money management (23 july, 2011)

www.moneymanagement.com.au

The publication for the personal investment professional

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By Ashleigh McIntyre

WHILE the soft dollar spotlight has beenfirmly shone on all-expenses paid tripsand lavish gifts given to financial advis-ers, the Treasury’s proposed ban onthese payments could affect the waysome practices communicate with theirclients.

The proposed ban would eliminate allsoft dollar benefits over $300, with theban l ikely to include marketingpayments used to help some practiceswith advertising, brochures, signage andclient mail-outs. There will also be afrequency test to ensure repeated smallpayments are not made.

Financial Planning Association (FPA)chief executive Mark Rantall said thatwhile the details had not been workedout, the banned list was also likely toinclude sponsorship by productproviders of educational client seminarsand other events in the name of clientrelationship-building.

It is further understood that the bancould stretch to payments made fromparent companies to subsidiaries, whichwould affect some of the larger playersin the industry.

For example, the alternative remu-neration register of ANZ-ownedOnePath reveals it paid out over $50,000of marketing support payments in 2010,with close to $30,000 of that going to another ANZ-owned company,

Millenium3 Financial Services. It also remains to be seen whether

programs l ike MLC’s ‘Meet theManagers’ initiative would be allowedunder the proposed changes. In 2010alone, MLC’s soft dollar register revealsit spent close to $50,000 on flights andaccommodation for advisers to meetfund managers.

For the large part, the Government’sproposals follow the Financial ServicesCouncil’s (FSC’s) and the FPA’s jointindustry code of practice on alternativeforms of remuneration.

However, FSC chief executive JohnBrogden said the definition on softdollar that has been proposed by Trea-sury goes further than the code tocapture all benefits, not just third partypayments.

“Further, it also captures monetarybenefits, which we would argue arealready covered in the scope of theconflicted remuneration ban," Brogdensaid.

Although there is still much work todo on the detail of the proposed bans,many of the industry associations –including the FPA – have welcomed theGovernment’s move to provide greaterclarity around what is acceptable.

“There is always potential for conflictin these types of payments,” Rantall said.

“So having clarity around whether ornot they can be accepted is a positivething. If there is a conflict of interest withany of these things, then they should beavoided,” he added.

But the Association of Financial Advis-ers (AFA) chief executive Richard Klipinsaid that while he thought bans onpayments over $300 were appropriate,he wanted to make sure there would bea level playing field across industries.

“Clearly this is on the table for debate,and the AFA looks forward to being partof that debate to ensure there are sensi-ble consumer-focused outcomes thatalso recognise standard business prac-tice,” he said.

Soft dollar bans could affect marketing

ASIC BOSS WARNS GATEKEEPERS: Page 6 | THE RESURGENCE OF DIRECT PROPERTY: 4

Vol.25 No.22 | June 16, 2011 | $6.95 INC GST

By Mike Taylor

FINANCIAL planning dealer groups andothers using leading research houseLonsec have signalled they will be takinga ‘wait and see’ approach to the com-pany, following its acquisition by theowners of SuperRatings Limited.

The reason for the caution by some ofLonsec’s clients is not any loss of faith inits research and ratings methodology, butthe perception that SuperRatings has along history and close association withthe Industry Super Network (ISN).

In particular, reference has been madeto SuperRatings having provided the datathat gave rise to the ISN’s so-called ‘com-pare the pair’ television advertising cam-paign, with the company’s name stillappearing in the disclaimers attachedto many of the advertisements.

A senior executive within one of themajor independent dealer groups utilisingLonsec’s services told Money Manage-ment that if, as indicated, Lonsec isallowed to remain operationally independ-ent he could see no reason for concern.

“However we will be adopting a ‘waitand see’ approach,” he said.

Other senior financial planning execu-tives noted the manner in which changesof ownership and personnel at other rat-ings houses had led to a loss of dealergroup mandates in the past two years.

Big Swiss-based insurer Zurichannounced late last week that it hadsold its subsidiary Lonsec business to anewly formed company – FinancialResearch Holdings (FRH).

It transpired that FRH was a vehicleformed by Mark Carnegie, the chief exec-utive of Lazard’s Australian private equitybusiness, LCW Private Equity.

Within an hour of the Lonsec announce-ment, SuperRatings announced “its inten-tion to consolidate its business into Finan-cial Research Holdings”.

Carnegie’s formal statementannounced that the two transactions rep-resented “a unique opportunity to bringtogether two of the leading researchbrands from the investment and super-annuation sectors”.

Money Management has been toldthat in the due diligence and negotiat-ing stages, each of the front-runningbidders for the Lonsec business indi-cated they would not be seeking tochange either Lonsec’s methodology

Planners will‘wait and see’on Lonsec

By Milana Pokrajac

DESPITE a number of soft-ware developers and platformproviders flagging plans tointroduce opt-in facilities, thefinancial planning communi-ty claims automating theprocess would not fix funda-mental issues associated withthe Government’s controver-sial opt-in proposal.

In the past year, plannershave cited administrativeburden and additional cost astheir main concerns withrespect to the introduction ofopt-in as part of the proposedFuture of Financial Advice(FOFA) reforms package.

Responding to theseconcerns, both softwaredevelopers and platformproviders have recently comeout with features they claimwould significantly reduce the

time and costs in administer-ing opt-in.

However, while welcomingthis type of innovation, bothFinancial Planning Associa-tion chief Mark Rantall andAssociation of FinancialAdvisers chief Richard Klipinsaid the planner communitywould still oppose theproposal.

“Financial planning busi-nesses have to look at ways ofbecoming efficient, but that isstill not distracting from thefact that legislating annual ora [two-year] opt-in certificateis not an appropriate use oflegislation – and we’ll contin-ue to oppose it,” Rantall said.

Klipin added that automa-tion could not replace theengagement advisers havewith their clients, and that theassociation would alwaysargue that opt-in is “bad

public policy”.Following the release of the

FOFA information pack inApril this year, financial plan-ning software developersIRESS and Midwinter Finan-cial Services have introducedfacilities that enable automat-

ic generation of emails orletters to clients, electronicopt-in features and alertemails sent to clients who arein danger of lapsing.

However, IRESS senior busi-ness development executiveMichael Kinens believes agreater issue is at hand, notingthat opt-in would always beseen by the financial planningindustry as draconian anddriven by an agenda that isn’tfocused on the client’s bestinterests.

“There is a raft of argu-ments being put forward as towhy opt-in is inappropriate,and regardless of what anyonedoes to make that effort lessthan what it is viewed astoday, it’s still seen as thewrong solution for the indus-try – and you’ll continue to get

Technology won’t solve opt-in problem

John Brogden

Richard Klipin

Continued on page 3Continued on page 3

Narrow focus limits broader FOFA vision

Astrong line of argument isbeing pursued by sections ofthe financial planning indus-try that the Government has

been focusing its Future of FinancialAdvice (FOFA) changes far too narrowly.

The argument being pursued bygroups such as Professional InvestmentServices (PIS) is that many of the fail-ures which have served to taint publicperceptions of the financial planningindustry have been failures of productrather than failures of advice. And, ofcourse, in many instances this is true.With the exception of Storm Financial,the majority of the other collapses –Westpoint, Trio/Astarra, et al – couldbest be described as failures of product,therefore justifying the argument thatthe focus of FOFA must be broadenedto encompass the manufacturers andtheir salesmen.

But that does not mean those provid-ing advice can ever succeed in distanc-ing themselves from the roll-call ofcorporate collapses and product fail-ures which have so severely eroded thereputation and public standing offinancial planners over the past decadeor more.

The problem for those who would

argue too strenuously about pastproduct failures is that too many finan-cial planning firms were seen to beclosely tied to the failed products byhighly lucrative commissions-basedremuneration regimes.

The reality confronting many goodfinancial planners is that they havefound themselves being made to payfor the sins of others and that an appro-priate distance will only be created

when the public accepts that theirindustry and its practices have changedwith all conflicts removed.

That is why, while the Government’sexecution of its FOFA agenda may leavemuch to be desired, many of the broadobjectives remain worthwhile.

A recent survey conducted by MoneyManagement revealed a significantmajority of respondents could think ofnothing posit ive to say about theGovernment’s approach to FOFA, butthis overlooks a number of initiativessuch as the ‘best interests’ test whichhave been pursued at the behest ofplanners themselves.

Indeed, it is arguable that stripped ofelements such as the two-year ‘opt-in’and the somewhat extreme decision toban commissions on all life/risk prod-ucts within superannuation, theGovernment’s FOFA approach would becapable of garnering support from mostof the key stakeholders.

The FOFA proposals grew out of thebipartisan findings of the so-calledRipoll Inquiry. An astute minister wouldrecognise the value of bipartisanshipin actually delivering new legislation.

– Mike TaylorABN 80 132 719 861 ACN 000 146 921

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“ The reality confrontingmany good financialplanners is that they havefound themselves beingmade to pay for the sins ofothers. ”

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Average Net DistributionPeriod ending March '1110,207

By Chris Kennedy

WITH an increasing number offinancial advisory groups offeringsome form of property advice eitherthrough in-house specialists orthrough a referral agreement, prop-erty advisers are confident that thetrend will continue – althoughgreater regulation in the sector isboth likely and necessary.

Dixon Advisory offers both finan-cial advice and specialised propertyadvice, and managing director AlanDixon said it was disturbing howlittle attention was given to the prop-erty market at the time of the Finan-cial Services Reform Act 2001.

Because both planning andproperty advice involve large trans-actions that can have a significanteffect on clients’ lives, they should

have similar licensing require-ments, Dixon said.

The relative strength and safetyof the property market over a longperiod may be a reason peoplehaven’t realised the market shouldbe more tightly regulated, he said.

But it’s difficult for the AustralianSecurities and InvestmentsCommission (ASIC) to make surefinancial firms give clients all theinformation they need withoutmaking client documents morecomplicated than they already are,Dixon added.

Ironstone Group’s property advicearm Capital 360 provides specialisedproperty advice to clients fromvarious planning groups on a refer-ral basis. Ironstone Group chief exec-utive Sean Preece said there wouldbe more scrutiny around property

information that is provided in themarketplace – something that hesaid was necessary.

“[Businesses such as Capital 360]will be included within the overallregime of ASIC because it is aninvestment class, and we welcomethat,” he said.

Preece also said clients neededto look at the motives of people whowere providing advice on property.Real estate agents represent theseller – but someone in the marketneeds to represent the buyer.

Financial advisers will continueto have clients who have a need ora desire to build wealth by invest-ing in property, but the industrydoesn’t provide an easy mechanismfor an adviser to gain support interms of research or buyer’s agencyservices on behalf of their clients,

Preece said.Dixon said that many clients

expect a financial advice providerto have some expertise on residen-tial property the way they would onAustralian equities.

While on balance it’s much easierto become a real estate agent thanto become a financial planner, manyclients like it if their planner has alsodone the work to get the real estateagent’s licensing skill, he said.

As a financial planner who cangive holistic advice, failing to giveadvice about people’s propertydecisions would be crazy, he said.

Most larger advice groups do nothave a specialised property adviceservice. This includes HLB MannJudd, whose head of wealthmanagement at HLB Mann JuddSydney, Michael Hutton, saidclients usually had an idea wherethey wanted to buy already.

His firm is happy for them tospeak to local agents, and clientsare happy for that to be a separatetransaction, he said.

“I’ve been aware of some firmsgetting into that space and becom-ing specialists, but to me that wouldjust be a value-add – I don’t thinkit’s a core requirement of a finan-cial advice firm,” Hutton said.

www.moneymanagement.com.au June 16, 2011 Money Management — 3

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or its highly successfulbusiness model.

FRH managing director,Jason Clarke, claimedthere would be littlechange for clients andstaff of Lonsec.

He said that while thenew company hoped toenhance services forclients over time, itexpected little interruptionto the business during thetransition period.

Long-time researcherand founder of brillient,Graham Rich, said hisview of the Lonsec acqui-sition was overwhelminglypositive because itdemonstrated faith in thevalue of genuinely inde-pendent research in Aus-tralia, and injected furtherAustralian ownership into

the market.He said suggestions

that the Lonsec modelmight be placed at riskwere misguided becauseof its strongly qualitativecredentials and becauseof the depth and integrityof its research team.

“It is a good outcomefor genuinely independentresearch,” he said.

“ It’s much easier tobecome a real estateagent than to become afinancial planner. ”

Technology won’tsolve opt-in problem

Continued from page 1

Graham Rich

people debating its introduction,” Kinens said.AXA was one of the first institutions to flag the inte-

gration of the opt-in facility to its platform, but generalmanager for platforms Steve Burgess said he doesn’tbelieve anything platforms or software providers can dowill make the issue disappear.

“If opt-in does come in and advisers either accept it orleave the industry, at least some kind of automatedprocess would enable them to tolerate it from an admin-istration point of view and therefore allow them to carryon largely with their business in a way that they wantto,” Burgess said.

Continued from page 1

Planners will ‘waitand see’ on Lonsec

Confident property advisers back regulations

News

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By Mike Taylor

FINANCIALplanners should besubject to a standardised exam-ination and education processas part of an objective measureof their competence, accordingto the Association of Superan-nuation Funds of Australia(ASFA).

In a submission to respond-ing to an Australian Securitiesand Investments Commission(ASIC) consultation paper on anassessment and developmentframework for financial advis-ers, the superannuation indus-try peak body said it believed arigorous, uniform exam couldprovide an objective measure ofadviser competence.

However it urged that suchan exam be just one compo-nent of “a robust system ofadviser training, accreditationand supervision, [continuingprofessional development] andongoing knowledge review”.

The ASFA submission alsosaid it supported exam resultsreported as a ‘pass’ or ‘fail’ gradeon the basis that fine distinc-tions between grade thresholds“reveal little about candidates’innate ability and are not ameaningful comparator ofadviser competence”.

It said it also recommended ahigh pass mark of 80 per centand an ‘open book’ exam thatprovided a more realistic simula-tion of workplace environment.

The ASFA submission alsocalled for a greater focus onethics with respect to advisereducation.

