money management (august 11, 2011)

www.moneymanagement.com.au

The publication for the personal investment professional

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By Mike Taylor

THE Federal Government needsto start treating the IndustrySuper Network (ISN) and otherelements of Industry FundServices as what they really are –elements of a vertically integrat-ed financial services conglomer-ate, according to the chief exec-utive of the Financial PlanningAssociation, Mark Rantall.

Rantall has told Money Manage-ment he has been disturbed by theability of the ISN to pass itself off asa “consumer champion” when, inreality, it was the lobbying arm ofwhat amounted to a vertically inte-grated conglomerate containing abank, a funds management arm,a financial planning arm andsuperannuation products.

He claimed the multifacetednature of the ISN and othergroupings falling under the

Industry Funds Services umbrel-la meant they were beingdouble-counted as stakeholdersproviding input into key Govern-ment policy decisions.

Rantall’s comments follow onfrom statements he made late lastmonth claiming the IndustrySuper Network was mounting an

attack on financial planners as partof a broader strategy to gain domi-nance of the financial planningmarket.

His concerns about theamount of influence exerted bythe ISN were reflected incomments by the Shadow Assis-tant Treasurer and Oppositionspokesman on FinancialServices, Senator MathiasCormann, who said the AssistantTreasurer and Minister for Finan-cial Services, Bill Shorten, hadallowed the Future of FinancialAdvice (FOFA) legislative agendato be hijacked by the ISN.

Discussing the original bipar-tisan recommendations of theRipoll Inquiry, Cormann said:“Bill Shorten and the GillardLabor Government allowed theagenda to be hijacked and ineffect delayed by the ISN and theunion movement”.

“Let me be very clear hereupfront. Industry super funds playan important role as part of theoverall superannuation industry.They have a particular businessmodel, focusing on a particularvalue proposition, which meetsthe needs of many Australians.However, the key here is thatchanges to the financial servicesand superannuation policy frame-work should be competitivelyneutral. They should not bedesigned to impose the industrysuper fund business model on thewhole industry, or to help providea competitive advantage for onesegment of the market againstanother,” he said.

“For somebody who says he iscommitted to removing conflictsfrom the financial advice indus-try, Bill Shorten seems particu-larly unaware of the need tomanage the conflicted situation

he finds himself in when makingpolicy judgements in relation tofinancial services and superan-nuation policy issues,” Cormannsaid. “The ISN was not able toconvince Bernie Ripoll and hisinquiry that there should be amandatory yearly or biennialopt-in, or a ban of commissionson risk insurance – inside oroutside super.”

The chief executive of theFinancial Services Council, JohnBrogden, also questioned thecredentials of consumer groupChoice, often aligned with the ISN,in terms of its stakeholder influ-ence in the FOFA debate referringto its commercial involvement inthe so-called ‘Big Bank Switch’.

He said the Choice involvementmeant the group had a number ofkey questions to answer, particu-larly with respect to commissionsand conflicts of interest.

By Benjamin Levy

INDUSTRY platform providers havecome out swinging against a recentInvestment Trends report suggestingthey are not delivering on their directshare platform offerings.

Investment Trends’ recent PlannerDirect Equities report found that while61 per cent of advisers used platformsfor their direct share exposure, only 16per cent of users found the offering tobe “very good”.

New gaps in the platform offerings areemerging in share research, timelines ofdata and pricing, according to the report.

But platform providers such as BT Finan-cial Group bristled at the suggestion, sayingthey had spent a vast amount of money overthe past three years improving the tradingability of their direct share offering.

BT Wrap users have access to bulk tradingcapabilities and same day trading abilities,lowering costs and saving time for advisers,said head of BT Wrap Chris Freeman.

Freeman also rejected suggestions theydidn’t have enough research available foradvisers.

Tailor-made watch-lists of certain stockscan be made for advisers, as well as emailalerts on ASX related news, he said.

“We’ve got better market and companyinformation,” he said.

Share research was widely availablefor advisers from other areas as well,

Freeman said.“Research is like a commodity, you can

get that anywhere,” he said.Online broking companies such as Bell

Direct offer research and trading abilitiesfor just $15, while Westpac Broking andCommonwealth Online Securities alsooffer research at a low cost.

Many dealer groups also provide theirown research in partnership with differ-ent brokers.

Macquarie Adviser Services’ head of insur-ance and platforms Justin Delaney insistedthat interest in direct shares was growingthanks to the rich capability they provide.

