult situation of not knowing what the future holds,” he adds. “In the end we might miss out on a couple of little things, but the

While discretionary trusts are popular tools for financial planners due to their flexibility and their effectiveness, changes to the law may affect their utility in the future, writes Caroline Munro.

Tides of change

Continued on p32

broad benefits of splitting income will be retained. One of the proposals is to follow the money trail, which seems quite practical.”

With the huge number of Australians likely to be impacted by any changes, “it would be politically unwise to turn the tables on a lot of the advantages of trusts”, Greco adds.

Woolley says that the outcome of the wholesale review may have some positives and some negatives.

“We just don’t know yet,” she says. “We have found that managing or administering trusts has certainly become more complicated and therefore potentially more expensive. But I don’t think there are going to be any changes that will make them less attractive. Rather they’re likely to make them more attractive.”

Referring to the options paper, Greco notes that the Government is not keen to implement any changes that will see it losing revenue.

“There is a proviso that states that at the end of the day this thing has to be revenue neutral, which suggests to me that if there are measures to simply the system but cost money, they won’t be considered.”

Eyes wide openPutting future changes aside, the advantages as well as disadvantages of discretionary trusts lie in their flexibility, says Schneider.

Discretionary trusts are a fantastic tool while people are still alive simply because people have the flexibility to do a range of things with them, he says. And depending on how they are structured, they can retain that flexibility.

“The death of someone generally doesn’t trigger a major event for a discretionary trust. But the real issue is who is going to be in control going forward and how will they exercise control, because typically that person has very few constraints. If you want to actually mandate how assets are to be distributed, then it becomes a disadvantage.”

Schneider says there are strategies available to ensure a certain outcome, including a letter of intention to the new controller of the trust.

“Generally it’s not wise to get in there and change the

terms of the deed from discretionary to a fixed trust because that would trigger capital gains and stamp duty,” he says. “So your options are passing control to someone and entrusting them to carry through your wishes or alternatively passing control in such a way that various people can only exercise rights in line with your intentions.”

The increasing complexity of family arrangements and the growing pool of wealth are also issues that financial planners particularly need to keep an eye on.

Woolley feels that the key vulnerability of trusts lies in the extensive powers that the Family Court has in Australia to look through structures and determine the division of assets.

“The Family Court now also has power to deal with the assets of people in de facto relationships. They are very extensive powers and the key issue to discuss is how to protect assets from the Family Court,” she says. The only certain way to do so is by having a Binding Financial Agreement that can be done before or during a relationship or marriage, she adds.

“The thing is that sometimes you don’t even realise you’re in a de facto relationship. You don’t really have a cut-off date like in a marriage and de facto relationships can kind of creep up on you,” Woolley warns.

Schneider feels discretionary trusts are relatively safe.

“If everything has been validly set up and an independent person is validly appointed to take over control of the trust, provided that person then administers the trust in accordance with the terms of the trust and it is fully discretionary, then the beneficiaries have limited rights as to the decisions regarding the distribution of assets that that person might make,” he says.

The beneficiaries have rights to information and to ensure that the trust is duly administered, Schneider adds.

“But in terms of forcing a particular decision on that trustee, if it is a discretionary trust, their rights are quite limited.”

The passing of time may lead to issues with trusts that planners can prevent through ongoing communication with their clients.

“People’s objectives evolve as life unfolds,” says Schneider. “For example, people get into relationships and then those relationships fail.”

It is not uncommon for an ex-partner to inadvertently gain control of a trust according to the terms of the trust, because the trust was not tweaked to adjust to that life change, he says.

Woolley agrees that it is essential that financial planners are always aware of what’s happening with their clients over time. She says a financial planner can add real value and ensure significant cost savings for their clients in the long run by ensuring they invest in a plan or structure for the future.

Schneider says it is also important for all of a client’s key advisers to understand what structures have already been put in place, as subsequent changes could unravel an entire plan and leave the client exposed.

“Invariably many clients have entity arrangements and it’s important that advisers be aware of how assets owned within those entities can be dealt with appropriately,” he says.

Schneider, Woolley and Greco agree that financial planners should have good referral relationships with other professionals in the trusts area, whether to help navigate the complexities of trusts or to simply understand what structures a client already has in place. •

TRUSTS


Emma Woolley,Hall & Wilcox

The Financial Planning Academics Forum (FPAF) – formed over 12 months ago as a response to the FPA’s call for a greater level of professionalism within the industry – and comprising of academics from Australia’s 19 tertiary institutions actively involved in teaching and researching in the personal finance and investment disciplines, conducted its first two-day conference in Brisbane last month.

Speaking to Financial Planning magazine, FPAF co-chair Associate Professor Mark Brimble said financial planning was at a critical junction in its move to being recognised as a profession and it was important that academics played a role in this transition.

“By forming FPAF, we’re bringing together academics with an interest in the personal finance space,” he said. “FPAF is about co-operation and collaboration between tertiary institutions around education and research in a collegiate environment.”

In officially opening the symposium, Griffith University Pro Vice Chancellor Professor Michael Powell spoke of the importance of financial planning, particularly in the wake of the GFC and through the current malaise of global markets.

“Personal finance is something that is of direct interest to us all (academics) and indeed, the whole community,” Professor Powell said.

“We want to ensure that the profession is moving in the right direction, by providing the

right type of education through our tertiary institutions and rigorous academic research. It’s good to have financial planning as part of the universities and tertiary curriculum.”

The symposium saw a number of academics present their latest research and discussion papers to colleagues on a wide range of topics including financial literacy, frontier markets, superannuation, ethics, risk mitigation strategies, and the value of financial planning advice.

In a provocative keynote presentation on superannuation, entitled ‘MySuper and the Future of Default Option Design in Superannuation’, Professor Michael Drew argued strongly against the traditional 70/30 split in default funds, which typically applied to four out of five fund members.

He told the symposium that successive years of downside volatility on member balances required the dawn of a new paradigm in default option design. Drew argued that it was time for lifecycle-based approaches to default option design, which would allow tailoring to be provided to members, thereby providing a more appropriate balance between growth and risk.

Drew said there had been work around new innovations in the customisation of lifecycle default options, particularly dynamic lifecycling, which allow superannuation savings to be managed to a retirement income objective, with


Continued on p34

In an Australian first, over 60 academics attended the inaugural Financial Planning Research Symposium held at Griffith University in Brisbane last month. Jayson Forrest reports.

ACADEMICS ADD VOICE TO PROFESSION

ACADEMICS FORUM

risk managed not simply on the basis of age, but informed by the income target.

“This allows the glide path to be informed by events (such as the GFC) and not blindly switching asset allocations just because you celebrate a birthday,” Drew said. “To paraphrase Mr Buffet, when playing bridge, it pays to look at the cards – when lifecycling, it pays to look at the accumulated balance.”

In a discussion session on ‘Professionalising Financial Planning’, Sharon Taylor, the head of program for the Bachelor of Financial Advising course at the University of Western Sydney and the associate head of school engagement, was highly critical of the wider financial planning industry for not always recognising and accepting financial planning degree qualified students.

“I can’t tell you the number of times students have come back to me saying their degree (Bachelor of Financial Advising) is not recognised by licensees. These licensees tell them to complete their DFP when in fact, a financial planning degree well exceeds the DFP and RG146 requirements,” Taylor said.

It was a view supported by other academics at the symposium.

The FPA joined AMP Horizons Financial Planning Academy and Victoria University in sponsoring this inaugural symposium.

The Financial Planning Academics Forum (FPAF) was born out of a discussion between academics at last year’s FPA National Conference on the Gold Coast as a response to the FPA’s call for a greater level of professionalism within the industry.