It recommended broadeningthe adviser ethics componentof the accreditation process,arguing “ethical adviser conductunderpins the consumerprotection objective of thefinancial advice regulatoryregime, and will support theintroduction of a statutory fidu-ciary duty under the Future ofFinancial Advice reforms”.

ASFA backsstandardisedexams


PROVIDERS of superannuation prod-ucts and simple managed investmentschemes will have just over a year toadapt to new Product DisclosureStatement (PDS) requirements, undera new proposal by the Government.

Assistant Treasurer Bill Shortensaid that from 22 June 2012 theseproduct providers would need toreduce their PDSs to just eight pagesand meet new content requirements.

The move is designed to help con-sumers who have in some casesbeen forced to trawl through morethan 100 pages to understand keyinformation about financial products.

Transitional arrangements will beput in place to give product providersflexibility and ensure that all canmeet the changes.

These include allowing productproviders to continue to issue sup-plementary PDSs until 22 June2012, as well as the option to take

up the new regime from as soon as22 June 2011.

Pure-risk products will be excludedfrom the new regime irrespective ofwhether they are provided throughsuperannuation, while combineddefined benefit and accumulationproducts will be included.

Shorten stated that furtherchanges to apply the shorter disclo-sure requirements to platforms andmulti-funds are not currently in theworks.

Draft regulation on these amend-ments will be available shortly forpublic comment.

Financial Services Council direc-tor of Policy, Martin Codina, said thechanges would provide the industrywith a smooth transition to the neweight-page regime.

“The Financial Services Council isespecially pleased Shorten has clari-fied that the new eight-page regime isnot intended to apply to platformsand multi-funds,” Codina said.

Shorten reveals time frame for condensed PDSs

Bill Shorten


News

LONSEC Limited has beenpurchased by a group sub-stantially led by private equityspecialist, Mark Carnegie andsuperannuation ratings house,SuperRatings.

Zurich announced the saleof Lonsec to FinancialResearch Holdings (FRH) lastweek and shortly afterwardsSuperRatings announced itsintention to consolidate itsbusiness into FRH, which itsaid was backed by interestsassociated with M H Carnegieand Company.

FRH describes itself as aprivately owned and independ-ent group that brings togetherthe market leading brands ofLonsec Limited and SuperRat-ings Pty Ltd.

Described as a spokesmanfor the new Lonsec owner,Carnegie said the acquisitionwas the first part of a growthstrategy to build Australia’spre-eminent financial servicesresearch and execution firm.

FRH managing directorJason Clarke said he expectedlittle change for clients andstaff of Lonsec.

“Lonsec has a number ofexcellent strategies awaitingimplementation,” he said. “Sowhile we hope to enhanceservices for clients over time,we expect little interruption tothe business during the transi-tion period.”

SuperRatings was estab-lished less than 10 years agoand is the research house ref-erenced in the Industry SuperNetwork’s ‘compare the pair’advertising campaigns.

It has recently branched outinto involvements in the deliv-ery of online advice andtender consulting and analy-sis for superannuation funds.

Lonsec sold toCarnegie andSuperRatings

By Mike Taylor

A QUEENSLAND-based financial planningcompany has had additional conditionsimposed on its Australian Financial ServicesLicence (AFSL) following surveillance of thebusiness by the Australian Securities andInvestments Commission (ASIC).

ASIC announced it had imposed the addi-tional licence conditions on the basis ofconcerns that iPlan had entered into anagreement regarding an investment platformwhich gave rise to a conflict of interest.

It specified its concerns as being that iPlanmay have advised clients to transfer from anexisting financial product to the platformwithout disclosing a reasonable basis for theadvice, the disclosures in relation to iPlan’sconflict of interest, relevant to the adviceprovided, were insufficient and a number ofclients sustained financial detriment as aresult of the advice.

The regulator said it had varied iPlan’s AFSLto include conditions that required the busi-ness to undertake further communicationwith its clients about how it manages conflicts

of interest.It said the company also had to appoint an

independent compliance expert to review itsadvice process and calculate payments to bemade to clients entitled to financial redress.

Commenting on the moves, ASIC seniorexecutive leader, financial literacy,consumers, advisers and retail investors, DeliaRickard said licensees often had a conflict ofinterest when recommending products toclients.

“We say it is up to them to manage theseconflicts and, if a conflict exists, they need to

make sure they demonstrate a reasonablebasis for any product recommendations,” shesaid.

The ASIC announcement acknowledgedwhat it described as an efficient, co-opera-tive and consultative approach taken byiPlan, which had voluntarily offered toengage an independent expert to review itsprocesses for compliance.

It said ASIC would continue to monitoriPlan’s compliance, via reports from theindependent compliance consultant, for 26 months.

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Queensland planning firm hit over conflicts of interest

News

By Mike Taylor

FINANCIAL services providers need toregard themselves as ‘gatekeepers’ andtake more responsibility for the productswhich reach retail clients as well as anycompensation issues which may follow,according to the new chairman of theAustralian Securities and InvestmentsCommission (ASIC), Greg Medcraft.

In an address to the FinancialOmbudsman Service delivered last

week, Medcraft described financialservice providers as being “literallygatekeepers, in that products would notreach retai l c l ients without theirsupport”.

He then went on to discuss theGovernment’s Future of FinancialAdvice (FOFA) reforms and the provi-sion of adequate compensation forretail investors and consumers and,specifically, the implementation of astatutory compensation fund.

“While the Government has respond-ed through these important legislativereforms, we would also encouragethose within the industry to lead adebate about how gatekeepers them-selves can take on more responsibili-ty,” he said.

Medcraft said that where ‘gatekeep-ers’ did so, there would be less need forregulatory intervention.

“Self-regulation has an importantrole to play,” he said.

Melbourne firmpicks up Zenithas researcherBy Chris Kennedy

MELBOURNE-BASED dealergroup Securinvest FinancialPlanners has selectedZenith as its principalresearch adviser.

Securinvest, an inde-pendent Australian Finan-cial Services licensee witharound 17 authorised rep-resentatives, has its owndealer’s licence and lifeinsurance broker’s licence,as well as its ownaccounting practice.Zenith will initially provideresearch to the headoffice business, which hasnine advisers, accordingto Zenith.

“Zenith will supportSecurinvest’s existing inter-nal research processesthrough the use of Zenith’sonline research facility,investment committee sup-port, and tailored modelportfolio service,” saidZenith’s head of sales andmarketing John Nicoll.

“In particular, we lookforward to working withthe team at Securinvestand supporting their long-established client modelthat focuses on risk min-imisation investmentphilosophies that willaddress any unforseendownturns in future equi-ties market.”

Nicoll said a growingnumber of adviser busi-nesses are working moreclosely with theirresearch providers, withadvisers under takingmore detailed due dili-gence on their researchprovider to be confidentthey fully understand theirindividual processes andcapabilities.

Zenith will be makingmore client announce-ments in the comingweeks, he added.

New ASIC boss warns ‘gatekeepers’

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News

Investors take legal action against Wellington CapitalBy Ashleigh McIntyre

A GROUP of investors in the distressedPremium Income Fund (PIF) havecommenced urgent legal action against Bris-bane-based fund manager WellingtonCapital and its directors.

The PIF action group has sought aninjunction to cancel units in the fund thatwere issued in a recent capital raising, andto reverse changes to the constitution thatwere made without unitholder approvalwhich allowed Wellington to issue units at adiscount of 74 per cent.

The action group has also sought to

restrain Wellington from counting votes fromany new unitholders at upcoming meetings,such as the vote to be held on 16 June whereunitholders will decide whether to replaceWellington with Castlereagh Capital as theresponsible entity of the fund.

The injunction also seeks to restrain Welling-ton and its directors from issuing unitspursuant to a rights issue, which had comeabout at the same time as the capital raising.

PIF action group vice president CharlesHodges said the capital raising was clearlynot in the interest of existing unitholders andas such, could be declared invalid under theCorporations Act.

He said the rights issue was also seen asagainst unitholders’ interests as it effective-ly forced them to take up the issue if they didnot wish to have their unitholding diluted.

The injunction application has been lodgedin the Federal Court of Australia at the VictoriaDistrict Registry.

Financial literacy the key to super successBy Angela Faherty

CREATING financially literateand better engaged Australianconsumers is vital if thesuperannuation market andthe wider financial servicesindustry are to truly reachtheir maximum potential, a junior minister hasannounced.

Speaking at the inauguralMoney Management Retire-ment Incomes seminar, theHonorable David Bradbury MP,Parliamentary Secretary to theTreasurer, said the increasingprevalence of superannuationhas led to more consumerresponsibility for retirementinvestments as well as greaterexposure to complex financialproducts.

However, Bradbury said thatwhile encouraging consumersto be more active in the deci-sion-making process around

retirement investments is goodpractice, many people stillstruggle to interpret theirannual superannuation state-ments, let alone navigate thevariety of products on offer.

“Governments and financialservice providers devote asignificant amount of effort toensuring that the regulatorysettings are well balanced andthat the financial products on

offer cater for the needs ofAustralians planning for theirretirement. But an importantpart of making sure that thesemarkets work effectively ishaving a financially literate,engaged and active Australianconsumer,” Bradbury said.

Bradbury added that boost-ing retirement income requirespeople to engage in preparingfor retirement as soon as theystart their working lives.However, he stressed that thisdemands a greater level offinancial literacy amongconsumers.

“Financial literacy plays acentral role in encouragingpeople to think about theimportance of planning for theirretirement from a young age, toset goals for their long-termsavings and to take an activeinterest in the investment deci-sions they make and that aremade on their behalf,” he said.

Referring to the Govern-ment’s initiatives to improvefinancial literacy amongconsumers, Bradbury pointedto the launch of the NationalFinancial Literacy Strategy andthe MoneySmart website inMarch this year. He also addedthat the Government wasproviding $10 million to theAustralian Securities andInvestments Commission toroll out its Helping Our Kids Understand Financesprogram. The program willtrain 6,000 teachers anddevelop a range of resources tointegrate financial literacyeducation into the Australiancurriculum.

“By targeting children earlyin their lives, we can buildawareness of the concepts ofbudgeting and saving andstrengthen their ability to dealwith more complicated finan-cial products,” Bradbury said.

ASIC scrutinisesfinancial serviceadvertisingBy Mike Taylor

COMPANIES operating in the financial serv-ices industry may soon find the manner inwhich they advertise their products and serv-ices more tightly constrained.

The new chairman of the Australian Secu-rities and Investments Commission (ASIC),Greg Medcraft, said the regulator would soonbe consulting on best practice guidance foradvertising financial products and services.

He said this would then be followed withconsultation around advertising with respectto credit products and services.

“These documents will provide very prac-tical guidance about how the legal provi-sions relating to misleading and deceptiveadvertising apply in various situations, andwhat we think represents balanced andinformative advertising,” he said.

Medcraft told a Financial Ombudsman Ser-vice event last week that the documents wouldcontain “real world” examples and that ASIChoped they would prove useful for all sectorsof the industry, including product designers,advisers and publishers of advertising.

“We would like those preparing advertis-ing to actively work to present a balancedunderstanding of the product or service,including its risks,” he said. “It is also impor-tant they take into account the kind of audi-ence likely to see the advertising, accordingto the medium they are using.

“Our expectation is that the financial serv-ices industry will strive to do more thansimply meet the minimum requirement ofnot being misleading or deceptive – theywill actually take a role in ensuring thatadvertising helps investors and consumersto make decisions that are appropriate forthem,” the ASIC chairman said.

David Bradbury

IT COULD be another two yearsbefore the financial planningindustry determines the fullimpact of the Future of FinancialAdvice (FOFA) changes on thevalue of individual businesses,with key buyers already steeringclear of businesses based oncommissions-related revenues.

That was the bottom-lineassessment of a recent MoneyManagement roundtable thatconsidered the impacts of theGovernment’s FOFA proposals,with Colonial First State generalmanger of advice MariannePerkovic among those making itclear that the basis upon whichplanning businesses were beingvalued had changed.

“Being part of a large institu-tion now, we have lots of busi-nesses coming to us to buythem,” she said.

However, Perkovic said therewas caution with respect tobusinesses that had “revenuestreams that heavily relied on

commission and commissionstructures”.

The roundtable agreed, how-ever, that there were still financialplanning businesses thatdemanded premium valuationsbecause of their fee structuresand their client relationships.

“There are still some busi-nesses out there that we’ve hada look at that people would behappy to buy because you can

see the clients have beenengaged, they’ve got very goodreview processes and they havefee-for-service models,” Perkovicsaid.

However, Association of Finan-cial Advisers chairman Brad Foxwarned that the industry neededto take account of those plan-ners who had spent many yearsin the industry and whose plansto exit had been delayed by theglobal financial crisis (GFC).

“We have to be very carefulthat those advisers who havespent 30 years building up theirbusiness, and were perhaps intheir early sixties four years ago,and then wore the GFC,” he said.

Fox said the objectives con-tained in the FOFA proposalswould make it very difficult forsuch people to exit their busi-nesses.

“So we need to have an eye onthat when we’re looking at howthe valuations are affected by anyof the legislation,” he said.

Two years before FOFA valuations impact

Marianne Perkovic

FOS backs planner on adviceAN ACCOUNTANT and his partnerwho went to the Financial Ombuds-man Service (FOS) seeking to recouplosses incurred during the globalfinancial crisis because of allegedinappropriate financial advice havehad their case dismissed.

A FOS determination delivered inlate April has revealed the circum-stances behind a complaint levelledat a financial planner by an account-ant and his partner who, in May 2007,declared they wanted to gear intoshares and managed funds butspecifically declined to apprise herof all their financial affairs.

Among the evidence consideredby the FOS panel was that theaccountant had declared he did notwant to pay tax in the upcomingfinancial year and wanted to gear sothat he could claim against the inter-est on his borrowings.

Despite receiving a letter from thefinancial adviser warning that theirfailure to fully declare their financialposition would result in only limitedadvice, the couple determined to go

ahead with leveraged investmentsultimately amounting to $250,000.

At the same time the accountantprovided a letter to the institutionproviding the margin loan statingthat by liquidating some real estateassets he could quickly acquireliquidity of $770,000.