“The role of the platform has been pureadministration, providing custodial serv-ices, reporting and access to trading. I think the level of functionality provided

Government’s ISN favouritism draws criticism

Continued on page 3

Heckles rising overInvestment Trends report

FPA LABELS CHOICE SWITCH CAMPAIGN HYPOCRITICAL: Page 4 | TIME FOR APRA TO BE ACCOUNTABLE: 3

Vol.25 No.30 | August 11, 2011 | $6.95 INC GST

LEADERS of some of the industry’s largestdealer groups have attempted to map anapproach to pricing scoped advice, butkey cost differences have emergedbetween the groups.

The issue arose in a panel discussionon scoped advice at the Financial Ser-vices Council’s (FSC) annual conferencelast week.

AMP director of financial planningadvice and services Steve Helmich toldthe audience that cost would not be anissue for consumers when they wereshown the value of advice. Helmichgave an example of an AMP Horizon’sAcademy practice that charged $150for scoped advice on budgets and cashflow, $440 for a single simple piece ofscoped advice, and $660 for a morecomplex single piece of scoped advice.

Speaking to Money Management,Helmich emphasised that the cost ofscoped advice would be set as per theterms of engagement with the client.

A recent Investment Trends report sug-gested that consumers wouldn’t pay morethan $270 for scoped advice provided bya super fund.

Scoped advice should only be costedthrough discussions with consumersto determine what was a fair and rea-sonable fee for each particular piece of advice, according to MLC general

manager Greg Miller.If scoped advice was broken down into

a single advice strategy each time, itwould help drive down the cost of thatadvice, he said.

The cost of the advice should rise or fallaccording to how complicated the advicewas, he said.

In the FSC discussion, Miller saidscoped advice should be seen as an intro-duction to holistic financial advice.

However, ANZ Wealth general managerof advice and distribution Paul Barrett saidresearch showed a customer wouldn’t paymore than $300 for scoped advice, anddealer groups should find ways to make

Continued on page 3

Chris Freeman

Steve Helmich

Mathias Cormann

Value of scoped adviceoutweighs price

Class order removal a relief

If the Australian Securities andInvestments Commission’s (ASIC)guidance document on scalableadvice should be welcomed for one

thing, it should be welcomed for themanner in which it proposes to removethe class relief granted to superannua-tion fund trustees relating to provision ofintra-fund advice.

By proposing to withdraw the classorder relief, the regulator has clearlysignalled it believes there should be a levelplaying field with uniform obligationsimposed on those providing ‘scaledadvice’, whether they are financial plan-ners, accountants or superannuationfund trustees.

While much was made of the 2009Government-backed decision to providea class order allowing superannuationfunds to provide ‘intra-fund’ advice, itultimately proved to be little-used bysuperannuation fund trustees, with mostopting to go down the route of moreholistic advice.

One of the key elements of the ASICapproach to scalable advice is that itsuggests the obligations imposed onthose providing the advice will also bescalable with respect to the suitability ofthe advice for the client and the level of

inquiry and analysis required.However, the ASIC paper is silent on

the issue of a ‘best interests’ test – some-thing that has been raised as an issue ofconcern by the Financial Planning Asso-ciation (FPA).

Given the potential complexity of theissues, the FPA is probably also right tobe concerned about topics such as tran-sition to retirement, Centrelink and retire-ment planning to be included within thebroad gamut of scaled advice.

ASIC needs to be careful to ensure thatthe level playing field it will create byremoving the class order relief grantedto superannuation funds will not againbe distorted by allowing too much scope

for invention within the definition ofscaled advice.

Then too, financial planners and othersshould note that the ASIC documentationmakes frequent reference to the legisla-tion that will evolve out of the FederalGovernment’s Future of Financial Advice(FOFA) changes.

Implicit in those references is thatwhatever recommendations the regula-tor may have made within the discussionpaper, the ultimate shape of the new scal-able advice environment will depend onthe content of the legislation the Assis-tant Treasurer and Minister for FinancialServices, Bill Shorten, ultimately intro-duces to the Parliament.

It is to be hoped, however, that theminister and his advisers have madethemselves fully familiar with the ASICdiscussion paper and, not least, itsproposed removal of the 2009 class orderrelief. Financial advice, delivered fromno matter what quarter, should besubject to uniform legislation anduniform regulation.

As superannuation funds move furtherand further into the competitive deliveryof financial advice, they must be made toplay by the rules.

– Mike TaylorABN 80 132 719 861 ACN 000 146 921

2 — Money Management August 11, 2011 www.moneymanagement.com.au

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“Financial advice,delivered from no matterwhat quarter, should besubject to a uniformlegislation and uniformregulation.”