The FPAF is a forum of academics working closely with the FPA to forge stronger links between tertiary institutions and the financial planning industry. The FPAF is discussing ways of strengthening those links by addressing the industry’s research needs, disseminating research results more widely, and enabling all financial planners to acquire

an accredited tertiary qualification.

FPAF VisionTo provide academic leadership in financial planning in the key areas of research, tertiary education, curriculum development, government and industry development policy consulting, financial planning professional community development and Australian community interest advocacy.

FPAF Role• To interconnect and represent the interests of its members with government, commercial, academic and community stakeholders.

• To promote and develop collaboration between its members, and national and international stakeholders.

• To advance the interests of its members.

• To develop through its academic, consulting and community activities, public and stakeholder understanding about the role, purpose, function and activities of the financial planning academic community.

• To work closely with the FPA and aligned associations on enhancing the professionalism of the industry.

Griffith University Associate Professor Mark Brimble gave delegates an update of the Financial Planning Education Council (FPEC) – an FPA initiative – which was set up in April this year to provide the industry and academe with a vehicle in which to discuss tertiary curriculum development within the profession. The Council is made up of three FPA practitioners and three academics from the FPAF.

The FPEC was developed out of the November 2009 FPA white paper on education expectations which led to the November 2010 policy paper on requirements for professional membership and education. The broad goal of the FPEC is to develop and deepen the relationship between the financial planning profession and the university community.

Specific goals of the FPEC include:

• Develop an Australian financial planning curriculum;

• Develop accreditation requirements for the range of ‘approved programs’ that will be accepted for entry to FPA membership and CFP® certification;

• Establish expectations of academic participation in the profession;

• Channel research activity in financial planning;

• Promote the value of university and industry

partnership in financial planning; and

• Promote the career of financial planning to university students.

According to Brimble, the FPEC’s focus this year has primarily been on the first two points (as outlined above), which have culminated in the release of a discussion paper this month on the proposed national curriculum for financial planning and the accreditation process which tertiary providers will have to cover off in their curriculum. The paper also discusses off on the process for the providers to obtain registration of their programs as a pathway to the CFP designation. Essentially, it is the ‘approved degree’ that is referred to in the new education requirements for membership of the FPA.

Comment on the discussion paper from tertiary institutions is due back by February 2012.

FPA chief professional officer Dr Deen Sanders confirmed that the FPEC had been working closely with the FPA in relation to curriculum development. This development is aligned to eight core knowledge areas: introduction to financial planning; client relationships; superannuation and retirement planning; estate planning; insurance; financial planning construction; taxation; and investments. In addition, the FPEC has identified a further six desirable knowledge areas: accountancy, law, economics, statistics, marketing and research.


What is the Financial Planning Academics Forum?

Financial Planning Education Council


Professor Natalie Gallery, from the Queensland University of Technology, presented an overview of research she is currently conducting with other researchers on the value of advice. This project was awarded Australian Research Council Linkage grant funding in partnership with the Financial Services Council in 2011. According to Professor Gallery, while anecdotal evidence indicates financial advice can have adverse effects on consumers’ financial and emotional wellbeing, there is no known empirically grounded research that has examined the extent to which, and how, financial planning advice contributes to broader client wellbeing.

The aim of Professor Gallery’s research project, which has funding for three years, is to establish how the quality of financial planning advice can be optimised to add value, not only to a client’s financial situation, but also to broader aspects of their wellbeing.

“This broader construct of wellbeing captures a range of process (for example, how financial planning advice is given) and outcome (for example, financial situation) factors that map to concepts of security, control, choice, mastery, and life satisfaction,” Professor Gallery said. “Knowledge of how financial advice contributes to consumer wellbeing is vital as industry and policymakers strive to professionalise financial planning and enhance the quality of advice.”

The outcomes of this research are expected to assist in informing policy debate and industry practices for improving the value of financial planning advice to consumers and their wellbeing.

The Value of Financial Advice

In this discussion paper presented to the symposium by the University of New England’s Associate Professor Martin Hovey (co-authored with David Wysel), the authors were interested in determining whether the new ‘best interest’ duty for financial planners under FoFA, will translate into better portfolio management and, therefore, better performance outcomes for clients to compensate them for the likely additional costs of advice for those retail clients who seek financial advice from a planner.

Hovey said there is anecdotal industry evidence which suggests that the active management processes of the Australian investment planning

industry may not add any additional value to clients over and above fees charged. He added this line of argument is usually promoted by the direct investment industry and the ‘do-it-yourself’ investor.

“To counter this argument, the funds management industry has developed various investment styles and themes which suit certain asset classes in certain parts of the investment cycle,” Hovey said. “These investment styles usually do not outperform in all market conditions but nevertheless cater to the small account investor unaware of measures of risk such as alpha and beta and correlation of asset classes. The extant academic literature with regards to the management of portfolios, provides additional

guidance to what might be considered an optimal portfolio management strategy.”

Hovey agreed managing investment portfolios for clients is a dynamic and flexible process where the skills of the planner are used in a “systematic way to achieve a consistent level of performance outcomes for the client”. And although actively managing an investment portfolio requires a high level of involvement by the financial planner, he said it remained to be seen which, if any, clients will pay for this under the new best interest duty provisions.

Part 1 of this discussion paper appears in this edition – see page 36.

FoFA – Managing Investment Portfolios


THE FUTURE OF FINANCIAL ADVICE AND THE EFFECTS ON PORTFOLIO MANAGEMENT: PART 1

The greatly anticipated first tranche of the draft legislation of the Future of Financial Advice (FoFA) reforms has been released by the Minister for Financial Services and Superannuation for public discussion and analysis. This tranche embraces the ‘opt in’ proposals, the ‘best interest’ duty and standard for advisers, and an augmentation of ASIC’s powers to enforce the new legislative elements.

ASIC lists some 259 reports into the financial services and related industries prepared since 1999, with a number of these reports directly investigating the issues of the quality of financial advice, disclosure arrangements when providing advice, and the specific issue of performance of various investment sectors and products.

Despite some 11 years of reporting, the industry appears to be subject to another round of legislation under FoFA in an attempt to provide retail consumers with the professionalism and standard of advice which the industry would like to offer, the Government seeks to introduce and enforce, and which clients are suggesting through the greater use of direct investing and use of alternative investment strategies that are not being matched by performance outcomes.

The purpose of this article is to discuss whether the introduction of the best interest duty conditions under FoFA will result in improved portfolio management and recommendations. Part 2 of this paper introduces an alternative view – a futuristic view – of how the financial advice industry might better encapsulate the professionalism and the overall efficiencies in portfolio management expected by clients.

The principle guiding the application of the best interest duty is:

“that meeting the objectives, financial situation

and needs of the client must be a paramount consideration when providing advice” (Explanatory Memorandum, 1.22, 2011).

The ‘best interest’ duty is perhaps the less controversial of the changes under the FoFA proposals yet it may be argued it is one of the more significant, as it directly affects the professional relationship between an adviser and a client and the underlying legal relationship which this entails.

One of the major benefits of the best interest duty perceived by the government announced during the public consultation process is that:

“The changes (i.e. best interest duty) are important measures to improve the quality of advice and consumer outcomes. Retail clients will benefit because the measures are expected to reduce instances of sub-optimal financial advice and will result in an overall improvement in the advice quality, particularly product outcomes” (The Treasury, 2011a).