Less than a year later the couplepursued action against the financialplanner for the losses they incurredon their investment, seeking to haveher financial planning companyreimburse them to the tune of nearly$129,000.

Among the reasons given by theFOS panel for finding in favour of thefinancial planner and determiningthat she had acted appropriately, wasthe fact that the complainants hadconsciously withheld informationfrom her and that they had beenwarned that this would give rise tonecessarily limited advice.

As well, the FOS panel found thatthe complainants were experiencedin financial matters and understoodthe risks involved in their strategies.

If you win an award once that’s pretty impressive. But winning twice? That’s something else. That’s Thinking Wide. We have teams in Sydney, Chicago, London and Hong Kong, investing across Australia, North America, Europe and Asia. And clearly it’s getting results. The highest ratings from three of Australia’s most respected ratings agencies. Outperforming the index by 1.80% p.a*. since inception. And now the awards. Both of them.

Past performance is not a reliable indicator of future performance. *Based on on-platform (Class A) cumulative performance since inception 29 November 2004 to 30 April 2011 against the UBS Global Real Estate Investors Index (AUD hedged). Out performance is after fees, before tax and assumes distributions are reinvested. Ratings are as at 31 May 2011. The Fund is managed by AMP Capital Investors Limited and its affi liate AMP Capital Brookfi eld Pty Limited. Important Note: AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232 497) (AMP Capital) is the responsible entity of the AMP Capital Global Property Securities Fund (Fund) and the issuer of the units in the Fund. To invest in the Fund, investors will need to obtain the current Product Disclosure Statement (PDS) from AMP Capital. The PDS contains important information about investing in the Fund and it is important that investors read the PDS before making a decision about whether to acquire, or continue to hold or dispose of units in the Fund. Neither AMP Capital, nor any company in the AMP Group guarantees the repayment of capital or the performance of any product or any particular rate of return referred to in this document. While every care has been taken in the preparation of this material, AMP Capital makes no representation or warranty as to the accuracy or completeness of any statement. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, fi nancial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document and seek professional advice, having regard to the investor’s objectives, fi nancial situation and needs.

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THE Federal Gover n-ment has taken theadvice of industry asso-ciations on the levy tocompensate victims ofthe Trio collapse, liftingthe maximum amountfrom $500,000 to$750,000 for funds withover $5.57 bi l l ion inassets to ensure fairerdistribution.

The Minister forFinancial Services andSuperannuation, Bi l lShorten, also announcedthe applicable ratewould fall from 0.01977to 0.01347 – meaningsmaller funds would payless.

Both the Association ofSuperannuation Funds ofAustralia (ASFA) and theAustralian Institute ofSuperannuation Trustees(AIST ) had writtensubmissions to theGovernment expressingtheir concerns that theoriginal levy would beunfair for smaller funds,whose members wouldpay a larger portion of thebill.

Shor ten said theimpact of the new levyon a member of anaverage sized fund withan account of $33,000 isexpected to be under$4.50.

Another issue raisedby ASFA was whetherfunds could have longerthan the original 28 daysto pay the levy. Shortensaid the Austral ianPrudential and Regula-tory Authority (APRA)has indicated that it willnow al low a 60-daypayment term.

Shorten thanked allstakeholders who contri-buted to the developmentof the levy regulations.

Trio levyincreased tospread burden

News


AUSTRALIA and China are leading the globalreal estate recovery, with the Asia Pacificregion set to surpass the United States as thesecond largest commercial property marketbehind Europe, according to global realestate firm DTZ.

The annual DTZ Money into Propertyreport has found that while growth in theUnited States and Europe was stagnant in2010, the global market grew 3.4 per centover the year, mainly due to Asia Pacific’s 14

per cent growth in invested stock. David Green-Morgan, head of Asia Pacific

research, said this growth is expected tocontinue in 2011 – bringing Asia Pacific inline with Europe at US$4.4 trillion.

Green-Morgan said this would be drivenby a strong development pipeline and anincrease in capital values.

Looking domestically, Green-Morgan saidAustralia had a strong year in 2010 with thelevel of invested stock in Australia rising bynine per cent in local currency terms.

The key drivers of this were a return to

capital value growth, while in 2011 growth isexpected to be driven by rental demand,Green-Morgan said.

Transaction levels were also up 75 per centfrom $9 billion in 2009 to $16 billion in 2010.

Green-Morgan said this was a result ofinvestors taking advantage of value oppor-tunities in the market that might not be seenagain in the next five to 10 years.

The DTZ Fair Value index for the AsiaPacific region also scored well, measuringin at 65, which is well above the globalaverage of 50.

Green-Morgan said that while the bestopportunities had passed over the last 12months, there were still plenty more in non-prime markets, with investors needing to bemore selective.

Asia Pacific key to global property growth

21 healthcare properties

investment in Australia’s health

1AIHW 2010. Health expenditure Australia 2008-09. Health and welfare expenditure series no. 42. Cat. no. HWE 51. Canberra: AIHW. 2Goss J 2008. Projection of Australian health care expenditure by disease, 2003 to 2033. Cat. no. HWE 43. Canberra: AIHW. *This information is intended to provide a broad summary of the Australian Unity Healthcare Property Trust. Investment decisions should not be made upon the basis of past performance, since future returns will vary. You should refer to the relevant Product Disclosure Statement (PDS) dated 25 June 2010 if you wish to know more about the product. A copy of the PDS can be obtained from the Issuer – Australian Unity Funds Management Limited ABN 60 071 497 115, AFS Licence No 234454 by calling 13 29 39 or visiting australianunityinvestments.com.au. You should consider the PDS in deciding whether to acquire, or to continue to hold the product. The properties featured in this advertisement are the RPAH Medical Centre and Manningham Medical Centre – they are owned by the Australian Unity Healthcare Property Trust.



News

AET goesahead withnew SMSFserviceBy Milana Pokrajac

IOOF-owned AustralianExecutor Trustees (AET)has launched a sel f-managed super fund(SMSF) service, which thecompany said would alle-viate much of the admin-istrative burden current-ly assumed by advisers.

The AET SMSF offer-ing features daily invest-ment and superannua-t i o n a d m i n i s t ra t i o n ,c o m p re h e n s i v e f u n destablishment service,e n d - o f - ye a r t a x a n daudit service, and insur-ance administration.

The offering alsoincludes three types ofaccounts: accumulation,transition to retirement andaccount-based pensions.

The AET statedaccounts could be pooledor segregated, allowingone member to be in theaccumulation phase,while another member isdrawing a pension.

AET Super Solutionshead of distr ibutionDavid Stor m said bybringing all the adminis-tration functions underone roof, the service had“taken the hard work outof SMSF management foradvisers”.

“ We’ve removed thepaper chase and … ourdai ly administrat ionallows clients to login atany time to view theirportfolio,” Storm said.

Stor m added AET ’sofferings provide bothSMSF options, “giving theclient the flexibility to bethe trustee of their ownfund or for AET to act asthe professional trustee”.

Fee-for-service workshops launched: E&WBy Chris Kennedy

E&W STRATEGIC Par tnershas announced a series ofindependently developedworkshops aimed at helpingfinancial planners make thetransition to fee-for-service.

The three workshops pro-vide hands-on and practicaltraining aimed at helping plan-ners, practice owners andpractice development man-

agers design, plan and imple-ment fee-for-service businessmodels, according to E&W.

“We know that many plan-ners have been looking for adeeper level of support in suc-cessfully preparing their busi-nesses for fee-for-service andthe [Future of F inancialAdvice] reforms,” said E&WStrategic Partners managingdirector Lap-Tin Tsun.

The launch includes a new,

online version of E&W’s fee-for-service training workshops,the Self-Paced Fee-For-Servicefor Practitioners Program,which includes interactivewebcasts, tools, and assign-ments.

“The self-paced program isdesigned specifically to giveplanners access to the samelevel of interactive educationand personalised support ofa face-to-face workshop, but

in a cost-effective and easy-to-use format,” said Tsun.

The three courses are thecore Fee-For-Service for Practi-tioners program, available asa two-day course or three four-hour workshops; as well as ahalf-day course in selling fee-for-service and a two-day work-shop for practice managers.

The workshops are eligiblefor continuing professionaldevelopment points.

long term leases

As Australia’s population continues to age, there will be an increasing demand

for quality healthcare services. For example, healthcare expenditure is projected

to increase from $112.8 billion in 2008-091 to $246 billion in 20332.

The Australian Unity Healthcare Property Trust is uniquely positioned to capitalise on

this spending (and provide solid returns) by investing in private healthcare property

assets, such as hospitals, medical centres and aged care facilities.

Even at the height of the global financial crisis the Healthcare Property Trust

remained liquid and delivered investors reliable returns. The Trust’s capital value

has also remained resilient, reflecting the increasing need for healthcare facilities.

In fact, the Healthcare Property Trust has had an outstanding performance track

record, providing investors with consistent distributions for almost a decade.

Healthcare Property Trust - wholesale returns (as at 30 April 2011)*

1 year

%

3 years

% p.a.

5 years

% p.a.

Since inception

% p.a. (28 Feb 2002)

Distribution 6.60 7.02 7.83 9.36

Growth 1.24 (1.75) 2.40 3.43

Total 7.84 5.27 10.23 12.79

*Past performance is not a reliable indicator of future performance.

To invest in a healthcare property trust for the ages

call 1800 649 033 or visit

australianunityinvestments.com.au/hptfortheages

With an ageing population our healthcare property trust is an investment for the ages

The Lonsec Limited (“Lonsec”) ABN 56 061 751 102 rating (assigned September 2010) presented in this document is limited to “General Advice” and based solely on consideration of the investment merits of the financial product. It is not a recommendation to purchase, sell or hold the relevant product, and you should seek independent financial advice before investing in this product. The rating is subject to change without notice and Lonsec assumes no obligation to update this document following publication. Lonsec receives a fee from the fund manager for rating the product using comprehensive and objective criteria.

Lap-Tin Tsun


News

Clients steered towards wrong products: FSUBy Milana Pokrajac

MORE than half of bank, insur-ance and financial servicesemployees have seen customerssteered towards financial prod-ucts they may not have needed,a survey has found.

The Financial Sector Union(FSU) claimed workers wereunder increasing pressure tosell financial products regard-less of customer need, to meet

“management-driven perform-ance targets”.

FSU national secretary, LeonCarter, said the issue lay in thesenior ranks of financial servic-es institutions.

“The problem is not thefinance sector workforce butthe upper echelons of our bigbanks and insurers, who holdemployees to ransom on thecondition that they sell moreproducts,” Carter said.

“Woe betide any employeethat doesn’t sell the requirednumber of credit cards, loans orwhatever the product of themonth is; they won’t just missout on the next pay rise, theymight also lose their job,” headded.

The survey found 88 percent of employees generated aquarter of their take-home paywith sales of financial prod-ucts, while 51 per cent have

observed customers beingoffered financial products theydid not need.

“Finance sector base salariesare not high; employees can’tafford to miss out on bonusesand performance pay – they areunder unrelenting pressure tosell,” Carter said.

He added this remunerationmodel should have been aban-doned during the global finan-cial crisis.

MANY financial plannersbelonging to the baby-boomer generation willretire around the sametime as the majority of theirclients, creating a greaterneed for well thought-outsuccession plans, accord-ing to Equity Trustees headof wealth management PhilGalagher.

Galagher said anecdotalevidence proved sendingout a letter advisingclients that their financialplanner had retired was acommon approach, oftenresulting in clients auto-matically being passed onto another adviser.

“Clients are simplypassed on to anotheradviser, and end up feelingthat they’ve got to start all

over again with this newperson,” Galagher said.“Many might feel it’s justas easy to look elsewherefor help.”

With the need for finan-cial advice growing, ratherthan declining in retirement,Galagher said plannersshould avoid giving clientsany reason to feel let downor abandoned when theyretire, especially in thepresent economic climate.

“A more appropriateapproach is for the adviserto contact all clients wellbefore the planned retire-ment date to outline thesuccession plan, and tohave any replacement joinhim or her at client meet-ings before retirement sothat the history and the

relationship can be trans-ferred successfully,” headded.

Retirement services willbe an increasingly importantarea for financial plannersand will grow to form a majorpart of planning businesses,Galagher predicted.

MySuper alreadyimposing higher costsBy Mike Taylor

THE Government has been told itis ironic that the first step towardsthe implementation of its suppos-edly low-cost superannuationproduct, MySuper, is an increase incosts.

It has also been told in a submis-sion from the Association of Super-annuation Funds of Australia(ASFA) that the Australian TaxationOffice (ATO) should fund more ofits own costs, and that the Govern-ment should reduce the levies itintends imposing on the financialservices industry this year.

In a submission to the Treasuryfiled this month, ASFA has pointedto a 22.5 per cent increase in theFinancial Institutions SupervisoryLevies for the new financial yearand claims this is being imposeddespite the number of superannu-ation funds being regulated by the

Australian Prudential RegulationAuthority (APRA) having fallen.

It said a significant contributorto the increase is an additional $4.2million allocated in the Budget forthe start of work supporting theGovernment’s so-called StrongerSuper initiatives, and points to theirony that one of the first outcomesfrom adopting MySuper and relatedinitiatives is an increase in costs.

The submission also pointed to a5.9 per cent increase in the amountof the levy apportioned to the ATOto run the Lost Members Register(LMR) – something which it saidwas not commensurate with thevolume of enquiries handled andwhat is involved in maintaining anelectronic register.

“In these circumstances ASFAdoes not consider that it is appro-priate that superannuation fundsshould be levied for the claimedcosts of running the LMR,” it said.

AIST proposes CP153 adjustmentsBy Chris Kennedy

THE Australian Institute of Superan-nuation Trustees (AIST) has broadlysupported proposals to raise educa-tion standards among financialadvisers, but proposed an alternativeto the three-tiered approach outlinedin the Australian Securities andInvestments Commission’s (ASIC)CP153 consultation.

ASIC’s proposals revolve around aninitial examination assessmentfollowed by a 12-month monitoringand supervision period, with regularknowledge update reviews.

The AIST proposal involves moreflexibility in the supervision andmonitoring period to accommodatedifferent advice delivery methods,but with more stringent ongoingassessment requirements.