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Average Net DistributionPeriod ending March '1110,207

By Chris Kennedy

SOME segments of the industry say theFinancial Services Council’s (FSC) stance toproactively reduce the practice of insurancepolicy churning by advisers will not have thedesired effect, while others say it is unnec-essary – although it has also generated somesupport.

FSC chief executive John Brogden lastweek proposed a ban on takeover terms, anda two year responsibility period on policieswith commission clawback if policies werecancelled in that period.

Director of risk focused licensee Synchron,Don Trapnell, said the two year responsibil-ity period puts onerous pressure on theincome generating capacity of the adviser,and has the potential to penalise adviserswho aren’t doing the wrong thing.

“It’s not necessarily a matter of rewriting

business that causes a case to lapse; every-body presupposes that advisers are out therechurning over business on a regular basis,”he said.

But market conditions and market pres-sures should be able to regulate the indus-try, he said. The ultimate beneficiaries of theterms suggested by the FSC will be the lifecompanies, he added.

Speaking from a personal point of view,Col Fullagar from RI Advice said that a twoyear responsibility period is probably notthe answer.

“The answer, in part, lies with life officesgiving greater credence to remunerationsystems that reward the right activities,”he said.

You can’t blame advisers for receiving anadvantage from facilities put in place by lifeoffices, he said.

The life offices currently have systems in

place that allow them to identify which advis-ers are abusing the current system, and Fulla-gar asked why the life offices don’t look tospeak to those advisers and put correctionsin place.

This could include only making availablelevel commissions if lapse rates exceed acertain level, paying a higher rate of remu-neration to advisers doing the right thingwith the increase being funded by those whoare not.

“If the current system was properlyaddressed, the need for Government pres-sure to move risk insurance to fees may notbe as necessary. This would then enableadvisers and their clients to make a choiceas to what is better - fees or a commissionstructure that rewards sustainable activities,”Fullagar said.

An Asteron survey on the topic sent toaround 5,000 advisers quickly generated over

300 responses, with more than half statingthat removing takeover terms would notreduce churn. However, two thirds of advis-ers believed the two year responsibilityperiod would reduce churn.

Asteron’s executive manager, nationalsales, Mark Vilo, said there was a perceptionthat advisers are being penalised due to thechurners but that the issues weren’t necessar-ily being resolved.

Advisers in the survey suggested reducingup-front commissions or looking at differ-ent responsibility periods for different typesof commissions. For example, up-frontcommissions could incur a two year respon-sibility period, but on a hybrid commissionit could be less, and less again for those onlevel commissions.

Asteron general manager Jordan Hawkesupported the ban on takeover terms anddescribed the move as a “great first step.”

www.moneymanagement.com.au August 11, 2011 Money Management — 3

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Mixed response to FSC’s stance on churn

scoped advice available under that amount.“Most of the research that we have done indicates that

$300 is the paying threshold. So therefore, we have to beunder that. One of the people on the panel said that mostplanners would charge more than that and people wouldpay – I disagree with that. I think there is a fundamentalproblem – the advice value dilemma, where people will onlypay $300.”

Mercer member services and advice leader Jo-AnneBloch also questioned the costs of scoped advice thatwere suggested during the session.

There was a real reluctance among super fund membersmanaged by Mercer to pay extra for advice related ques-tions, particularly within super, Bloch said.

If the member asked an advice question unrelated tosuper, they would be happy to pay, but they were veryreluctant to pay for advice related to their super whenthey were already paying for their actual super, Bloch said.

“Our experience through our call centre and our seminarwhere we do deliver scaled advice indicates it’s really hardto charge extra,” she said.

It was also administratively inefficient to add the bureau-cracy to charge for it, Bloch added.

by our platform is verycomprehensive,” Delaneysaid.

However, Delaney admit-ted they could do more interms of evolving researchand trading services foradvisers using the platform.

Investment Trendssenior analyst Recep Pekersuggested that the numberof planners using platformsfor direct shares hasplateaued. “The number ofadvisers using platforms isunchanged from last year,”he said.

Morningstar co-head of

fund research Tim Murphysaid advisers tended tocomplain about directshares on platformsbecause platforms wereoriginally designed formanaged funds, whichhave a different structure.

They weren’t reallydesigned for trading secu-rities on live exchanges.Some platforms haveaddressed that situationbetter than others, but itvaries, Murphy said.

Platforms had beenploughing money intotheir structures and wereat different stages ofsuccess, he added.