The best interest duty requires the provider of the advice

to make a series of steps to demonstrate that a process has been followed to show the client’s best interests have been considered. These are (from Mallesons, 2011):

1. Identifying that the objectives, financial situation and needs of the client have been ascertained;

2. Identifying that the advice is wanted by the client;

3. Carrying out reasonable investigations by the provider if information about the client is incomplete or inaccurate;

4. Warning the client that advice could be wrong if it is apparent the client should receive advice on another matter other than that asked;

5. For the provider to decline to give advice if they do not have appropriate expertise;

6. Assessing if the client’s needs can be met by purchasing financial products;

7. Carrying out a reasonable investigation into the

This paper, by Martin Hovey and David Wysel, from the School of Business, Economics and Public Policy, Faculty of the Professions, at the University of New England, investigate the proposed ‘best interest’ duty standard and whether this will have an impact on the quality of portfolio management by financial planners on behalf of clients.

WHITE PAPER

The FPA is determined to offer members access to cutting edge research in the field of finance and financial planning. The very nature of engaging in such research is that it will frequently be dealing with issues that are subject to change or that invite debate and academic consideration.

This month’s article deals with the intersection of portfolio construction and the best interest duty as first proposed in the original Tranche 1 public consultation issued by Treasury.

Whilst we now know that the duty has been altered, the key issues of the article and the role of efficient frontier theory remain significant issues and we commend the article to you.

Dr Deen Sanders Chief Professionalism Officer, FPA

Putting the article in perspective


financial products which might meet the client’s needs; and

8. Where a licensee’s approved product list is used and it is apparent there is no suitable product on the list to meet the client’s needs, the provider acknowledges they are not recommending from the list.

The Explanatory Memorandum (see Explanatory Memorandum, 1.23, Commonwealth of Australia, 2011) also expands on the broad steps which providers of advice must take in acting in the best interests of the client. The Government states that it is not possible in advance for the legislation to cover all the broad range of financial advice relationships and the commercial nature of those relationships which are widespread across the industry. The starting point is for the adviser to identify the client’s objectives, financial situation and needs of the client as disclosed by the client through instructions to the adviser and the subject of discussions (see Explanatory Memorandum, 1.24, 2011).

The final step in the new best interest duty under FoFA is for advisers to base all judgements in advising clients on the objectives, financial situation and needs of the client (Explanatory Memorandum, 1.33). Advisers are expected to follow the “know your client” and “know your product” requirements of the present Corporations Act, although the steps required under the best interest duty are considered more expansive than previously required by the Corporations Amendment (FoFA). This would be expected to raise the standard of advice by advisers.

The Government has made it clear that the new best interest duty guidelines are to achieve a higher standard of process of advice for clients and should not be seen as outcomes based or standard. This is interpreted to mean that the adviser may have used good best interest duty processes but, unfortunately for the client, achieved a lower performance outcome.

However, the adviser cannot rely solely on the instruction from the client and must make further certain inquiries to the client where it is reasonably apparent that information is incomplete, inaccurate or generally insufficient for the adviser to provide complete advice. The test for ‘reasonably apparent’ relies on:

“what would be apparent to a person with reasonable level of expertise in the subject matter of advice”; and

“This means the test is of a higher standard when the subject matter of advice is highly complex and technical in nature” (see Explanatory Memorandum, 1.27, 2011).

Portfolio managementThe definition of portfolio management is taken from Maginn et al. (2007) to be an ongoing active process in which the changing nature of economics, markets, currencies and general investment market outlook for various asset classes are all actively reviewed along with the changing nature of the client’s circumstances. This involves:

1. Establishing the client’s investment objectives and various constraints;

2. Developing investment strategies;

3. The structure and composition of the portfolio are defined;

4. Investment decisions are made and implemented; and

5. The portfolio performance and outcomes are measured and evaluated.

Monitoring a portfolio is a continuous process which requires the adviser to evaluate events and trends and changes in asset values to watch for divergences and to adjust the portfolio back to the client’s asset allocation profile.

There is some complementary wording in the Government’s examples as to what is expected by the best interest duty and the intent and wording of portfolio management as shown above.

In strategic asset allocation decisions, the adviser takes into account the investor’s return objective, risk tolerance, and investment constraints are matched to the long-term goals of the client.

With tactical asset allocation, the adviser is making shorter-term decisions about rebalancing asset weightings in response to changing market valuations and making decisions about particular investment selection to reduce overall systemic risk.

There are a various styles and themes which providers follow on behalf of a client when managing a portfolio. The main management styles are an active or a passive approach. With the active investment style, economic and investment market conditions are monitored routinely with the objective to outperform a given benchmark such as a margin above risk-free returns, or the manager’s benchmark, and adjusting the asset mix and investment holdings in the expectation to outperform the benchmark, adjusted for transactional costs. With a passive investment approach, of which indexing is the

main style, there is little expectation or attempt to outperform the market rather than just achieve parity with the manager’s and client’s nominated benchmark.

In practice, individual advisers have neither the experience nor operating capacity and time to actively manage individual portfolios. They adopt a variety of personal and more reactionary approaches to managing client portfolios. For commercial reasons and following the processes outlined above, advisers are required to focus on the initial asset allocation decisions matching client risk profiles to asset attributes which, in the main, are performed at the point of set-up only using one of a number of profiling methods available. Advisers tend to ignore the shorter term tactical risk mitigation investment decisions, such as those often discussed by Rumble (2011) unless prompted ex post by a client inquiry or severe market reaction.

Certain anecdotal industry evidence suggests that the active management processes of the Australian investment planning industry may not add any additional value to clients over and above fees charged. This line of argument is usually promoted by the direct investment industry and the ‘do-it yourself’ (DIY) investor. To counter this argument, the funds management industry has developed various investment styles and themes which suit certain asset classes in certain parts of the investment cycle. These investment styles usually do not outperform in all market conditions but nevertheless cater to the small account investor unaware of measures of risk such as alpha and beta and correlation of asset classes. The extant academic literature with regards to the management of portfolios provides additional guidance as to what might be considered an optimal portfolio management strategy. The aim is to meet defined investment objectives with the overall philosophy, benefit and wealth of the investors in mind.

In truth, the choice of assets that make up a portfolio are selected for many impetuses. For example, it may be that the investor may simply enjoy owning a particular asset. For instance, a vintage car may be both an investment and owned due to the pleasure derived from it. An individual’s principal residence provides protection and maybe prestige. However, the theory of finance considers asset allocation as an investor. “One should always divide his wealth into three parts” (Rabbi Issac bar Aha, 2011) is advice provided in the 4th century

Continued on p38

regarding portfolio allocation. In line with this stems the naive diversification approach that applies an equal allocation of investment across N assets – the 1/N rule. The inception of Markowitz’s portfolio theory (Markowitz, 1952, 1959; Markowitz, 1955) brought about the notion of maximising the expected return of a portfolio for a given amount of risk – the efficient frontier (see Figure 1). Risk is made up of two components, systematic (market risk) and idiosyncratic risk can be diversified away – the capital asset pricing model (CAPM). It should be noted that, to some extent, market risk can also be diversified through an international portfolio, thus giving the investor the ability to minimise even market risk. CAPM is often contrasted with the arbitrage pricing theory which is advocated as an alternate model (Roll and Ross, 1980; Ross, 1973).

More recently such models as the Fama-French three factor model have gained attention and are used relatively widely (Fama and French, 1992, 1993). Jorion (1997) then introduced ‘Value at risk: the new benchmark for controlling market risk’ which is a means of evaluating portfolio risk, based on the worst-case scenario. It is not based on variance. A popular means of modelling VaR is the Monte Carlo simulation. The models and approaches used have continued to progress, but no single approach has emerged as being absolutely best for all asset allocation and timing decisions – there are strong proponents of the 1/N rule today (see for example, DeMiguel, Garlappi, and Uppal, 2009; Pflug, Pichler, and Wozabal, 2011), as well as the mean-variance model which has been extensively applied in asset allocation and active portfolio management (Meucci, 2009).