While the AIST also supported theintent of all advisers sitting a nation-al exam, the association said that ifthis became prohibitive for time or

cost reasons then an exam should bemandatory for all new entrants at aminimum.

It may not be possible to have newadvisers under supervision at alltimes, in which case a checklist couldbe developed as to what needs to becovered at a minimum, and the 12-month time frame is also impracticalfor new entrants delivering generalor phone-based advice, the AISTstated.

The AIST also believed that threeyears was enough experience forsupervisors in this period rather thanthe originally slated five years.

Regarding ongoing monitoringfollowing this period, AIST said thatthree years was too long betweenassessments due to the number ofchanges in legislation that couldoccur in this period. This knowledgeupdate review requirement should beincluded in continuing professionaldevelopment requirements, AISTstated.

Leon Carter

Phil Galagher

Simultaneous client/plannerretirement a challenge


AUSTRALIAN households are saving attheir highest level since 1987, but con-sumers are not putting their money towork. Instead, they are choosing to leaveit in low-interest accounts.

Australian Bureau of Statistics (ABS)data released this month found the house-hold savings ratio increased to 11.5 percent of financial consumption expenditurein the March quarter – the highest it hasbeen in 24 years.

Data from the Australian Prudential Reg-ulation Authority (APRA) found there is justunder $500 billion sitting in householddeposit accounts with banks alone, mean-ing Australians have $220 billion more intheir accounts than they did five yearsago.

Online comparison website RateCitychief executive Damian Smith said many

households would be holding much of thiscash in accounts with very low or evenno interest.

“Even if only 15 per cent of the $500billion sitting in bank deposits is in low orzero-interest transaction accounts, thenAustralians could be missing out on asmuch as $4 billion interest,” Smith said.

This figure is based on money goinginto online savings accounts, where theaverage interest rate is 5.24 per cent.

Consumers savingmore, but doingless with it

Research conducted by specialistresearch firm Wealth Insights overthe past five years has revealedfinancial planner sentiment is

very often a direct reflection of client senti-ment (which, in turn, appears to be closelycorrelated with the for tunes of theAustralian Securities Exchange).

That being the case, we should expectthat when Wealth Insights next releases itsAdviser Sentiment Index it will have movedfurther downwards on the back of the rela-tively poor performance of the ASX200 overthe past three months.

But there are other more concrete meas-ures of investor caution in Australia thanthe Wealth Insights data, with the mostobvious being those compiled by Plan forLife with respect to fund flows. On all theavailable evidence, the next Plan for Lifedata wil l confirm that an awful lot ofAustralians are leaving their money in ‘safe-harbour’ investments such as cash andterm deposits.

With the European debt crisis still in astate of flux and new data emerging fromthe US to suggest that its economic recov-ery has stalled, it seems entirely possiblethat Australian financial planners are aboutto witness a winter of discontent amongtheir clients – something that is unlikely tobe alleviated by uncertainty which goeswith the rarity of having a minority Govern-ment sitting on the Treasury benches inCanberra.

According to some analysts, while thenegative news emanating from Europe andthe US is playing its part in dampeninginvestor sentiment in Australia, so too is

the generally negative news and debateissuing out of Canberra.

AMP Capital Investors senior economist,Bob Cunneen last week made reference toa “wall of worry” when describing investorperceptions of the economic situation bothwithin Australia and abroad.

Describing the outlook for markets inearly June he said this “wall of worry”comprised a range of concern such assofter global growth, America’s strugglinghousing market, Japan’s recession, China’sinflation risk, high oil prices and Australia’smulti-speed economy.

“All remain constraints on global sharemarkets in the short term,” he said.

In doing so, Cunneen reflected a viewwidely held by market economists – thatthe current adverse sentiment is going tolast a matter of only months and is, asdescribed by HSBC strategic, Garry Evans,“a wobble in an uptrend”.

But the question confronting Australianinvestors and, by definition their financialplanners, is how long the “short-term”issues are going to constrain their assetallocations.

According to Evans and a number ofother economists and analysts, the currentproblems will probably persist through thenorthern summer, with earnings beingrevised down and investors becoming moreworried about the risk of a new recession.

“The time to buy back is probably whencapitulation sets in,” the HSBC analysis said.“In the meantime, we continue to recom-mend relatively defensive positioning.”

AMP Capital’s Cunneen takes a similarview, suggesting earlier this month that the

medium fundamentals for global sharesare encouraging with the possibility of “aneventual price revival later this year”.

“However, investors will need to see thatthe ‘wall of worry’ list diminishes to regainconfidence,” he said.

A broader and more global v iew isprovided by the highly experienced chiefeconomist for Bank of New York Mellon,Richard B Hoey, who has described theworld economy as being in “the mid-cyclephase of a sustainable global economicexpansion”.

Hoey who, in 2007-08 told MoneyManagement that the recovery from theglobal financial crisis would be one of thelongest and slowest on record, said in hismost recent analysis that he expected cycli-cal expansion to be sustainable “even asmany economies experience a short sub-cycle slowdown”.

So the bottom line for Australian finan-cial planners is that not only are they goingto have to maintain their focus on the regu-latory changes emanating out of the FOFAchanges, they are going to have to keep aweather eye on markets and the degree towhich their clients feel burdened by a “wallof worry”.

On the plus side, most superannuationfund returns appear likely to end the finan-cial year in the black, allowing advisers todeliver an element of good news as theyawait more positive indicators, both fromthe economy and the markets.

Most will be hoping that, consistent withthe predictions made by HSBC, Australia’sgloomy winter will give way to some posi-tive news in spring.

InFocus


ASFA lunch20 JuneStamford Plaza, Brisbanewww.superannuation.asn.au

AIST Member ServicesSymposium22 JuneSofitel, Melbournewww.aist.asn.au

AFA lunch with Bill Shorten27 JuneDoltone House, 26-32 PirramaRoad, Pyrmontwww.afa.asn.au

NSW Women in Super event28 JuneLevel 6, The Imax TheatreComplex31 Wheat RoadDarling Harbourwww.womeninsuper.com.au

FSC Annual Conference 20113-5 AugustGold Coast Convention andExhibition Centrewww.fscannualconf.org.au

What’s on

ADVICESNAPSHOT

With market economists pointing to the existence of a ‘wall of worry’ built onbad economic news out of Europe and the US, Mike Taylor writes thatadvisers will need to guide clients through a winter of discontent.

Sentiment due for a cold snap

Did employers infinancial servicesincrease salaries inthe past 12 months,and by how much?

46%

Source: 2011 Hays Salary Guide

Increased between 3 and6 per cent

35%Increased 3per cent

11%

Increasedabove 6 percent

8%Did not increasesalaries


Direct property

IN the wake of the global financialcrisis (GFC) there were some pretty

dark days for the direct propertysector. Valuations came under strong pres-sure and many funds were forced tosuspend redemptions and distributions asthey struggled to survive.

However, dawn seems to have finallybroken for the sector and it now appears onthe cusp of an upswing. Returns are up,rentals are rising, many frozen funds areinching closer to a solution and investorsare willing to take a look at new investments.

Centuria Property Funds CEO JasonHuljich sums up the current view, saying:“Most analysts are upbeat on commercialproperty at the moment. The market is a lothealthier than 12-18 months ago.”

This optimism contrasts with the flatperformance – or even decline – expectedfrom residential property over the next yearor two and marks a welcome change formany property investors.

Ken Atchison, managing director of prop-erty consulting firm Atchison Consultingand a long-time market observer, believesthe picture is now much brighter.

“The outlook is more encouraging than alittle while ago. In the major propertyclasses, we see the revaluations down as

being finished. Over the next 12-18 monthswe will see increasing rental income returnsand that is quite a positive development atthe moment,” he explains.

Huljich agrees the prospects for mostmajor markets are upbeat. “Valuations havestabilised and we are seeing them start togo up.”

Rents are also starting to rise. “Melbournerentals have moved up. In Sydney there arestill quite a few incentives, but this is start-ing to drop and in the next 12 months weexpect to see rentals increase. However, weexpect Brisbane to be flat for the next 18months,” he says.

Funds slowly defrostAll this is a far cry from the gloom after listedproperty trust prices collapsed and therewere concerns direct property would seemajor downward revaluations and fire salesas investors headed for the exits.

Although the sector is now more opti-mistic, the problem of suspended fundsremains, with thousands of investors stilltrapped in troubled property funds. Whilesome funds still face major problems inunwinding their positions and freeing upinvestor monies, there have been encourag-ing signs.

According to Atchison, the largest groupof frozen funds are in the Centro PropertiesGroup. He believes the deal with the US-based Blackstone Group to acquire Centro’sinternational assets for US$9.4 billion is adefinite step in the right direction.

“We are now looking at the prospect thatthis year there will be a resolution with thefrozen international funds. A liquidity solu-tion is also expected in 2011 for theAustralian asset funds,” Atchison explains.

“We believe the impact on sentiment willbe quite positive. There will be a price avail-able and that will be hugely significant.”

The situation with other managers hasyet to progress that far. “Other funds areslowly freeing up – tortuously – but it ishappening,” he says.

Many funds are being recapitalised withequity from new managers and this willimprove the situation, Atchison notes. “Sowe are looking at 2011-12 and expect to seeother frozen funds being freed up.”

Upswing in the property cycleCharter Hall Direct Property CEO, RichardStacker, agrees the situation has improvedand believes it is time for financial advisersto reconsider property funds. “Property isstill an important component in portfolio

The houseadvantage

Following a period of uncertainty,the direct property market appearsto be undergoing post-GFCresurgence. Janine Mace reports.

• The current commercial property market is far healthier than it was 12-18 months ago, withrents rising, returns up and many funds being recapitalised.

• In a welcome change current indications are that a property upswing is in its earliest stages,making now an opportune time for investors – particularly in the areas of commercial andindustrial listings.

• Post-GFC, advisers are rethinking their portfolio constructions, taking a renewed look at thebenefits of property investment for SMSFs to enable them deal with the challenges oflongevity and investment risk as they move from the accumulation phase to the pensionphase.

• Including direct property investment in a portfolio can improve investors’ total returns, withdirect property having low volatility and a low correlation to shares.

Key points


Direct property

construction.”He believes there are currently good

opportunities for investors consideringproperty investments, with the property‘clock’ or cycle at the right point to moveback into the market.

“If 12 is the peak, then most propertysectors are between six and nine. This is theearly stages of the upswing and the time toget into the sector before prices start tomove too much. We are at the right time ofthe cycle for investors to reconsider proper-ty investing,” he claims.

“Property fundamentals are very good atthe moment.”

Although most leases have rental increas-es embedded in them, significant capitalgrowth has yet to re-appear in mostmarkets. “The next 12-18 months will seemore subdued capital growth than previ-ously, but there are good prospects,” Atchi-son says.

The outlook is also positive due to supplyproblems from a lack of new developments.“There is not a lot of supply coming on, dueto the banks’ constraint of funding,” Huljichexplains.

“There was a nine-and-a-half per centvacancy rate nationally at the peak of theGFC when the long-term average is 10 per

cent, so it is interesting that it was belowthat.”

Although interest rates are a key issuesubduing the residential market, the storyis different when it comes to commercialproperty.

“Commercial is not as sensitive to inter-est rates as residential. If interest rates rise,that means both the economy and growthare looking good,” Stacker says.

This is being reflected in the outlook forthe office market, which is closely linked toeconomic growth.

“The office market is in good shape witha less than eight per cent vacancy ratearound the country and it is in a balancedposition,” Stacker explains.

“The Melbourne vacancy rate is even less.The position is similar in Sydney, withstrength coming back after the GFC, whenit was hit hard due to its finance sector expo-sure. Perth and Brisbane are doing well offthe back of the mining and infrastructuredevelopments.”

Stacker is also positive about the outlookfor the industrial sector.

“In industrial, there is very high demandfor prime grade property. Industrial is wellpositioned with rents down in 2009, but upin 2010 and 2011,” he says.

“Supply of industrial is very constrained,especially due to the tight funding condi-tions and this has led to increased rents. Ascontainer traffic increases through the ports,industrial take-up goes up with it.”

As extensively reported in the media, theoutlook for residential property is lessupbeat. “Residential has hit a plateau andcome back a bit, largely due to interestrates,” Stacker explains.

The other struggling sector is retail prop-erty. “The weakest sector is retail as there issome hesitation on retail sales growth dueto questions about the strength of theeconomy,” Atchison says.

Property funds restructureWith the outlook picking up, the directproperty sector is determined to put its GFCdisasters behind it.

“In 2007 there were about 30 managersdoing unlisted property, but most of thesehave been shaken out, as they were oftennot property companies,” Huljich explains.

“There are only really three big groupsleft now doing direct property.”

Managers are taking a new approach andStacker believes the sector has learnt itslesson. “It is time for financial planners totake a fresh look,” he says.

“The sector has changed a lot from thepre-GFC period. Investment mandates arevery tight and property yields are around 8per cent, which is better than at the bank.”

The suspension of redemptions hasresulted in fund changes. “Exit mechanismsare now very clear and this should provideinvestors with greater confidence,” Stackersays.

Atchison agrees funds are evolving andpoints to their lower gearing levels. “Thelesson from the last few years is there is alevel of gearing that is detrimental toinvestors. The crash showed a 60-70 percent level of gearing is excessive,” he says.

Managers have acknowledged thisproblem, according to Stacker. “The lessonfrom the frozen funds is not to be over-geared,” he explains.

“Our funds are geared at 35-45 per cent,which is now a lot lower than the sectorbefore the crisis, where some managerswere at 65-75 per cent. As the cycle movesup, we want to be less geared and havegearing fall naturally.”

There are also new controls on underly-ing fund assets. “Investment mandates arevery tight on what the manager can investin,” Stacker explains.

Huljich agrees managers are listening

closely to investors. After Centuria replacedthe existing manager of several of theBecton funds, it introduced a series ofchanges, including a lowering hurdle toreplace the manager, removal of all ‘poisonpill’ provisions, new performance fee struc-tures and fund terms, and improvedinvestor transparency and communication.