Heckles rising overInvestment Trends reportContinued from page 1

Continued from page 1

Value of scoped adviceoutweighs price


News

By Mike Taylor

THE Financial Services Council (FSC) has movedto reduce churn in the life insurance industryvia a uniform approach to commissions.

The FSC’s approach has been unveiled by theorganisation’s chief executive John Brogden atits annual conference on the Gold Coast today.

Brogden pointed to ongoing concern aroundthe level of policy churn and said he believed theinitiative would go some way towards address-ing the problem.

The announcement came just hours after theAssistant Treasurer, Bill Shorten, announced theGovernment was prepared to cede ground oncommissions on individually advised risk prod-ucts within superannuation.

Brogden said the FSC had moved to developa binding standard to stop churning.

He said it was intended to have agreementaround the binding standard by 2012 for imple-mentation with the FOFA legislation.

Brogden said the standard would help meetthe best interests test.

FPA weighs in on CHOICE switch campaignBy Chris Kennedy

THE Financial Planning Association (FPA) hascriticised CHOICE’s partnership with the BigBank Switch campaign, calling it hypocritical.

“We believe this campaign is hypocritical ofprevious arguments made by CHOICE againstcommission payments to financial advisers,”FPA chief executive Mark Rantall said.

“CHOICE has argued over many years forthe banning of commissions and supportedthe [Industry Super Network’s] position on get-ting rid of ongoing and asset based fees forproviders of financial advice, however it isapparent that the Big Bank Switch campaigndoes just that,” he said.

“CHOICE has admitted to receiving a refer-ral fee from this campaign, whilst at thesame time continuing to be one of the mostvocal opponents of commissions paid tofinancial planners. CHOICE is displayingdouble standards on payments to those pro-viding financial advice.”

CHOICE director campaigns and communica-tions Christopher Zinn told Money Manage-ment that he had expected criticism from theplanning industry, but CHOICE’s argument hadalways been against poorly-disclosed commis-sions and volume-based payments.

He said it is hard to understand how thereferral fees CHOICE stands to receive arecomparable to the trailing commissions

received by financial planners.“We’ve structured this in a way that removes

conflicts of interest. We haven’t released allthe details because the registration process isongoing until August 14 and then the negotia-tions will take place,” he said. After that datefull details would be announced he said.

“CHOICE could not be more conscious ofthe allegations of a conflict of interest andappreciates why the FPA put out a releasetalking about apparent double standards. Weintend to demonstrate why there is no con-flict but unfortunately can’t do that yet.”

He added that the referral fees will be usedto fund the current campaign and any feesreceived above that will be used in future cam-paigns to benefit consumers.

“There is no comparison in this case tofinancial advice because CHOICE is just areferrer,” he said.

But Rantall told Money Management thathaving consumers pay commissions, and withreferral fees going back to CHOICE, it was nodifferent to the financial planning case.

“We would call on CHOICE to fully dis-close what they are receiving and where themoney is going and to not accept commis-sions or referral payments. They should havetheir readers opt-in every year, the same asthey’re calling for from financial planning,and close this massive double standard,”he said.

HSBC Australian advisers safeHSBC says its financial advisers in Australia aresafe, despite massive job cuts by the organisa-tion overseas.

In the latest interim report from HSBCAustralia, retail banking and wealth managementis up, while the bank’s assets grew by 13 per cent.

Wealth management also increased, with apre-tax profit increase of 35 per cent to $35million in the first half of 2011.

According to chief executive Paulo Maia,the marked growth was due to HSBC expand-ing its debt capital markets, project andexport finance, loan origination, and lever-

aged acquisition finance teams.With the bank expected to cut up to 30,000

jobs in Europe and other parts of the world,HSBC has told Money Management that the bankis committed to growing their presence inAustralia along with the wider Asian market.

“HSBC Group is reviewing its business forlong-term efficiency and reallocation for sustain-able growth and evaluations are still underway,”a bank spokesperson said.

“We will continue to invest in our businessand attract and retain the best talent in keymarkets.”

John Brogden


Industry backs Shorten concession on risk in superTHE financial planningindustry has welcomed asignal from the AssistantTreasurer and Minister forF inancial Ser vices, Bil lShorten, that the FederalGovernment is prepared tocede ground on the blan-ket banning of commis-sions on risk products soldwithin superannuation.

Shorten used an addressto the Financial ServicesCouncil (FSC) annual con-ference on the Gold Coastto declare the Governmentwas prepared to shiftground on the banning ofcommissions on individuallyadvised risk products withinsuperannuation.