The notion of the fundamental instruments of financial decision-making and portfolio management have involved optimisation in addition to practices and research which have revolved around various approaches such as decision support tools, forecasting, fuzzy logic, simulation and stochastic processes. For example, Berleant, Andrieu et al. (2008) create optimal portfolios in the first instance by applying the standard mean-risk method and then apply stochastic dominance (SSD) and Information-Gap Theory on the portfolios to accommodate the choices of the rational, risk-averse investor in acute uncertainty. Ko and Lin (2008) posits that an optimal portfolio can be achieved through a resource allocation neural network model, which modifies the investment dynamically and achieves a greater return than a buy-and-hold strategy. Veraart (2011) discusses optimal investments in the foreign exchange market.

In recent years, multi-criteria decision analysis is one model that has come to the fore. It is based on the notion that in practice a single objective or philosophy is seldom used to make decisions. Thus the approach aims to develop suitable methodologies that can be applied when multiple decisions with conflicting factors, objectives or philosophies are taken into account simultaneously (Spronk and Hallerbach, 1997; Xidonas and Psarras, 2009; Zopounidis and Doumpos, 2000).

In considering the timing of advice and the review and rebalance of portfolios, to a large extent it is contingent upon the investment horizon and wealth utility maximisation of the client (Brandt et al., 2005). On the other hand, more recent advocates have introduced the notion of intertemporal choice, which is the study of the relative value people assign to two or more payoffs at different points in time (Baumann and Muller, 2008; Breeden, 1979). Thus, portfolio choice does depend on the investor’s horizon. However, it should be noted that typically, myopic investment is shown to be a less advantageous approach to investment though widely practiced and the dynamic may have considerable advantages (Brandt et al., 2005). Thus, the multi-period approach of creating portfolios, a relatively new development, could provide a solution. But there needs to be more research conducted regarding applying the model in

practice (Fabozzi, Huang, and Zhou, 2010).

An interesting phenomenon is that lower risk preferences have a tendency to be adopted by investors after riskier options have had a period of poor performance and the reverse is also true. This practice tends to lead to poor overall portfolio performance. Even though it may be what the investor prefers, it could well be asked if it is indeed the best approach to portfolio management when applying best interest duty.

Since each approach has its benefits and drawbacks, some methods may be more suitable depending on the context and philosophy of the investor, as well as implementation and the transaction costs. Will the new best interest duty for financial planners translate into better portfolio management? That obviously depends largely on many aspects primarily relating to such aspects as transaction costs, portfolio methodology and the available research and knowledge to drive asset allocation methods and practices.

Part 2 of this white paper will appear in the next edition of Financial Planning. For the full version of the paper, the appendix and the full list of references, visit www.financialplanningmagazine.com.au.


WHITE PAPER

0.16

Expe

cted

Ret

urn

Risk (Standard Deviation)

Mean-Variance Efficient Frontier and Random Portfolios

0.15

0.14

0.13

0.12

0.11

0.10.16 0.18 0.2 0.22 0.24 0.26

Figure 1: The efficient frontier

Source: Yang (2011). Please note: The solid line represents the efficient frontier. The dots are assets within the portfolio showing the level of risk versus the expected return. Assets below the efficient frontier are not performing as well as those on the line, as their expected return is not commensurate to the risk that they bear.


ReferencesAFA (2011), The Tides of Change. Association of Financial Advisers (AFA). (www.afa.asn.au/documents/mediacentre/mediareleases/2011/AFA_WhitePaper_TidesofChange_FINAlv6.pdf) (Accessed: 28 January 2011).

Baumann, R.T. and H.H. Muller (2008), Pension Funds as Institutions for Intertemporal Risk Transfer. Insurance Mathematics & Economics, 42 (3): 1000-1012.

Berleant, D., L. Andrieu, J.P. Argaud, F. Barjon, M.P. Cheong, M. Dancre, G. Sheble, and C.C. Teoh (2008), Portfolio Management under Epistemic Uncertainty Using Stochastic Dominance and Information-Gap Theory. International Journal of Approximate Reasoning, 49 (1): 101-116.

Brandt, M.W., A. Goyal, P. Santa-Clara, and J.R. Stroud (2005), A Simulation Approach to Dynamic Portfolio Choice with an Application to Learning About Return Predictability. The Review of Financial Studies, 18 (3): 831.

Breeden, D.T. (1979), An Intertemporal Asset Pricing Model with Stochastic Consumption and Investment Opportunities. Journal of Financial Economics, 7 (3): 265.

Commonwealth of Australia (2011), Corporations Amendment (Future of Financial Advice) Bill 2011, Explanatory Memorandum, 2010-201.

DeMiguel, V., L. Garlappi, and R. Uppal (2009), Optimal Versus Naive Diversification: How Inefficient Is the 1/N Portfolio Strategy? Review of Financial Studies, 22 (5): 1915.

Fabozzi, F.J., D.S. Huang, and G.F. Zhou (2010), Robust Portfolios: Contributions from Operations Research and Finance. Annals of Operations Research, 176 (1): 191-220.

Fama, E.F. and K.R. French (1992), The Cross-Section of Expected Stock Returns. The Journal of Finance, 47 (2): 427-466.

Fama, E.F. and K.R. French (1993), Common Risk Factors in the Returns on Stocks and Bonds. Journal of Financial Economics, 33 (1): 3-57.

FPA (2011a), Who Can Call Themselves a Financial Planner? Financial Planning Association of Australia Limited (FPA). (www.fpa.asn.au/default.asp?action=article&ID=22382) (Accessed: 26 Oct 2011).

FPA (2011b), Code of Professional Practice. Financial Planning Association of Australia Limited (FPA). (www.fpa.asn.au/media/FPA/Websitefiles/Prof_/FP034D_CodeofPractice_V7.pdf) (Accessed: July 2011).

Jorion, P. (1997), Value at Risk: The New Benchmark for Controlling Market Risk. Irwin Chicago.

Ko, P.C. and P.C. Lin (2008), Resource Allocation Neural Network in Portfolio Selection. Expert Systems with Applications, 35 (1-2): 330-337.

Maginn, J.L., D.L. Tuttle, J.E. Pinto, and D.W. McLeavey (Eds.) (2007), Managing Investment Portfolios. (3rd ed.). John Wiley & Sons, Hoboken, N.J.

Mallesons (2011), Future of Financial Advice (FOFA) – First Round of Legislation, Market Alert, Regulator, August 2011, 29 August 2011. Mallesons Stephen Jaques.

Markowitz, H. (1952), Portfolio Selection. The Journal of Finance, 7 (1): 77-91.

Markowitz, H. (1959), Portfolio Selection Efficient Diversification of Investments. John Wiley & Sons, Inc., New York; Chapman & Hall, Limited, London.

Markowitz, H.M. (1955), Portfolio Section. University of Chicago, N.P.

McCormick, D. (2011), Does Strategic Asset Allocation Make Sense? Money Management. (www.moneymanagement.com.au/news/does-strategic-asset-allocation-make-sense) (Accessed: 22 September 2011).

Meucci, A. (2009), Risk and Asset Allocation (1st ed.). Springer, New York.

Pflug, G.C., A. Pichler, and D. Wozabal (2011), The 1/N Investment Strategy Is Optimal under High Model Ambiguity. Journal of Banking & Finance (in press).

PWC (2011), Regulatory Change in Wealth Management… Are You Getting Ready? PricewaterhouseCoopers. (www.pwc.com.au/industry/asset-management/publications/regulatory-change-in-wealth-management.htm) (Accessed: June 2011).