The changes have been very well receivedby planning groups, he says. “These fiveinitiatives have got us a lot of traction andwe have recently received the largest singleequity placement from a single planningwe have ever had.”

Going direct or not?While interest may be picking up, manyinvestors seem wary about returning tolisted property trusts (LPTs) and real estateinvestment trusts (REITs).

The March 2011 Multiport SMSF Invest-ment Patterns Survey showed direct prop-erty allocations by Self Managed SuperFunds (SMSFs) increased over previousquarters to reach 13.7 per cent. However,allocations to listed property, managedfunds and syndicates continued to decline,with investments down to 2.4 per cent at 31 March 2011.

Many in direct property argue the GFCprovided a clear demonstration listed prop-erty performs more like equity than a trueproperty investment.

“The definition of property has crys-tallised, with the difference between directproperty and LPTs becoming very clear afterthe GFC,” Huljich says.

He argues LPTs and direct propertyperform quite differently, with direct prop-erty performing better. Over the past year,the Property Council of Australia/IDP Prop-erty Index recorded a total return of 10.4 percent for the year ending March 2011. Thisconsisted of a 7.5 per cent income returnand a 2.7 per cent capital return. TheS&P/ASX 200 Australian Real Estate Invest-ment Trusts (A-REIT) Index returned -0.77per cent for the same period, while the five-year return to 31 May 2011 was -14.65 percent.

This different return profile highlights thedisparities between the two investmentapproaches. Huljich says. “The LPT correla-tion to shares is huge and it is more volatilethan direct property.”

He believes the GFC has changed advis-ers’ views on the use of LPTs in client port-folios. “A couple of the large planning groupsare now putting LPTs into their equity allo-cations and then looking to direct proper-ty as a separate asset class.”

Stacker believes unlisted property offersinvestors many advantages. “Direct prop-erty investments are not as volatile as listedproperty investments. Investors shouldhave more confidence as they are beingpaid valuations, which are not influencedby equity markets.”

IPD managing director Anthony DeFrancesco made this point in the May 2011IDP Property Market Review. He noted the“return profiles for unlisted/direct and listedinvestment structures are distinctly differ-ent, especially over the short-term … Thiscan be evidenced in the steady positivegrowth exhibited in unlisted/direct prop-erty in the recovery phase of the GFC post-June 2010, compared to the variation expe-rienced in annualised A-REIT returns,moving from 20.4 per cent in June 2010 to5 per cent in March 2011.” MM

Richard Stacker

Financial advisers are being urged torethink their portfolio constructionfor SMSFs and retirees to deal withthe twin challenges of longevity and

investment risk.Advisers face real problems trying to

balance longevity risk (which pushesinvestors towards placing more in growthassets for better returns), with investmentrisk (which pushes investors towards havingless money in growth assets).

This problem would appear to be exacer-bated by US research undertaken by RussellInvestments which shows 60 per cent of aperson’s retirement income is earned duringthe retirement phase.

Constructing portfolios that provide suffi-cient income in retirement is likely to be anincreasingly important issue for advisers asbaby boomer clients increasingly move intothe pension phase. Deloitte’s 2011 survey ofthe financial services industry found almost83 per cent of respondents believedAustralians will not have adequate incomein retirement.

Longevity issues and investment risk havebecome worse for retirees due to the globalfinancial crisis (GFC) and investor losses,according to Charter Hall Direct PropertyCEO Richard Stacker. “People are livinglonger and need to be in growth assets tokeep up an income they can live on,” he says.

“There are a number of ways to makesure a retiree is structuring their portfolioin order to reduce, rather than increase,longevity risk.”

Legg Mason is another manager keen topush the merits of property investments forretirees. It recently issued a research paperarguing the traditional method of allocating

70 per cent of a portfolio to defensive assetsin retirement will be insufficient to sustain aretirement income.

“Retirees will require the bulk of theirinvestment return to come from yields tosustain them through retirement,” saysReece Birtles, CIO for Legg MasonAustralian Equities.

He argues defensive strategies such asinvesting in fixed income assets will notprovide the necessary growth to match infla-tion and sustain income levels. “However,retirees need a lower level of risk, whichincludes investment, foreign currency andliquidity risk. Therefore some higher yieldassets could be too risky for their purposes,”Birtles says.

One solution proposed by Birtles is to investin real assets such as utilities, property andinfrastructure as a middle ground betweenfixed interest and equity investments.

Managing longevity riskCharter Hall believes strategies to managelongevity risk need to include appropriateexposure to growth assets, reduced drawdownon capital during market reversals, accelerat-ing returns via conservative gearing and invest-ing in assets providing tax deferred benefits.

“Direct property provides high, tax-effec-tive income and capital growth whencompared to assets like cash and fixed inter-est. It also has a low volatility and a low corre-lation to shares. Including direct property ina balanced portfolio can improve investors’total returns with lower volatility comparedto a portfolio that does not include directproperty,” Stacker says.

Atchison Consulting managing directorKen Atchison has advised major super fundson their property allocations for many yearsand he agrees direct property can play a valu-able role in boosting retirement income.

He believes direct property is an attractiveproposition as a source of retirement incomeas it generally provides a yield of over sevenper cent, compared to Australian shares atover five per cent and international sharesat two per cent plus. “Property stacks up quitewell in the pension stage,” Atchison says.

“Rental income provides a constant distri-bution into the pension payment process. Ifthe rental contract is for a longish term andis secure, it provides security of return toinvestors.”

Centuria Property Funds CEO Jason Huljichagrees direct property is important in termsof income. “Direct property pumps out a goodyield of eight per cent to nine per cent and youare also looking at good capital gain.”

In addition, steadily increasing rentalincome can help retirees deal with inflationand rising costs. This compares with the vari-able nature of dividends from equity invest-ments.

“Property has a clear role to play in finan-cial planning in terms of compounding ofreturns and income,” Atchison says.

“If you are looking for certainty ofcompound income, then it is more certainin property than the return from dividends.Compound interest income is an attributethat contributes well for longevity.”

Stacker agrees income is a very importantissue for SMSFs.

“We expect SMSF appetite [for property] togrow as their long-term outlook and appetitefor income certainty and capital preservationis ideally suited to unlisted property, particu-larly in retail property which is underpinned bymajor brand tenants,” he says.

According to Stacker, SMSFs account for75 per cent of the inflows into Charter Hallfunds. “With relatively low growth forecastin equity markets over the next few years,many investors are investing for income.Direct property, with its income growth builtinto lease structures, should be a goodvehicle for investors to achieve this.”

Illiquidity concernsThere are also other benefits from usingdirect property during the pension phase. Inparticular, Stacker points to the tax-deferredbenefits of direct property, which allows lesstax to be paid in the accumulation phase.For SMSF members nearing retirement, aproportion of the tax paid on propertyincome is deferred and is paid when the assetis sold, at which point the tax liability couldbe zero, he explains.

According to Huljich, this characteristic isappealing to many high-net-worth (HNW)clients.

“Historically, Centuria has had HNW


Direct property

As the property market improves, managers are once again out spruikingtheir wares – and they are looking to include more property in retireeportfolios, writes Janine Mace.

“Property has a clear role to play in financial planning in terms ofcompounding of returns and income. If you are looking for certain-ty of compound income, then it is more certain in property thanthe return from dividends. Compound interest income is an attrib-ute that contributes well for longevity.” – Ken Atchison

Strategies for pension portfoliosAccording to the Charter Hall Direct Property Investment Report,there are several strategies advisers can consider when structuringa pension portfolio to manage longevity risk. These include:

Strategy 1Aim to protect against market volatility in the early years by ensur-ing growth assets do not need to be sold to make pension payments.

• Separate the portfolio into cash and growth and draw incomefrom only the income portfolio.

• Put secure investments like cash and around two to three yearsworth of income in the income portfolio.

• Allocate the remainder to growth-based diversified portfolios.This strategy means the income section is not affected by market

volatility and leaves growth assets intact, allowing for more aggres-sive investment.

Strategy 2• Allocate portfolio assets according to client’s risk profile.• Draw income proportionally from all assets to maintain asset

allocation.This strategy allows the balanced/growth asset allocation to be

matched to the client’s risk profile and can produce overall higherperformance in a good market.

Source: Charter Hall Direct Property/Strategy Steps

Pension-related strategy options

Betting onbricks and

mortar


Direct property

clients and they like directproperty for portfolio diver-sification, the income bene-fits and the ‘touch and feel’you get with property. Theyalso get a lot of tax benefitsfrom direct property in termsof capital gains treatmentand depreciation,” he says.

Although suspension ofsome fund redemptions hasleft many advisers and clientswary, Atchison believes theilliquidity of direct propertyis less of an issue when theinvestment is used tomanage longevity risk.

“In planning for longevityrisk, you are not worriedabout liquidity. On a 20-yeartime horizon, liquidity is notan issue,” he argues.

Atchison cites the use ofdirect property by successfullong-term institutionalinvestors such as the YaleEndowment Fund. “With along-time horizon, liquidityis not important. However,you are looking for apremium on the return fornot gaining liquidity.”

He believes it is vital foradvisers to match allocationsto the client’s goals. “If youare planning for a 10-15 yeartime horizon, you have gotto ensure you do not getcaught up in the noise in theinvestment market. If you areaiming for a retirementincome in the future, thenfocus on that,” Atchison says.

Huljich agrees propertycan be a good match for thelong-term liabilities facing anSMSF in the pension phase.“It is a good medium-term tolong-term investment and itmatches well with an SMSF’stime horizon.”

Using direct property inthe pension phase alsomatches the timeframerequired for sensiblemanagement of propertyassets. “Property is not ashort-term investment. It isa mid- to long-term invest-ment, as making changes toproperties and zoningchanges take time,” Huljichexplains.

Time to take the plunge?For advisers convincedabout the need to increaseproperty allocations in retire-ment portfolios, now is agood time to consider invest-ing in property, according tothe experts.

“If financial planners arelooking at bringing propertyinto a balanced portfolio,then it is better to do that atthe bottom of the cycle, notat the top,” Stacker says.

“Property has fallen off theradar for the past two- totwo-and-a-half years, but for

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We don’t examine stocks in a stock standard way.

At Fidelity we believe that the closer you look the more you find. That’s why we place such importanceAt Fidelity we believe that the closer you look the more you find. That’s why we place such importance

on our forensic approach to investing. We look at everything from multiple angles, all the time.on our forensic approach to investing. We look at everything from multiple angles, all the time.

Our global resources allow us to regularly review every company we invest in, and then follow upOur global resources allow us to regularly review every company we invest in, and then follow up

by meeting with their suppliers, distributors and competitors. In fact, we review 90% of the world’sby meeting with their suppliers, distributors and competitors. In fact, we review 90% of the world’s

largest companies every 90 days. Fidelity’s rigorous approach provides the microscopic, in-depthlargest companies every 90 days. Fidelity’s rigorous approach provides the microscopic, in-depth

information that delivers results and enables advisers to focus on the big picture.information that delivers results and enables advisers to focus on the big picture.

Better research. Better minds. Better ideas. To know more, visit www.fidelity.com.auBetter research. Better minds. Better ideas. To know more, visit www.fi delity.com.au

SMSFs who are moving from accu-mulation to pension phase, it is avaluable investment.”

He believes advisers are warmingto the idea. “Advisers are seeing thebenefits of property investment forthese clients and the message hasbeen warmly received.”

Huljich agrees advisers are keenand says Centuria regularly workswith a number of planning groups“as they see direct property as impor-tant in portfolio allocations”.

Changes to direct property fundsand the potential for a market

upswing are seeing a re-emergenceof interest.

“We are seeing a big increase ininvestor interest as they are seeingwe are at the bottom of the market.There is limited risk on the down-side and there are more buildingsavailable on the market and theyare of better quality than pre-GFC,”Huljich says.

The return of investor interest ishighlighted by the oversubscribedclosure of the last two funds offeredby Centuria, according to Huljich.“Adviser groups and direct investors

are coming right back in and aregetting higher quality buildings thanpre-GFC.”

Stacker agrees there is an upturnin investor interest.

“Financial planners are keen to getin front of clients to talk about invest-ing again and we are doing more clientpresentations on property and itsperformance, including its perform-ance during crises,” he says.

“We are finding a greater empha-sis on advice and education andstrategies on how to use property inthe portfolio.” MMReece Birtles

In the wake of the global financialcrisis (GFC), direct shares havebecome popular among investors,especially when the impact of the

financial crash on managed funds isassessed. However, it is now timely forplanners and advisers to consider care-fully why they would recommend directshares as a primary investment vehiclefor their clients.

If providing the highest returns forclients across the widest possible baseis the key driver of an adviser’s business– and it should be – then the fact thatmanaged funds have a long history ofoutperforming direct shares on theAustralian market should be a consid-eration that is, in the current market,once again rising to top of mind.

Of late, some financial industr ycommentators have adopted a viewthat they should not pay an active fundto achieve index-like returns, whenmanaged funds don’t appear to addvalue beyond their fees.

However, there is a lot of evidence tothe contrary. For example, in consider-ing the S&P/ASX200 AccumulationIndex, it becomes clear that managed

funds have outperformed the market forat least the last 15 years, as the followingtable 1 confirms.

There is an alternative way to look atthe performance of managed funds, onewhich takes into account the followingassumptions:

• Fund managers (including industryfunds) hold 33.33 per cent, or one-third,of Australian shares;

• Fund manager fees are on average 1.0per cent per annum; and

• The cost of brokerage, accounting andother fees of holding direct shares is 0.5per cent per annum.

So, if managed funds have returned0.78 per cent after fees, and fees are, onaverage, 1.0 per cent, then the returnbefore fees for managed funds has been1.78 per cent per annum better than theS&P/ASX200 Accumulation Index.

Over 10 years, this means that managedfunds have averaged 10.08 per cent perannum before fees, while the ASX200 hasreturned 8.40 per cent.

If managed funds have held 33.33 percent of all the Australian shares on issue,then the average return before costs andfees for those who hold direct shares must

be 7.52 per cent. Investing in shares isn’tfree and assuming that this cost is 0.5 percent p.a. on average, the after-costs returnof direct shareholders is 7.02 per cent perannum over the last 10 years. The follow-ing table outlines this equation.

So, the true comparison betweenmanaged funds and direct shares is thatmanaged funds have outperformed directshares by 2.01 per cent per annum overthe last 10 years on an after-fees basis.

Investing in direct shares leaves theinvestor with a difference to make upbefore even reaching the mark of theaverage managed fund.

At KPMG during the mid-to-late 1990s,I reviewed the returns of clients withdirect shares and managed funds. Over asix-to-12-month timeframe, a new port-folio of shares outperformed managedfunds. However, when I reviewed theperformance of these clients’ portfoliosafter 12 months, the managed funds werebridging the gap.

For those clients who had heldmanaged funds and direct shares for leastthree years, the managed fund returnswere far superior. The reasons weresimple:

• Managed funds were actively managed,whereas the direct shares were not;

• Clients and/or advisers fell in lovewith some shares in spite of poorperformance or outlook, whereas thefund managers maintained their objec-tivity; and

• Clients and advisers didn’t like to sell ashare that was underwater, whereas fundmanagers were prepared to take the painfor the overall benefit to the portfolio.

Comparing apples with applesAnother issue that has cast undeserveddoubt on managed funds’ performanceis the quality and relevance of the dataused to assess overall managed funds’returns. Market commentators oftenpoint to the “broader” and “long-term”data available out of the United States todemonstrate that active managers haveunderperformed the market.

However, until very recently it wascommon practice among US fundmanagers to trade in their own managedfunds after the market was closed eachday, wiping a considerable amount ofperformance off the top, distortingperformance figures and further impairing


OpinionAllocation

Benefits of managed funds warrant close analysisWith post-GFC investor confidence returning only slowly, a growing number ofplanners are placing their clients’ funds into direct shares. Paul Foster asks: is leavingonly a fraction of inflows in traditional managed funds really the best investmentdecision for your clients?

the credibility of the managed fund indus-try. In Australia, however, this was not thepractice and after-market trading inmanaged funds is in fact illegal (as it nowis in the US, also). The fact that these nowobsolete figures are still used by some todraw conclusions about the locallymanaged funds industry is clearly wrong.

Reality vs perception: managed fundsvs direct sharesYet another significant issue for advisersto overcome is that some of their clients

simply do not trust managed funds,particularly since the bad press duringand after the GFC, when freezing of fundsshook confidence and caused widespreadfinancial pain.

Despite these negative perceptions, thebenefits that contributed to the initialpopularity of managed funds and theirlongstanding success in the marketremain. Many individual investors aretired of the vigilance and corporate inter-action it requires to be direct sharehold-ers. From an adviser perspective, too, it is

more efficient to service the greatestnumber of clients with managed fundsrather than direct shares.

Managed funds continue to offerinvestors access to scale, diversity andsimplicity, providing clients with reducedinvestment risk and the potential forbetter returns. Managed fund clients canbenefit from the combined resources andknowledge of financial advisers andinvestment managers, the latter review-ing and assessing stocks on a daily basis.

Alternatively, let’s look at the situation

when it comes to direct share investment.A typical direct share investor might haveholdings in 20 different companies. Thismeans that there are around 1,600companies they don’t hold and aren’twatching day-to-day. By contrast,managed funds are monitoring the stocksthey don’t hold as much as the ones theydo, albeit that they may also concentratetheir holdings to as few as 20 stocks.

Clients often find the transparency ofdirect shares appealing – they like beingable to view the whole portfolio. Butadvisers and planners can offer the samebenefits with managed funds, by provid-ing more regular updates of the fund’sprogress and holdings through regularreporting.

In truth, often the decision betweendirect shares and managed funds can bedetermined by an adviser’s personal incli-nation: some like to be involved in thedaily trade of shares and are ‘addicted’ tothe cut and thrust of the market.

Perhaps contentiously, it is my viewthat an adviser or planner with such astrong interest in shares should have athorough and honest look at the resultsthey have been achieving across theirclient base. If they are consistently outper-forming the sharemarket after fees, thenthey should apply for a job as a fundmanager. I believe it is more likely that ifthis is the case, they could well be spend-ing so much time managing share port-folios that they may be underservicing inother vital areas. Certainly, this possibili-ty provides food for thought and self-reflection.

In summary, some advisers may feelthey do not add value to their business ifthey don’t offer direct shares; as we haveshown, higher returns can be had frommanaged funds – with far less time andeffort spent, leaving advisers able toprovide the real value-add: truly under-standing their client and dispensingproactive strategic advice and coaching.

Paul Foster is CEO and CIO of Addwealth.


“Clients often find the transparency of direct sharesappealing – they like being able to view the whole portfolio.”

5 years 10 years 15 years

Morningstar Australian Equities Managers 5.10 per cent 9.08 per cent 9.30 per cent

S&P/ASX 200 Accumulation Index 4.32 per cent 8.40 per cent 8.56 per cent

Manager outperformance 0.78 per cent 0.78 per cent 0.74 per cent

Table 1 Managed funds have outperformed the sharemarket over the last 15 years

Source: van Eyk

Total average return from S&P/ASX 200 8.40 per cent

Less

33 per cent multiplied by 10.08 per cent (return of managed funds) 3.36 per cent

Equals 5.04 per cent

5.04 per cent divided by 67 per cent (Direct Share holdings) 7.52 per cent

Less (fees, cost and brokerage of direct shares) 0.50 per cent

Average after-cost return for direct share holders 7.02 per cent

Table 2 Average cost return for direct shareholders

Source: van Eyk

On Monday 9 May 2011, theAustralian dollar (AUD) wastrading at around 107 US cents.In the business section of The

Australian that day, there was an article withthe headline ‘Rampaging dollar could hit$US1.70’. On that same day, The AustralianFinancial Review ran an article entitled ‘Bigchallenge if $A swoons to US85c’. Both arti-cles discussed the views of various fundmanagers/hedge funds on the direction forthe AUD in the next few years.

This is an enormous range around the 107cents level – almost 86 per cent. If the AUDwere to head towards either extreme it wouldhave dramatic and very different impacts oninvestor portfolios and the broader economy.Clearly, there is plenty of confusion about thefuture course of the local currency.

While the difficulty of forecasting thefuture direction of the AUD is one challenge,it is clear that the high and rising AUD hasalready created major problems forinvestors. For example, it has:

• Negatively impacted the returns onunhedged overseas assets both over thelong-term and even more so in recent years– the AUD has risen around 6.5 per cent perannum against the USD over the past 10years and 21 per cent per annum over thepast two years;

• Reduced the appetite of overseasinvestors to buy Australian assets (especial-ly shares and property), which hascontributed to their underperformance; and

• Negatively impacted the local value ofoverseas earnings of significant componentsof corporate Australia.

Clearly, currency has become one of themore important factors driving returns inrecent times – particularly with a lacklustrelocal sharemarket. Portfolios that have hadtheir overseas exposure unhedged havesuffered, while just having more invested inAustralia has not helped significantly. Whilethe US and other overseas markets have donebetter than Australia, this advantage has allbut been wiped out if one was unhedged.

Staying hedgedIn hindsight, the best approach has been tohave significant overseas exposure, but tohave all or most of the currency exposurehedged. However, this is not how the vastmajority of Australian portfolios have beenpositioned.

At the recent Morningstar conference, thealmost universal consensus among fundmanager panellists was that investors shouldhold their international share exposureunhedged. It was unclear how long they hadheld these views.

However, I was struck by the seemingdisconnect between the ease which suchviews were put forward and the practical chal-lenges for advisers and clients who have wornlosses on unhedged portfolios in recent years

(or at least not participated in the high localreturns from underlying markets).

I was also surprised that while currencypositioning was discussed frequently duringthe day, the deeper issues relating to theglobal currency and monetary system werelargely ignored. Recent extreme currencymovements were seen as just ‘business asusual’ that investors had to accept.

I have a different view about these issues.While the starting point for most advisersand investors is that their overseas equityexposure should be unhedged, or at most50 per cent hedged/50 per cent unhedged,a 100 per cent hedge on passive foreignexchange exposures should be the neutral‘starting’ position. The AUD is the currency

local investors judge their returns in, andthe one in which the vast majority of theirexpenditure is denominated.

Of course, I cannot argue against thepremise that as the AUD has risen andbecome overvalued on a purchasing powerparity basis (see figure 1), the case for takingoff some of these hedges and running moreunhedged exposure as a diversifier hasincreased.

However, currencies can stay overvaluedor undervalued on this basis for years, andthis decision has been highly stressful giventhe relentless recent strength of the AUD.However, this stress is probably considerablymore for those with largely unhedged portfo-lios having to make the decision to remainunhedged in the current environment.

A new reality?Complicating the whole currency position-ing is a nagging feeling – and I know this isdangerous to say – that ‘this time is differ-ent’ both in respect of the dynamics of theAUD/USD relationship and the broaderglobal monetary/currency system.

Let’s look at AUD/USD. There are twosides to every currency pair. On the AUDside, the Australian terms of trade are thehighest in more than a century, we are oneof the few countries in the world with posi-tive real short-term interest rates and we havea central bank focused on inflation that isseemingly happy to see a higher currency asit dampens those inflationary pressures.

Meanwhile, the US (and much of thewestern world) is struggling with high unem-ployment and a slow recovery from theglobal financial crisis (GFC), has negativereal short-term interest rates and close tozero nominal rates, and has a central bankthat is actively pursuing policies that lead toa lower currency in a quest to spur growth.

Is it any surprise that the AUD/USD hasmoved the way it has? The acceleration werecently saw as it surged over $US1.10 wasunusual (and some of it quickly retraced), butis the longer term trend for a higher AUD andlower USD really unexpected in a world wherenone of the key drivers described above arelikely to reverse dramatically any time soon?

Meanwhile, many seem to be waitingfor another 2008 – where the AUD plunges30 per cent against the USD in a matter ofweeks or months, back to somewhere inthe 60s or low 70s. I could be wrong butexcepting a total collapse of the Chineseand Indian economies and the associat-ed commodity prices, I just can’t see thishappening.

Australians have become accustomed tobig falls in AUD having experienced themregularly in the 1990s, 2000s and particular-ly in 2008. While some serious setbacks areto be expected, there is a strong case thatthe AUD will fluctuate around a much higheraverage than in previous decades. The rise inthe AUD and decline in the USD is secular,not cyclical.

A course of actionSo what should advisers and investors do? AsI wrote last year (‘The here and now’, MoneyManagement 28 October, 2010) I believe theyneed to first reject the notion that curren-cies just average out in the long term, so itdoesn’t really matter what exposure theyhave. In a world where some countries seemto be going all-out to debase their currency,these effects on return don’t just ‘wash out’in the end. Specifically, they should:

• Not rule out that the AUD could gohigher, perhaps significantly so. They needto think about what this would mean forportfolios. And even when the next signifi-cant downward move occurs, it may be fromhigher levels and may be relatively shallowcompared to history. Certainly those expect-ing it to revisit the US0.60s or 0.70s are likelyto be disappointed;

• Develop a plan regarding currency expo-sure. The worst possible approach is tosimply react to movements and to clients’emotional experience with different invest-ments. Some adopt a relatively simple 50 per cent hedged/50 per cent unhedgedapproach, which at least discourages suchreactive changes; and

• Be diversified (even with a 50/50approach) and think carefully about whichcurrencies one is exposed to. Having someforeign exchange (FX) exposure can be agood diversifier, but that foreign exchangeexposure should also be well diversified. Ifyour FX exposure is largely in USD, does thismake sense given the policies the US centralbank is currently pursuing and the problemsthe US government faces from a fiscal anddebt standpoint?

On shaky groundThe global monetary/currency system isbecoming increasingly dysfunctional, yetthis worrying development receives littleattention from fund managers focused onthe status quo and who assume that thecurrent arrangements will persistunchanged into the future. Take a look atsome of the symptoms of this dysfunction-al status:

• Countries in the Eurozone periphery arein economic straightjackets and sufferingsevere recession, after years of abusing theability to borrow at excessively low Eurozoneinterest rates;

• A race to the bottom in terms of curren-cies is underway as western economies lookfor an easy way to help their economies;

• Currencies pegged to the US dollar eventhough their economic situation iscompletely different. For example, in HongKong, property investors can borrow at 2 percent even when their property marketsurged 40 per cent last year;

• The world’s reserve currency, the USD, isbeing pummelled by monetary policies torevive growth at home, with little consider-ation of the inflationary and destabilising‘bubble’ implications of those policies glob-ally; and

• There are desperate attempts to diversi-fy away from the USD, which dominatesglobal reserves, given the deterioratingpurchasing power of these reserves.

The centre of this increasingly flawedsystem is the USD. Yet the US has doneexactly what all countries privileged with theglobal reserve currency status have done


OpinionCurrencyCharting new waters

With the Australian dollar reaching record highs in the last fewmonths, Dominic McCormick looks at the issues a strongcurrency has raised for investors.


that is, a currency used for the vastmajority of global trade, the link forother currencies to use as a peg,and the dominant asset in mostglobal reserves. History shows thatthis reserve currency privilege isalways eventually abused – and thevalue of that currency ultimatelyseriously debased – with adverseconsequences for the world as awhole. Gold’s role in all of this is tostand as another ‘currency’ ofchoice, if any or all of the authori-

ties of those countries’ currenciespursue policies that seriouslydebase their value.

In this world, investors wouldapproach currencies much thesame way they approach otheraspects of investing – aiming to bewell diversified, but with a skew tothose currencies that are wellmanaged and representing value.Gold will have a role as one of thesediversifiers. This would be particu-larly important for investors where

their own local currency is beingpoorly managed.

Of course, I don’t see an orderlytransition to this more balanced andresponsible global monetarysystem. It is only likely to comeabout through a series of crises inthe current system, and a muchgreater recognition of its inherentflaws. These crises are likely toproduce major winners and losers.I suspect the volatility of recenttimes is the beginning of this period

of recognition. In this environment, discerning

the near-term and long-term direc-tion of various currencies is likely toremain extremely difficult. However,I am more confident in my predic-tion that the stress relating tomanaging currency exposure islikely to remain very high.