Rabbi Issac bar Aha (2011), Babylonian Talmud: Tractate Baba Mezi’a. (www.come-and-hear.com/babamezia/babamezia_42.html) (Accessed: October 2011).

Roll, R. and S.A. Ross (1980), An Empirical Investigation of the Arbitrage Pricing Theory. The

Journal of Finance, 35 (5): 1073-1103.

Ross, S.A. (1973), The Economic Theory of Agency: The Principal’s Problem. American Economic Review, 63 (2): 134-139.

Rumble, T. (2011), Catch the Rally, Dodge the Risk. Eureka Report. (www.eurekareport.com.au/iis/iis.nsf/pages/19D438A42B335765CA2579170023A047) (Accessed: 26 September 2011).

Santacruz, L. and A. Lukashenok (2009). Personal Financial Planning in Australia: An Industry Analysis. Paper presented at the Asian Finance Association Conference, January 2009, Brisbane QLD, Australia, University of Queensland Business School.

Spronk, J. and W. Hallerbach (1997), Financial Modelling: Where to Go? With an Illustration for Portfolio Management. European Journal of Operational Research, 99 (1): 113-125.

The Treasury (2011a), Frequently Asked Questions. Australian Government, The Treasury. (futureofadvice.treasury.gov.au/content/Content.aspx?doc=faq.htm) (Accessed: October 2011).

The Treasury (2011b), Media Releases. Australian Government, The Treasury. (futureofadvice.treasury.gov.au/content/Content.aspx?doc=media_releases.htm) (Accessed: October 2011).

Veraart, L.A.M. (2011), Optimal Investment in the Foreign Exchange Market with Proportional Transaction Costs. Quantitative Finance, 11 (4): 631-640.

Williams, J.R. and World Medical Association (2005), Medical Ethics Manual. World Medical Association, Ferney-Voltaire, France.

Xidonas, P. and J. Psarras (2009), Equity Portfolio Management within the Mcdm Frame: A Literature Review. International Journal of Banking, Accounting and Finance, 1 (3): 285-309.

Yang, J. (2011). Reviewing on Asymmetric Dependence Structure on Australian Mutual Funds. Paper presented at the Personal Finance and Investment Conference, Brisbane (November, 2011).

Zopounidis, C. and M. Doumpos (2000), Building Additive Utilities for Multi-Group Hierarchical Discrimination: The Mhdis Method. Optimization Methods & Software, 14 (3): 219-240.

PRACTICE MANAGEMENT

HOW TO PLAN EFFECTIVELY

At this time of year, many of us are thinking of taking some much deserved time off, some are reflecting back and thinking they worked far too hard in 2011 and asking themselves how they can make next year better, and some are just truly exhausted! However, don’t flake out completely because now is a convenient time to reflect on the past year and think about 2012. Become your own business coach – ask yourself some hard questions and create some attractive goals and strategies now to make 2012 the year you deserve.

Critical questionsConsider these four questions:

1. Did the business achieve everything you wanted it to this year?

2. Are you working with the right people, that is, clients, staff, and referral partners?

3. Did your business systems support and drive the business forward or did they slow it down and cause headaches?

4. Did you attract and retain the right clients?

So, for example, how do you come up with a strategy to grow your financial planning business? You must first understand what you can do as a business and then ask yourself and your stakeholders some key questions to develop your own strategic plan and actions.

There are several ways to look at your financial planning business. Below is an example for those wishing to look at the business as a whole (recommended). It doesn’t need to be a complicated process.

The five-step process 1. Take several pieces of paper and divide them into boxes that signify each area of your business, for example, admin, technology, marketing, finance, human resources and so forth. Create a mind map of all the different areas of your business.

2. Ask yourself, how would you like that area to be in 12 months’ time?

3. Then identify the gaps (where they are now) and create small projects to fill those gaps.

4. Now create actions to complete the projects and allocate responsibility to someone (you can’t do it all!).

5. Create regular meetings to ensure that the actions are being taken and the business is moving

forward. This is a critical step in identifying if the business needs external assistance to achieve the goals.

Choose smart goalsWhen completing this exercise, you may wish to consider using a proven goal-setting formula – the SMART methodology. Using this formula, ensure goals are specific, measurable, attainable, relevant and time-bound. This methodology also allows anyone to pick up your business strategy and have a basic knowledge or understanding of it. Specific goals are well-defined and clear. For example, rather than ‘attract more clients’, you commit to attracting two new clients per month. Measurable goals can be evaluated and monitored; you can calculate how far away completion is and know when they have been achieved. Attainable goals


1. Flying solo: Nothing turns others off more than being force-fed a strategy and told to make it happen this year. Practice leaders may make the strategy and run with it, perhaps even put a bit of effort and sweat into it; yet they can, and frequently do, walk away at the first sign of trouble. If you have a team that you work with, include them in setting the strategy and goals for 2012 – that way they have ownership and can be held accountable for their assigned actions.

2. Operating as a silo: When you identify the actions that need to be taken to achieve your goals, make sure you talk to people who have a deep understanding of what you are trying to achieve. For example, you might want to start your own networking group or develop a social media strategy. If you haven’t had direct experience in these areas, make sure you engage with those who have – talk to the experts to make sure your goal and actions are right for your business. Too much time can be wasted developing goals and actions and then not knowing how to actually implement them.

3. Ignoring other industries: Many financial planning businesses look only at what other planning businesses are doing. Lessons can be learnt from other industries – such as management consulting, technology, and consumer products companies. Have a look at other client-centric businesses and get some inspiration from them.

4. No follow through: You may have big eyes for growth and put together a great plan to get you there, but if you do not set action steps and goals, or hold people accountable to them, you won’t achieve what you want in 2012. As a business leader, you must make sure the right factors are in place – set clear expectations and give feedback, make tools and resources available, and put incentives and consequences in place to guide people’s behavior.

Don’t make these four mistakesStart 2012 on the right foot with some reflection on where you are and where you want to go, writes Rachel Staggs.

are reachable and reasonable for the business. Relevant goals take into account resources and time, and time-bound goals have a date by which the goals should be achieved.

For example, financial planning business XYZ wants to bring on two new clients each month, as an example. So let’s break this down. What does it take to bring on two new clients per month? How can you turn this goal into an action? Perhaps you will need to attend five networking events a month, or gain more referral partners. Develop a plan of action for your goal and then set up a time each month to check in and evaluate your progress. If

you’re not taking the actions you wrote down to achieve your goal of two new clients per month, ask yourself why? What will it cost the business? Become accountable for your actions and you’ll be amazed at the results you can get.

The SMART goal-setting methodology has been around for years – because it works! The more specific you can get with these goals, the more clarity you will have and you will end up taking the right actions to achieve them. Suddenly just wanting to bring in two new clients per month becomes more specific – recruiting those clients through referrals from accounting practice xyz

and attending the local small business networking group.

You have wasted your time if all you have done is write down your business goals. Success lies in writing down the actions to achieve those goals and making yourself and others accountable for achieving them. This not only drives your business towards the success you want for 2012, but empowers others involved too.

Rachel Staggs is founder and CEO of SRS Coaching and Consulting. www.srscoachingandconsulting.com.au


FOR THE YEAR AHEAD

TECHNICAL UPDATE

FIRST FOFA BILL RELEASED, BUT MORE TO COME

The Corporations Amendment (Future of Financial Advice) Bill 2011 was introduced in the House of Representatives in September. The Bill seeks to implement the first components of the FoFA reforms, although it does not contain all the amendments that were included in the first tranche of draft legislation released in August 2011. The reforms will commence on 1 July 2012.

The Bill has been referred to the Senate Economics Legislation Committee for report by 14 March 2012.