Dominic McCormick is chiefinvestment officer at Select AssetManagement.

through history (ie, carelesslyand relentlessly abuse thatprivilege over time). It is thissystem that has allowed thehigh levels of debt to build up,which was a major cause ofthe GFC. And it is the main-tenance of record low interestrates and debasement of theUSD that has enabled a wholerange of new imbalances todevelop after the GFC.

Major currency debase-ment and even hyperinflationis a real risk in the world today.If Greece, Ireland and Portu-gal had freely trading curren-cies they would have alreadycollapsed. These are smallcountries, but bigger coun-tries within the Eurozone, aswell as the UK, US and Japan,have many of the same exces-sive debt characteristics ofthese countries.

The endgameMost just extrapolate the pastand expect business as usualbut, increasingly, I think that isthe least likely outcome. Thebust-up of parts of the Euro-zone is something that couldhappen. China needs to free itscurrency to help solve its infla-tion issues and is attemptingto gradually wean itself off USdollar dependence through arange of diversifying measures.

The linkages of variousAsian and emerging curren-cies to the US dollar arequickly running past their ‘useby’ dates and look increasing-ly unsustainable. The USdollar’s days of abusing the‘reserve currency privilege’look to be drawing to a close.

Predicting how this allplays out is extremely difficult.Some suggest that theresponse to this dysfunction-al global monetary systemshould be a move backtowards more rigid exchangerates, the formation of oneworld currency, or even aformal gold standard. In myopinion, a better outcomewould be a world where thereare a reasonable number –but not too many – of wellmanaged, liquid, freely float-ing currencies competingglobally for use in transac-tions and as a global store ofvalue. Yet no currency shouldbe allowed to become asdominant as we have allowedthe USD to become, given theadverse consequences forglobal imbalances that arediscussed above.

We need to move towards aworld where no one countryis formally or informally allo-cated the privilege of being thedominant ‘reserve’ currency –

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Past performance is no indication of future performance. *15.1% is the compound annual return for the Hunter Hall Value Growth Trust for 15 years to 31 May 2011. Initial applications for units canonly be made on an Application Form found in the current Product Disclosure Statement for the Hunter Hall Value Growth Trust. Hunter Hall Investment Management Limited (AFSL: 219462) or anyrelated entity does not guarantee the repayment of capital or any particular rate of return from the Fund. Investment returns have been calculated in accordance with normal industry practice utilisingmovements in the unit price and assuming the reinvestment of all distributions of income and realised profits. Peformance data shown is net of all fees. This advertisement does not take into accounta reader’s investment objectives, particular needs or financial situation. It is general information only and should not be considered investment advice and should not be relied on as an investmentrecommendation. © 2011 Morningstar, Inc. All rights reserved. Neither Morningstar, nor its affiliates nor their content providers guarantee the above data or content to be accurate, complete or timelynor will they have any liability for its use or distribution. Any general advice has been prepared by Morningstar Australasia Pty Ltd ABN: 95 090 665 544, AFSL: 240892 (a subsidiary of Morningstar,Inc.), without reference to your objectives, financial situation or needs.You should consider the advice in light of these matters and, if applicable, the relevant product disclosure statement, before makingany decision. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/fsg.pdf. Hunter Hall won the AFR Smart Investor Blue Ribbon Awards in 2007, 2008& 2010 in the International Small Cap shares category.

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Ethical Managed Funds

Plenty of robust debate hassurrounded the proposed move toban commissions for risk insur-ance within superannuation since

Assistant Treasurer Bill Shorten’s Aprilannouncement as part of the proposedFuture of Financial Advice (FOFA) reformpackage. Many across the industry believethe ban could force advisers out of theindustry and boost Australia's underinsur-ance problem.

I have heard many stories over the pastsix months of clients that have benefitedfrom the advice they received. Conversely,it is easy to see how the outcome could havebeen very different had these individuals notreceived advice. I have selected a few of thesecase histories and present them followingas examples of some of the types of storiesyou can share with your local Member ofParliament (MP).

There remains an opportunity to lobbyGovernment and independent MPs on theproposed reforms, which would not takeeffect until July 2013, if approved. We eachhave a continued role to play in communi-cating to Minister Shorten the value ofinsurance advice, whether this is throughour industry bodies, regulators or localmembers.

Case study one: matching insurancecover to the client’s needs The client needed to increase their insur-ance cover from $2.5 million to $9 million,but did not think it was possible due tolarge debts incurred through the familybusiness, and the subsequent increase in

financial underwriting requirements. Theadviser worked to educate the client andwork in co-operation to identify opportu-nities to ensure that these requirementswere met. The insurance was successfullycompleted. Two weeks after the cover wasin place, the client died in a solo pilot aircrash. All claims were successfully madeto the client’s partner.

Case study two: persevering to getinsurance in placeThis client was a mid-level income earner,self-employed and had a fully financiallydependent family. The adviser emphasisedthe need for trauma insurance to assist inpaying the client’s mortgage should some-thing happen to him to render him unableto work. After some education, the clientagreed to purchase trauma insurance.

Aside from money, the client’s biggestobjection to purchasing this cover was thathe was a very healthy person. However,nine months after purchasing the traumapolicy the client was diagnosed with Multi-ple Sclerosis. The benefit payment assist-ed the client to pay down some of his mort-gage, relieving financial pressure on himand his family. The client readily acknowl-edged that had he not been provided judi-cious advice he would never have initiat-ed the insurance.

Case study three: impact of havingcontinued cover in placeIn this scenario, the adviser recommend-ed $2.3 million of death cover. He suggest-ed the policy be held through the client’s

super fund so that it would not lapse, sincehe was using the fund assets to pay for thepremium; in addition, the client would beeligible for a tax deduction on the premium.Within 12 months, the client died from a

sudden heart attack, leaving a young widowand three children under five years old. Theproceeds from the policy enabled thewidow to buy her own house (they wererenting at the time of her husband’s death)and income from the remaining capitalallowed the widow to maintain her home-maker role.

Had she needed to go back to work atthat time, then the children would havebeen faced both with adapting to havinglost their father, and also of being able tospend only minimal unfractured time withtheir surviving parent. In cases like this,superannuation asset accumulation is lessimportant than protecting debts andproviding guaranteed income for theirsurvivors.

Tim Browne is the general manager ofretail advice at CommInsure.

Advice shared makes for protection doubled

OpinionInsurance


Tim Browne shares his views and presentssome case histories as he surveys the much-debated topic of banning commissions forrisk insurance within superannuation.

“ Superannuation assetaccumulation is lessimportant than protectingdebts and providingguaranteed income. ”


Retirement incomesMoney ManagementRetirement IncomesWorkshop

1. The Hon. David Bradbury, Parliamentary Secretary to the Treasurer2. Andrew Roberston, Macquarie Longevity Solutions3. Jeremy Cooper, Challenger4. Richard Howes, Challenger Life5. Mike Taylor, Money Management6. Peter Quinn, Quinn Consultants7. Attendees look on during the Retirement Incomes workshop8. Steve Blaker, Logical Financial Management; Bronny Speed, AdviceIQPartners; John Ellison, Ellison Financial9. Paul La Macchia, IAS Managed Accounts; Andrew Lane, VanguardInvestments10. David Cox, Challenger and Glenn Poynton, Macquarie11. Jayson Forrest, Money Management; Susan Jeffery, AMP CapitalInvestors; Peter Hogan, MLC Technical12. Jennifer O’Leary, Centrelink; Mangala Arur, Centrelink13. John Zavone, AMP Capital14. Matt Gaden, Challenger15. Kar Lim, AMP and Matthew Bushby, AMP Capital

1 2 3

4

7

5 6

Money Management’s inauguralCPD Series Workshop on RetirementIncomes attracted strongattendance to hear top tier speakersdiscuss the emerging retirementincomes landscape in Australia.


8 9

10

11

12

13 14 15

In the superannuation arena, there aretwo key proposals from the 2011 FederalBudget – refund of excess concessionalcontributions, and phasing out of the

pension drawdown relief – of note for finan-cial planners.

Refund of excess concessionalcontributionsIn the lead-up to this year’s Federal Budget,the issue of excess contributions tax (ECT)was one that received some attention. Priorto the budget, the Australian Taxation Office(ATO) released statistics indicating that theaverage excess concessional contribution forthe 2009-10 financial year stood at $6,901.

To provide some relief, the Governmentwill provide eligible individuals with theoption to have excess concessional contri-butions refunded from their superannuationfund and assessed as income at their margin-al rate of tax, rather than incurring excesscontributions tax.

However, this will only apply where anindividual has made (or received) excessconcessional contributions of no more than$10,000 (not indexed) in a particular year,meaning that any breach over $10,000 (evenif only $1 over) will not be covered by thismeasure.

This measure will only be available for thefirst breach that occurs in respect of the 2011-12 or later years. That is, this measure willnot apply to any breach in respect of earlieryears, or to any subsequent breaches afterthe first – it is a once-only measure.

Case studyJohn is aged 40 and is on the 38.5 per centmarginal tax rate (MTR). During the 2011-12financial year, John receives $32,500 inconcessional contributions.

If we assume that the concessional contri-bution cap is $25,000 for the 2011-12 finan-cial year, then John would have $7,500 ofexcess concessional contributions.

As a result, in addition to the 15 per centcontributions tax paid by his fund, this excessamount will attract a further tax penalty of31.5 per cent – a total tax rate of 46.5 per cent,or $3,487.50.

However, as this would be John’s firstbreach in respect of the 2011-12 or laterfinancial years, under this proposed measurehe would be able to have his excess contribu-tions refunded to him and taxed at hismarginal tax rate instead. And, if John wereto apply this measure, the $7,500 excesswould be refunded to him and taxed at 38.5per cent, or $2,887.50.

Note that if John were to subsequentlyexceed his concessional contribution cap asecond time, after the 2011-12 financial year,he would not be eligible to benefit under thismeasure in respect of the subsequent

breach(es), as this measure will only be avail-able once.

While it is too early to come to any conclu-sions, the introduction of this measure raisesa number of interesting prospects, all ofwhich require further clarification. Some ofthese include:

• We would expect the refunded contribu-tion will no longer count towards themember’s non-concessional cap, hencereducing the double-counting that can other-wise arise;

• Into which income tax year’s assessableincome would the refunded contribution beincluded? If it is to be added to any financialyear other than the one in which the contri-bution was made, could there be a limitedone-off tax arbitrage opportunity if themember’s MTR has decreased?;

• If the excess is created as a result of super-annuation guarantee contributions – forexample, professionals who may work formultiple organisations – does this provide alimited one-off way for them to gain accessto SG contributions?; and

• In situations where the member is in thetop marginal tax rate (46.5 per cent, ignor-ing flood levy in 2011-12), the making ofconcessional contributions in breach of thecap will not necessarily be detrimental. Thisis the case, given that these excessive contri-butions are similarly taxed at 46.5 per cent(15 per cent contributions tax and 31.5 percent excess contributions tax).

However, it is worth noting that makingadditional concessional contributions will notbe an effective strategy in situations where:

• The member is not in the top marginaltax rate; or

• If the excess concessional contribution,which also gets counted against the non-concessional contribution:

– creates a breach of the non-concession-al contribution cap; or

– causes an unwanted trigger of the non-concessional contribution cap bring-forwardrule.

Phasing out of the pension drawdownrelief In recent years, the government has provid-ed drawdown relief to provide people whohold account-based, allocated or market-linked (term allocated) pensions with theability to draw 50 per cent of the legislatedminimum pension payment (based on theirage). This enables more of their money toremain within the pension, with the inten-tion of preserving their balance.

In this year’s Federal Budget, the Govern-ment has announced that this relief will bereduced from 50 per cent down to 25 percent for the 2011-12 financial year, and willbe completely removed for 2012-13 andfuture years.

Table 1 shows the impact of these meas-ures on people aged 55-64 and those aged65-74, the same rates of relief also apply toages 74 and over:

The removal of this relief will meanpension incomes will compulsorily increasefor clients who had elected to receive less

than the legislated minimum which mayhave a flow-on impact for the:

• Taxation treatment of pension incomes(for those aged under-60); and

• Calculation of Centrelink/DVA entitle-ments impacted under the income test.

Other superannuation measuresIn other superannuation measures, relative-ly less significant in terms of their impact tofinancial planning advice, the Governmenthas:

• Extended the freeze on superannuationco-contribution threshold indexation for anadditional year to 2012-13. This measure willmean that the co-contribution thresholdswill remain at $31,920 and $61,920 respec-tively until 1 July 2013;

• Proposed a legislative amendment toremove a Self Managed Super Fund (SMSF)anomaly which exists in the superannuationlegislation. This amendment will ensure thatwhere the trustee of a SMSF is a body corpo-rate, a parent or guardian may be a directorof the body corporate in place of a memberthat is a minor. Currently, this is not possibleunless the SMSF has an individual trusteestructure;

• To fund a range of Stronger Super SMSFmeasures previously announced, the Govern-ment is proposing to increase the SMSF levyfrom $150 to $180 with effect from the 2010-11income year, and introduce SMSF auditorregistration fees from 1 July 2012; and

• Moved to ensure that gains or lossesmade by complying super funds on assetssuch as shares, units in a trust, and land, aresubject to tax under capital gains tax rules.

This is to ensure funds cannot treat theseassets, (eg, shares) as “trading stock” so as todeduct losses on these assets against incomerather than capital gains.

John Perri is technical services manager atAMP.


Adapting to the Budget

Toolbox

The May 2011 Federal Budget contained a number of proposedsuperannuation changes. However, they are unlikely to causeany significant change in the way clients will go about buildingand protecting their wealth, writes John Perri.

BriefsASGARD has released a number of newfeatures for its eWRAP platform, whichthe company claims will help advisersdeliver more customised advice in lesstime.

The enhancements include simplifiedshare and managed fund trading, improve-ments to model portfolio functionality andonline corporate actions for eWRAP superand pension accounts.

Head of Asgard Craig Lawrenson saidthe platform provider had $6.2 billion offunds under administration currently usingtemplates.

“These new enhancements to our tem-plating functionality will mean adviserscan now create templates comprisingcash,managed funds and equities whichthey can link to multiple clients,” Lawren-son said.