The Bill proposes to require financial planners, described in the Bill as “fee recipients” (persons who hold a financial services licence with an authorisation to provide financial product advice or their representatives), to obtain their retail clients’ agreement in order to charge them ongoing fees for financial advice. Key requirements are outlined below.

Disclosure obligationCompulsory disclosure and renewal notice obligations will apply to advisers in situations where they provide personal advice to a retail client, and the client pays a fee which does not relate to advice that has already been given at the time the ongoing fee arrangement is entered into. In practical terms, these obligations will only become relevant to advisers when an ongoing fee is to be charged for a period of 12 months or more.

Fee disclosure statementIn order to continue charging an ongoing fee for a period longer than 12 months, the adviser will be required to provide a fee disclosure statement to the client outlining fee and service information relevant to the client (proposed section 962H). The disclosure statement will need to be provided within a period of 30 days beginning on the 12-month anniversary of the day the arrangement was entered into, or, if a fee

disclosure statement has been given to the client since the arrangement was entered into, within a period of 30 days beginning on the 12-month anniversary of the day on which a disclosure statement was last given.

Details to be contained in the statement would include fee and service information about the previous and forthcoming 12 months.

Renewal notice obligation every two yearsIn order to continue charging an ongoing fee for a period longer than 24 months, the adviser will be required to provide both a fee disclosure statement and a renewal notice to the client. The adviser will be required to provide the client with a renewal notice within a period of 30 days beginning on the 24-month anniversary of

the day the arrangement was entered into (or, if the arrangement has since been renewed, within a period of 30 days beginning on the 24-month anniversary of the last day on which that arrangement was renewed). There will be flexibility in how advisers they present these documents.

Although the fee disclosure statement and the renewal notice are required to be provided within a period of 30 days beginning on the relevant anniversary date, there is nothing preventing an adviser from providing these notices earlier than that.

Client not liable if adviser non-compliantIf the adviser does not fulfill the above obligations, the client will not be liable to continue paying the ongoing advice fee past the relevant 12- or 24-month period. If a client makes a payment of an ongoing fee after a failure to comply with the disclosure obligation, the adviser is not obliged to refund the payment in full (proposed section 962F(3)).

Where, for example, an adviser sells a book of business to another adviser, and it was the previous adviser that failed to comply with the fee disclosure obligation, this does not alter the fact that the client is not liable to continue paying the ongoing fee.

What’s not in the Bill – best interests dutyThe FoFA reforms also propose the introduction of a requirement for advisers to act in the best interests of clients and a ban on conflicted remuneration, including commissions, volume payments and soft-dollar benefits. These measures are being implemented through a supplementary Bill, introduced into the House of Representatives in November.

Terry Hayes is senior tax writer at Thomson Reuters.


–– “Compulsory disclosure and renewal notice obligations will apply to advisers in situations

where they provide personal advice to a retail client.”

REGULATION UPDATE

THE CODE OF PROFESSIONAL PRACTICE PILLAR

Pillar 4 – Code of Professional PracticePolicy Example – Enshrining the Term Financial PlannerOne of the FPA’s key objectives is to strengthen consumer protection by restricting the use of the term ‘financial planner’ to only those individuals who possess the relevant education qualifications, commit to continuing professional development, have the required levels of competency, adhere to higher ethics and standards, and who belong to a professional body recognised by the industry regulator.

In the past three issues of Financial Planning, we have looked at how three of the Four Pillars principles – Public Interest, Professional Practitioner and Government and Regulatory – could be used in formulating policy for ‘Enshrining the Term Financial Planner’. This month we will examine the fourth and final principle of the Four Pillars – Code of Professional Practice.

This pillar aligns FPA members to a high standard of professionalism and integrity, which provides practitioners with a higher level of standing and trust within the community. Formulating policy, therefore, needs to be fully consistent with the Code of Professional Practice to reinforce and support the behaviours that reflect good conduct.

“This is an intentional pillar to ensure that we are aligned with the professional expectations of our members,” says FPA general manager, policy and government relations, Dante De Gori. “If we require financial planners to value their professional obligations, then the FPA should equally do so as we develop policy.”

The FPA Code of Professional Practice includes three enforceable components: Code of Ethics, Practice Standards, and Rules of Professional Conduct.

This pillar not only encompasses professional expectations, but education, ethics and behaviour. De

Gori says it’s imperative that FPA policy reflects the expected behaviour of its members and that’s what the Code of Professional Practice has been set up to do.

“The Code is designed to impact on the motivation and behaviour of our members in terms of what the FPA’s expectations are,” he says. “You want professional principles to be ingrained in all members; it’s just what’s expected by being a professional. These principles should instil practices and behaviour that become second nature to a financial planner. And if our policies don’t do that, then that’s a failure of our policies.

“Individually, people know if they are doing the right thing, so this principle is really to help financial planners realign their professional standards where there is a grey line, and make sure they are aligned with this Code.”

With regard to enshrining the term ‘financial planner’, De Gori says the Code of Professional Practice clearly sets an FPA financial planner apart from other “types” of financial advisers.

“By adhering to our Code, we are saying you are a professional and as a result of that, you are expected by your clients, the public and Government to be acting professionally and always in the best interests of your clients. By doing so, we continue on our journey of transitioning into a profession and placing FPA financial planners on the same level playing field as lawyers, accountants and doctors in terms of how the Government and the public perceive them.

“So, the Code of Professional Practice, which is enforced by the FPA, is vitally important to enshrining the term ‘financial planner’. It is the biggest differentiator between those who are just selling products and those who are members of the FPA and have committed to much higher standards of professionalism, education, ethics and integrity.”

De Gori adds that in developing the Code, it was no mistake by the FPA to ensure that the first principle of the Code of Ethics (which makes up a key component of the Code of Professional Practice) was to place the client’s interests first.

“This principle is the hallmark of any profession and fundamental to formulating policy at the FPA,” he says.


The past three issues of Financial Planning magazine have looked at the FPA’s Four Policy Pillars, which are used to formulate policy at the FPA. Dante De Gori spoke to Jayson Forrest about the fourth and final pillar – the Code of Professional Practice.

The key elements of the Four Policy Pillars are:

1. Public InterestAs a professional association, all policy must be created in the public’s best interest.

2. Professional PractitionerAll policy developed and approved must meet the interests of practitioner members in a way that helps to enhance the professionalism of planners and facilitate a sustainable business and advice offering to clients.

3. Government and RegulatoryPolicy needs to contribute to creating efficient and effective regulation of the industry, without creating unnecessary regulation, duplication and additional ‘red tape’. Policy should ideally minimise or remove existing regulation without compromising the integrity of what is best for the consumer.

4. Code of Professional PracticeThe Code aligns members to a high standard of professionalism and integrity, which provides practitioners with a higher level of standing and trust within the community. Policy, therefore, needs to be fully consistent with the Code of Professional Practice to reinforce and support the behaviours that reflect good conduct.

Four Pillars

CENTRELINK

SUPPORT FOR FAMILIES WITH TEENAGERSFrom this date, Family Tax Benefit Part A will increase for dependent 16- to 19-year-olds who are undertaking full-time secondary study. The maximum rate will increase to $214.06.

Family Tax Benefit Part A may include an annual supplement of up to $726.35 for each child, which is paid after the end of the financial year once tax returns have been lodged.

Depending on income, the amount of Family Tax Benefit Part A will automatically be adjusted from 1 January 2012, if payment is being received for a dependent child who:

• Is at least 16 years old, and

• Has not turned 19 years old before 1 January 2012, and

• Is in full-time secondary study.

While the child is in full-time secondary study, their income will not affect the rate of Family Tax Benefit Part A received. If a child is unable to study, customers need to call the Family Assistance Office on 136 150.