He added enhancements to share trad-ing within eWRAP were particularly timely,because the inclusion of equities in portfo-lios continued to see a resurgence.

Simplified share trading – as well asonline corporate actions – have also beenintroduced for Asgard’s Managed Profilesplatform.

FINANCIAL planning software providerIRESS has announced its next update ofXplan will include new ‘opt-in’ capabilitiesfor advisers as part of the practice man-agement functionality.

IRESS wealth management productmanager Aaron Knowles said the soft-ware provider wanted to address adviserconcerns about extra time and expenseassociated with the introduction of theopt-in requirement as part of the govern-ment’s proposed Future of FinancialAdvice reforms.

The feature enables advisers to sendemails to their clients about the adviser’sservice proposition, and allows the clientto follow a hyperlink to register that theywould like to opt-in, Knowles said.

Xplan’s alert manager feature wouldalso be extended to send warning notifica-tions if a client was at risk of lapsing.

Knowles said the update was due forrelease in August.

PLATFORM provider Praemium haslaunched a mobile delivery capability forits V-Wrap online portfolio administrationplatform.

V-Wrap Mobile makes it easier foradvisers and clients to access services ontheir mobile phones, and will allow autho-rised users to place orders for equitiesdirectly to market using their phone,according to Praemium Group chief exec-utive Arthur Naoumidis.

There is no charge for using V-WrapMobile with 20-minute delayed data,Praemium stated.

“This latest development is a fully inte-grated component of Praemium’s V-Wrapsystem, reflecting the evolution of ourservices and ensuring the latest technol-ogy is available to better serve the needsof our clients and their individualinvestors,” Naoumidis said.

Taxable income ($) Under 65 65–74

2007-08 4% 5%

2008-09 2% 2.5%

2009-10 2% 2.5%

2010-11 2% 2.5%

2011-12 3% 3.75

2012-13 4% 5%

Table 1 Impact of Federal Budget

Source: AMP

Appointments


Please send your appointments to: [email protected]

Opportunities For more information on these jobs and to apply,

please go to www.moneymanagement.com.au/jobs

PRACTICE MANAGER VIC – FINANCIAL PLANNINGLocation: MelbourneCompany: ANZ Financial PlanningDescription: ANZ Financial Planning is a keyarea of ANZ’s Wealth business. We are currentlyseeking to appoint a practice manager to leada team of salaried financial planners. Reportingto the state manager, the practice manager isresponsible for growing business profitability,developing a high performing team and drivinginternal and external relationships to promoteour services.

You have extensive knowledge of the financialplanning industry and are an expert in theapplication of investment management andinsurance strategies.

Academically, you have completed arecognised tertiary qualification, such asBachelor of Business, Commerce or Accounting,in a business-related field. You must be RG146compliant and ideally have completed your ADFSor CFP qualification.

Please apply at www.anz.com/careersquoting ref: AUS001265 or contact Sue Cusdinon 02 9234 8034 for a confidential discussion.

RISK SPECIALISTLocation: Wollongong, NSWCompany: WealthInsure Financial Services CentreDescription: If you’re a financial planner who

specialises in risk, then WealthInsure FinancialServices Centre can offer you an opportunity inWollongong where you’ll be rewarded for yourcontribution and results.

You will work in a dynamic small businessenvironment backed by AMP Financial Planning.Risk specialists will receive leads from theexisting investment and mortgage client base and you will work alongside experiencedprofessionals.

To apply, you’ll need a Diploma in FinancialServices, a track record in risk planning, excellentcommunication skills and a capable manner thatinspires confidence.

Please contact Sean Butcher on 0418 243 159 or send an email [email protected]

FINANCIAL PLANNERLocation: Wangaratta, VICCompany: National Australia BankDescription: NAB Financial Planning hasestablished a solid reputation for providingquality professional advice. Your focus will beon servicing, retaining and providing ongoingadvice to clients, retaining existing referralarrangements and prospecting newopportunities through your strong businessdevelopment expertise.

Your ability to engage with and build lastingrelationships with your clients will lead to success

in our culture of high performance at NAB.In return we offer a competitive remuneration

package, uncapped bonus incentives plusongoing professional development andparaplanning and administration support.

Ideally, you will have completed your ADFS(FP) or equivalent, and possess solid planningexperience demonstrating a proven sales ability.A tertiary degree in a business-related field willalso be highly regarded.

To apply online and for more information visitwww.moneymanagement.com.au/jobs

SENIOR PARAPLANNERLocation: Parramatta, NSWCompany: Equiti Financial ServicesDescription: Through recent expansion, EquitiFinancial Services has created an opportunity fora senior paraplanner to join its team.

Primarily, the paraplanner will be responsiblefor providing professional and operationalsupport to senior advisers through thepreparation of advice documents using XPLANand researching trends in financial planning andinvestment markets that include industry andlegislative changes. You will also be required toassist the head of financial advisory with theparaplanning team workload and provide trainingopportunities and support.

The successful candidate will be minimumRG146 qualified with an extensive understanding

of all aspects of the financial planning processand at least two years experience.

For more information on this role and toapply visit www.moneymanagement.com.au/jobs

BUSINESS DEVELOPMENT MANAGER – WRAPLocation: MelbourneCompany: PraemiumDescription: This is a newly created role focusedon selling and promoting SMARTwrap to theadviser market.

An experienced wrap platform specialist issought to drive sales and manage keyrelationships to expand the take-up ofSMARTwrap.

The role will involve engagement with existingclients, working with advisers and dealer groupsto encourage the inclusion of SMARTwrap onAPLs and undertake analysis to identify newmarket opportunities.

Some national travel and attendance atindustry events to build awareness of SMARTwrapis required.

Sound financial services sales managementexperience, strong dealer group contacts and agood understanding of the wrap market andcompeting wrap features is essential along with apro-active and well organised approach.

Please email your application, including CVand cover letter to [email protected]

MATRIX Planning Solutions prac-tice, The Payne Group, hasappointed Natalie Bordun as itsauthorised representative.

Bordun joined the group fromProphecy Wealth Management,where she worked as an autho-rised representative. Prior to thatrole, she was with William BuckFinancial Services.

In her new role, Bordun willinitially focus on reviewing exist-ing clients and building strongreferral relationships with clientsto help grow the business.

Matrix Planning Solutionsstated that Bordun, who has spent10 years in the financial servicesindustry, would be based inAdelaide.

AMP Capital Investors announcedScott Davieshas been appointed asAMP Capital’s new global head ofinfrastructure.

The appointment came afterPhil Garling, AMP Capital’s currentglobal head of infrastructure,decided to retire next month fromfull-time executive roles.

Davies has over 20 years offinancial services experience,having previously performed therole of chief executive officer ofMacquarie CommunicationsInfrastructure Group.

Prior to this, he held seniorinvestment roles for MacquarieCapital in New York and London

between 1995 and 2002, where hewas responsible for MacquarieGroup’s cross-border asset financ-ing activities.

Davies will report to AMPCapital managing directorStephen Dunne and willcommence his new role in July.

THREADNEEDLE has appointedtwo emerging market analysts asthe company continues to expandits emerging markets capabilities.

Georgina Hellyer has joined asan analyst for global emergingmarkets, and Ilan Furman will joinas an analyst for the Latin Ameri-can markets on 1 August. Both willbe based in London.

Hellyer and Furman will be partof the Asia (ex-Japan) and emerg-ing markets equities team, headedby Vanessa Donegan.

Georgina Hellyer joins fromAviva Investors where she was a

commodities and technicalanalyst in the emerging marketsand Asian equities team.

Ilan Furman will be joiningfrom Pictet, where he was part ofthe emerging markets equitiesteam with a focus on the LatinAmerican region since 2008. Priorto this he was a consultant infinancial advisory services atDeloitte.

FORMER ING InvestmentManagement executive, AlanHarden, has moved to BNYMellon Asset Management tohead its Asia Pacific business.

Harden, who was also named amember of BNY Mellon AssetManagement’s executive commit-

tee, will be based in Hong Kong andwill have responsibility for all distri-bution, strategic, financial and oper-ating plans, as well as businessdevelopment across Asia Pacific.

He will also support BNY MellonAsset Management’s relationshipwith key clients in the region,including sovereign wealth funds.

Harden joined the companyfrom ING Investment Manage-ment, where he was chief execu-tive officer of the Asia Pacific busi-ness. Prior to ING, Harden waschief executive officer of AllianceTrust PLC and was head of Citi-group Asset Management’s AsiaPacific operations.

Harden will report to CurtisArledge, vice chairman of BNYMellon and chief executive officer

of BNY Mellon’s InvestmentManagement division, whichincludes the asset management andwealth management business.

PIMCO Australia has added to itsinstitutional servicing team withthe appointment of Eric Frerer asexecutive vice president andaccount manager, with a focus oninstitutional clients, including largesuperannuation funds.

Frerer has 24 years industry expe-rience and comes to the role fromANZ’s global markets division,where he was global head of institu-tional fixed income distribution.

He has also held senior invest-ment banking positions with JPMorgan, Deutsche Bank and theCommonwealth Bank ofAustralia in various global loca-tions.

Frerer will be based in Sydneyand will work with head of PIMCOAustralia, John Wilson.

Wilson said Frerer’s appoint-ment came at a particularly inter-esting time for the superannuationindustry, since the need for indus-try participants to provide reliableincome streams for members isbecoming a higher priority.

This trend will accelerate as theAustralian population ages,providing impetus for innovationwithin the super sector to ensureappropriate strategies are provid-ed, Wilson said.

Move of the weekRI Advice Grouphas added two new managers to its senior ranks. JasonCoggins will take up the role of investment research national manager,while Deepthi Ravi Kumar has been appointed national manager,professional standards.

RI Advice Group chief executive officer Paul Campbell announcedboth appointments, saying Coggins would be tasked with maintainingRI’s in-house research capability.

He was previously manager of research at consultancy firm CPG, withparticular experience in fund manager research and asset consulting.

Deepthi Ravi Kumar, who had been with the group since 2007, broughta wealth of experience and knowledge to the role, Campbell said.

Both roles will report to head of advice Guyon Cates, who oversees theinvestment research, professional standards, research, technical servic-es and risk insurance divisions, following a restructure last year.

Georgina Hellyer

““Out of context

IT is the nature of Australian politics that Governmentministers know very well when they are among ‘friendlies’and when they are among ‘hostiles’.

Of course sometimes the ‘friendlies’ can turn into ‘hos-tiles’ and vice versa, but Outsider reckons the ParliamentarySecretary to the Treasurer, David Bradbury, knew he wasentering the lion’s den when he addressed Money Manage-ment‘s Retirement Incomes Workshop in Sydney last week.

The Government’s pursuit of its Future of FinancialAdvice (FOFA) changes and its perceived embrace of theindustry superannuation funds agenda has given rise to afair amount of antipathy between financial planners andGillard Government ministers.

It is with this in mind that Outsider tips his hat to Brad-bury, who opted to take questions from the floor ratherthan the somewhat less confrontational method ofanswering questions submitted by texting devices.

All of Bradbury’s skills as a politician and former taxlawyer were put to the test, with some planners evenentering into mild debate with the Parliamentary Secretary.

In the end he held the Government line, but not withoutthrowing in the observation that many of the issues werematters for the Assistant Treasurer, Bill Shorten.

Bradbury is clearly a campaigner. His next stop hap-pened to be an address to the AustralianBankers’ Association.

“And he had a number of Russian ballerina lovers,which I think is always a good thing for anyeconomist.”

According to CoreData’s Andrew Inwood,it’s not just skill withnumbers that makes one a good economist.

“Excuse me while I sledge our friends from theindustry funds space again.”

Admitting he does so quite often, the Association of FinancialAdvisers chief Richard Klipin announced his intention to dedi-

cate a couple of minutes to the industry funds at a recentlunch function.

“However, unlike Singapore, there is no confusionbetween the price of taxis and the price of beer [inAustralia] – everything is expensive.”

AXA Framlington’s market commentator Mark Tinker gives hisreaders an idea of how expensive life for Aussies is at the moment.

Outsider


ISN gets pwned

Courage under fire

OUTSIDER has never pretended to be anythingother than a Luddite on the grandest scale when itcomes to all things pertaining to the Internet, buthe couldn’t help but chuckle recently at a case ofwhat he is told is commonly referred to as ‘hacking’.

For reasons best kept to himself, Outsider foundcause to peruse the official website of the IndustrySuper Network, the organisation run by industrysuper fund campaigner and financial planningsceptic David Whitely.

Outsider was somewhat bemused to find the site’sregular roster of anti-financial planning propagan-da replaced by a single page with a black back-ground, a photo of what appears to be a young mansmoking a marijuana cigarette and the followingperplexing message:

This SiTe Has New OwnerIt Gives Me More Power That I Do Right The

Thing…Don’t Say No Or Stop …

.. But U have Bad Security .... U have to Strong it .. Next Time ..

.. But I don’t Think There Is Next Time .... LooOooL ..

It is hard to know whether the site was the victim

of a random attack or whether a renegade with tiesto the financial planning industry was out to inflicttheir own form of karmic justice.

While Outsider must make clear that he is notapproving of ‘hacking’ or any other form of illegalactivity, he will say this: sometimes he is moved tosympathy when others encounter misfortune, andother times he is guilty of a certain degree ofschadenfreude.

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Have you been playing

just one of our strings?

Harvey’s world travelOUTSIDER has never been one to deny hard-working finan-cial services types some of the small pleasures of life.

Thus, he is not going to disparage Equity Trustees’Harvey Kalman simply because he was heardbemoaning how busy he would be over thecoming weeks conducting business in Londonand elsewhere in Europe before suffering a fewdays in Monaco.

Outsider is among those who understandthat visiting some of the finest cities in theworld is not all beer and skittles, and thatliving out of a suitcase and rushing betweenclient meetings and product briefings canquickly lose its lustre.

That said, Outsider also completely under-stands why, after being regaled about the extentof the forthcoming foreign odyssey, one ofKalman’s colleagues declined to utter a single wordof sympathy.

Outsider has a word of advice for Kalman: suffer insilence Harvey, and enjoy suffering.

money management (23 july, 2011)

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