Also from 1 January 2012, Family Tax Benefit will generally cease when a young person turns 22.

Payment of Family Tax Benefit Part B and/or Multiple Birth Allowance will only continue after 1 January 2012 for children in full-time secondary study up to the end of the calendar year in which they turn 18. These payments are not available for children in tertiary study.

After 1 January 2012, young persons aged 16- to 17-years-old, dependent, living at home and still in full-time secondary study will generally not be able to start receiving Youth Allowance.

Those currently receiving Youth Allowance on 31 December 2011 may continue to do so. However, the increased rate of Family Tax Benefit may be a better option for the family.

The maximum rate of Family Tax Benefit Part A for 16- and 17-year-old full-time secondary students is about the same as the maximum fortnightly rate of Youth Allowance for under 18-year-old dependent students living at home. If a person claims Family Tax Benefit, their family may be entitled to extra payments such as Family Tax Benefit Part B, Rent Assistance and the Family Tax Benefit supplement payments.

The online Family Assistance-Youth Allowance Comparison Estimator may help customers work out which payment is best for their family.

To receive Family Tax Benefit A, the young person needs to stop their Youth Allowance and a claim for Family Tax Benefit must be lodged by their parent or guardian by contacting the Family Assistance Office on 136 150 or by lodging a claim online at www.centrelink.gov.au. Youth Allowance cannot be stopped by the parent or guardian of the young person without permission, unless they are a correspondence nominee.

If Youth Allowance is stopped after 31 December 2011 and the family has claimed Family Tax Benefit,

it is possible to go back to Youth Allowance if it is decided that it is the better payment option.

A young person’s Health Care Card in their own name will be cancelled if their parent or guardian receives Family Tax Benefit for them. However they may be included on the family’s Health Care Card if the family is eligible for one.

From 1 January 2012, the Youth Allowance age of independence will reduce to 22.

If a person has a child from a previous relationship for whom they receive child support and the child wishes to continue secondary study beyond their 18th birthday, an extension to the child support assessment is required. To do this, customers can contact Child Support on 131 272.

If a customer does not seek an extension of their child’s child support assessment prior to the child’s 18th birthday, they will not be eligible to receive the higher rate of Family Tax Benefit. Unless there are exceptional circumstances, Child Support cannot accept an application to extend a child support assessment once a child has turned 18.

To find out more about the changes to Family Tax Benefit and Youth Allowance, visit www.centrelink.gov.au or call 136 150.


On 1 January 2012, Family Tax Benefit and Youth Allowance are changing.

CHAPTER EVENT REVIEW


A newly formed Chapter Committee in Townsville kicked off their work with a launch event last month at Townsville Yacht Club. Dr Deen Sanders, FPA’s Chief Professionalism Officer, provided local members with an update on the Federal Government debate around the Future of Financial Advice reforms (FoFA) and the ongoing work the FPA is undertaking ‘behind the scenes’.

Elsewhere on the FoFA front, the Hon. Bill Shorten MP visited the Western Australia Chapter, where 120 guests congregated to get an update on FoFA and ask the Minister questions.

Continuing with the policy theme, the South Australia Chapter ran a practitioner panel forum where local financial planners with different business models gave their perspectives on how they are approaching the implementation of Opt-in for new clients from 1 July 2012. The afternoon was combined with the presentation of awards, recognising the local Best Practice Award Chapter winners and the newest CERTIFIED FINANCIAL PLANNER® professionals in 2011.

On the social front, both Sydney and New England Chapters held their annual golf days in the past month. The local golfing events continue to be a big hit with members and an integral part of the Chapter calendar.

REGIONAL ROUNDUP

Aberdeen Asset ManagementAMP CapitalAustock LifeAustralian UnityAXA AustraliaColonial First StateFiducian Financial ServicesInvescoInvestnetwealthMacquarie Funds GroupMason StevensMLCnabRussell InvestmentsSecuritorSelect Asset ManagementTyndall Investments

Thank you to our Chapter supporters

South Australia Awards Evening1. Paul Garner receiving his CFP® pen from Matthew Rowe.2. Andrew Harris, South Australia winner of the Best Practice CFP

Award with Matthew Rowe.3. Recent CFPs being congratulated.

Bill Shorten Lunch4. Rob Pyne, Randall Stout, Pippa Elliott and Patrick Canion.5. Mike Parker and Brad Gordon.

Sydney Golf Day6. Players chat before tee-off.7. Ted Waters, Sean Southwell, Andrew Craddock, and Darin Tyson-Chan.

Townsville Chapter Committee Launch Event8. The new Chapter Committee gathered at the Townsville Yacht Club.

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7

8

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EVENT CALENDAR


SUMMER CPD POINT PACKSWe have recordings of our most popular CPD Live sessions from 2011 and will be offering them to members at a discounted price over the summer months. The recordings can be viewed anywhere you have an internet connection, allowing you to catch up on your CPD from wherever you are this summer.

The following discounts apply:

3 Point Pack: save 20%Purchase any 2 CPD Live recordings for $120 (save $30)



Visit www.fpa.asn.au/courses for more information. Offer expires end of January.

EVENTS AND PROFESSIONAL DEVELOPMENT CALENDAR: DECEMBER 2011

Wednesday 7 December 2011, 12:00pm to 1:15pm (AEDT)1.25 CPD PointsFinancial planners are facing some of the most difficult client conversations they have seen in their careers, yet receive little training in how to deal with emotionally charged situations. This session will help you to handle and respond to difficult questions well, which your clients will respect you more for.Wayne Lear CFP® (with over 25 years’ client experience) and Helen Parker (currently undertaking a PhD in emotional intelligence for financial planners) look forward to sharing their techniques, words and approaches to these ‘real life’ questions:

• “What’s going to happen with the markets? If you are the expert, why didn’t you see it coming?”

• “I want to sell out, I can’t afford to lose any more…”• “Are you telling me I will have to keep working? But you said I could retire at 60!” • “Why should I pay your fees when my account is going backwards?” • “Why didn’t you just put my money in the bank?” • “I am doing my bit, why aren’t you doing yours?” • “I am losing all my retirement funds and no one seems to care!”

If you have come across other difficult questions from clients, please send them to us so we can tackle them in the session for you. Helen and Wayne have been described as the “missing link” in relationship training spcifically for financial planners. We hope you can join us online for this unique and highly relevant session.

Visit www.fpa.asn.au/courses for full details.

Handling the Hard Questions Clients Are Asking CPD LIVE AND ONLINE CHAPTER EVENTS

1 December Ballarat: Christmas Party

Sunraysia: Christmas Party

5 December Geelong: Golf Day

7 December Albury/Wodonga: Christmas Drinks

South Australia: Mount Gambier Christmas Function

8 December Sydney: Christmas Lunch and Auction

Northern Tasmania: Christmas Party

Cairns: Launch Evening

Far North Coast NSW: Christmas Function

13 December Goulburn Valley: Christmas Drinks

14 December Hobart: Christmas Party

15 December South Australia: Northern SA Christmas Function

16 December Western Australia: Christmas Champagne Breakfast

For more information about

Chapter events, contact:

Vic and TasFosca Pacitto – 02 9220 4537

or [email protected]

NSW, ACT and WADi Bungey – 02 9220 4503


Qld and NTZeina Nehme – 02 9220 4508


SAVicki Seccombe – 02 9220 4515


NSWEileen MacArthur CFP®

Avenue Capital Management Limited

Brad Hellestrand CFP®

AGS Financial Group

James Mottram CFP®

Finance Control

Rick Walker CFP®

Stewart Partners

QLDSanjay Maharaj CFP®

Tynan Mackenzie

Karl Oram CFP®

MLC Limited

Peter Van West CFP®

Investment Initiative

Julie Laherty CFP®

Commonwealth Financial Planning

David Knott CFP®

Byron Capital Pty Ltd

TASTimothy Scott CFP®

Ford Scott Financial Planning Pty Ltd

Robert Howell CFP®

Collins SBA Genesys

Andrew Scott Harding CFP®

NAB

VICGreg Weiland CFP®

Health Super Financial Planning

Peter Mason CFP®

Moneywise Personal Financial Management

Anthony Edmondston CFP®

IPAC Securities Limited

Anita Fox CFP®

Health Super Financial Planning

David Pitt CFP®

WHK

WACameron Paul CFP®

Westpac Financial Services

Adam Pascoe CFP®

GESB Wealth Management

The FPA congratulates the following members who have been admitted as CERTIFIED FINANCIAL PLANNER® practitioners.

Member Services: 1300 337 301Sydney officeTel: (02) 9220 4500 Fax: (02) 9220 4582Email: [email protected]: www.fpa.asn.au

FPA BOARDChair Matthew Rowe CFP® (SA)Chief Executive OfficerMark Rantall CFP®

DirectorsMatthew Brown (QLD)Patrick Canion CFP® (WA)Bruce Foy (NSW)Neil Kendall CFP® (QLD)Louise Lakomy CFP® (NSW)Julie Matheson CFP® (WA)Peter O’Toole CFP® (VIC)Philip Pledge (SA)

CHAPTERS

NEW SOUTH WALESSydneyScot Andrews CFP®

ChairpersonTel: 02 8916 4281Email: [email protected]: Stewart BellElixir ConsultingTel: 0411 988 765

Mid North CoastDebbie Gampe AFP®

ChairpersonTel: 1300 425 943 Fax: (02) 6583 4311Email: [email protected]: James Seville AFP®

St George BankTel: (02) 6583 0755

NewcastleMark Reeson CFP®

ChairpersonTel: (02) 4927 4370 Fax: (02) 4927 4376Email: [email protected]: Jason Kolevski AFP®

TrigenreTel: (02) 4926 6999

New EnglandJohn Green CFP®

ChairpersonTel: (02) 6766 5747 Fax (02) 6766 5778Email: [email protected]: Karen Cox AFP® PlanPlus Wealth AdvisersTel: (02) 6761 2099

RiverinaPat Ingram CFP®

ChairpersonTel: (02) 6921 0777 Fax: (02) 6921 0732Email: [email protected]: Lisa Weissel CFP®

Evergreen Wealth ProfessionalsTel: (02) 6921 7546

Western DivisionPeter Roan CFP®

ChairpersonTel: (02) 6361 8100 Fax: (02) 6361 8411

Email: [email protected]: Toni RoanRoan Financial Tel: (02) 6361 8100

WollongongMark Lockhart CFP®

ChairpersonTel: (02) 4224 0624Email: [email protected]

ACTClaus Merck CFP®

ChairpersonTel: (02) 6262 5542Email: [email protected]: Ian DalziellTel: (02) 6248 7625

VICTORIAMelbourneJulian Place CFP®

ChairpersonTel: (03) 9622 5921Email: [email protected]: Joyie Choi State TrusteesTel: (03) 9667 6345

Albury WodongaWayne Barber CFP®

ChairpersonTel: (02) 6056 2229 Fax: (02) 6056 2549Email: [email protected]: Colleen Peffer CFP®

Bridges Financial ServicesTel: (02) 6024 1722

BallaratPaul Bilson CFP®

ChairpersonTel: (03) 5332 3344 Fax: (03) 5332 3134Email: [email protected]: Craig Smith CFP® Mor Financial PlannersTel: (03) 5333 3202Email: [email protected]

BendigoGary Jones AFP®

ChairpersonTel: (03) 5441 8043 Fax: (03) 5441 7402Email: [email protected]

GeelongBrian Quarrell CFP®

Chairperson Tel: (03) 5222 3055 Fax: (03) 5229 0483Email: [email protected] Secretary: Ian Boyd CFP®

Wheeler Financial ServicesTel: (03) 5222 3055

GippslandRod Lavin CFP®

ChairpersonTel: (03) 5176 0618 Email: [email protected]: Terry Kays CFP®

AXA Financial PlanningTel: (03) 5176 5556

Goulburn ValleyJohn Foster CFP®


South East MelbourneScott Brouwer CFP®

ChairpersonTel: 1300 657 872 Fax: 1300 657 879 Email: [email protected]: Sean Clark CFP®

Austbrokers PhillipsTel: (03) 8586 9338

SunraysiaMatt Tuohey CFP®

ChairpersonTel: (03) 5021 2212Email: [email protected]: Robert ChiswellTrilogy Financial PlanningTel: (03) 5021 1235Email: [email protected]

QUEENSLANDBrisbaneIan Chester-Master CFP®

ChairpersonTel: 0412 579 679Email: [email protected]: Philippa BakerTynan MackenzieTel: (07) 3223 9300

CairnsDanny MaherFiducia Private Wealth Management Tel: (07) 4051 7799 Email: [email protected]

Far North Coast NSWBrian Davis AFP®

ChairpersonTel: (02) 6686 7600 Fax: (02) 6686 7601Email: [email protected]: Paul MurphyAdvicePlus Financial SolutionsTel: (02) 6622 6011

Gold CoastMatthew Brown CFP®

ChairpersonTel: (07) 5554 4000 Fax: (07) 5538 0577Email: [email protected]: David Armstrong CFP®

National Australia BankTel: (07) 5581 2282

MackayJames Harris CFP®

ChairpersonTel: (07) 4968 3100Email: [email protected]: Bev FerrisLatitude Financial PlanningTel: (07) 4957 3362Email: [email protected]

Rockhampton/Central QldDavid FrenchCapricorn Investment PartnersTel: (07) 4920 4600 Email: [email protected]

Sunshine CoastGreg Tindall CFP®

Chairperson Tel: (07) 5474 1608Email: [email protected]: Natalie Martin-Booker Greenhalgh Martin Financial PlanningTel: (07) 5444 1022Email: [email protected]

Toowoomba/Darling DownsJohn Gouldson CFP®

ChairpersonTel: (07) 4639 2588Email: [email protected]: Paul Ratcliffe CFP®

Tynan MackenzieTel: (07) 4548 0700Email: [email protected]

TownsvilleDeirdre Walsh CFP®


Wide BayNaomi Nicholls AFP®


SOUTH AUSTRALIAAdelaideCarl Wilkin CFP®

ChairpersonTel: (08) 8407 6931Email: [email protected]: Barry StrappsAsteronTel: (08) 8205 5332

NORTHERN TERRITORYDarwinGlen Boath CFP®

ChairpersonTel: (08) 8941 7599 Fax: (08) 8942 3599Email: [email protected]: Marie-Clare BoothbyAll Financial ServicesTel: (08) 8980 9300

WESTERN AUSTRALIAPippa Elliott CFP®

ChairpersonTel: (08) 9221 1955 Fax: (08) 9221 1566Email: [email protected]: Steve Dobson AFP®

Mal Dobson & AssociatesTel: (08) 9455 4410

TASMANIAHobart Todd Kennedy Chairperson Tel: (03) 6233 0651 Fax: (03) 6245 8339 Email: [email protected]

Northern TasmaniaChris Elliott CFP®


FPA CONTACTS AND CHAPTER DIRECTORY

CHANGES: Please advise of alterations to the list through Fosca Pacitto at [email protected]

DIRECTORY


financial planning magazine - dec/jan 2011/12

Documents

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