In doing so, the ministeracknowledged the lobbyingefforts of the FSC and theFinancial Planning Associa-tion (FPA), but specifically

excluded the effor ts ofanother planning industryorganisation which waswidely assumed to be thehighly vociferous Associationof Financial Advisers (AFA).

Notwithstanding the minis-ter’s exclusive omission of hisorganisation, AFA chief execu-tive Richard Klipin welcomedShorten’s announcement, butsaid the next move by theGovernment needed to be ashift on its stance withrespect to the two year ‘opt-in’provision.

However, Shorten made itclear that while the Govern-ment was prepared to shiftground on individually advisedrisk commissions, it wastotally committed to the twoyear opt-in, which he regardedas the minimum that couldbe expected of advisers.

He said that where com-

missions on individuallyadvised risk products wereconcerned, the Governmentwas prepared to concedesome ground on the basis ofsubmissions received fromthe industry, particularly theFPA and the FSC.

The minister’s statementwas welcomed by the execu-tive director of the FPA, Mark

Rantall, who said he believedShorten’s announcement wasa direct result of lobbying bythe FPA.

He said that while theFPA had not been overlyvocal about its lobbyingrole, it had nonethelessbeen working closely withthe Government to achievea change in the positionwith respect to the banningof commissions on risk insuperannuation.

The minister’s announce-ment has also been wel-comed by the Coalition, withFederal Opposition financialservices spokesman, Sena-tor Mathias Cormann, sayingit always represented a badidea and something whichhad been adopted by theGovernment at the behestof the industry superannua-tion funds.

Paulo Maia

FSC moves toreduce churn

Bill Shorten

Is Choice guilty of fees hypocrisy?

By Mike Taylor

ONE of the harshest critics of commis-sions and asset-based fees, theconsumer group, Choice, may beengaging in similar conduct via itsendorsement of, and relationship with,One Big Switch.

That is the concern of Eureka Finan-cial Group managing director GregCook, who said that while he believedthe One Big Switch concept was noveland welcome, if it resulted inconsumers getting better value fromtheir mortgagee, it raised key questionsfor Choice.

He said that, as he understood it,Choice had not just promoted andendorsed One Big Switch, they had“partnered” with them – somethingwhich, while not publicly disclosed,“indicates some kind of financialrelationship”.

“If that’s so, let me be the first towelcome Choice to the financial serv-ices industry,” Cook said.

However he said his concern wasnot so much any perceptions ofconflict of interest, but what mightemerge as a “gob-smacking conflictin policy position”.

Cook claimed that as well as beingopaque rather than transparent, therelationship appeared to be at“complete odds with the decade-longposition of Choice in financial servic-es policy”.

“Choice’s Christopher Zinn andthe industry super cohort decrycommission payments, fees calcu-lated as a percentage, trail commis-sions, and any volume rebates,” Cooksaid. “However on the face of it, herethere seems to be a cocktail of allthese, but not only that, in the moredangerous area of mortgage andinvestment lending.

“If this is the case, it is amazing howeasily their firm principles wilt whenit comes to actually implementing abusiness model,” he said. “On thatbasis, I now wonder, will Choicefollow the financial planning profes-sion and bring their remunerationpolicy into the 21st century?”

Greg Cook


News

By Mike Taylor

THE Federal Government has beentaken to task for causing consumeruncertainty by taking an undueamount of time to deliver a newlegislative framework covering thefinancial services industry.

The accusation of undue delaywas levelled by the chairman of theFinancial Services Council andGroup Head of Banking and Finan-

cial Services at Macquarie Bank,Peter Maher.

Maher used his opening addressto the FSC annual conference on theGold Coast to lament the on-goingconsumer uncertainty attached tothe Government’s prolonged legisla-tive deliberations around the Futureof Financial Advice (FOFA) change,and the recommendations of theCooper Review.

He said the Government’s

approach had led to industry uncer-tainty about the future of the finan-cial services industry and the param-eters within which companieswould need to operate.

“This uncertainty is affectingconsumer confidence in our indus-try,” Maher said.

He also claimed recent researchhad indicated the Government’sapproach was underminingconsumer perceptions of the value

good financial advice could add totheir ultimate outcomes.

Notwithstanding its concernsabout the Government’s approach,Maher said the FSC would be strong-ly supporting the Government’s pushto lift the superannuation guaranteefrom the current nine per cent to theenvisaged 12 per cent,.

“We will be supporting theGovernment’s endeavours to makethis happen,” he said.

Snowballreviews itsclient servicesBy Milana Pokrajac

SNOWBALL is undertakinga detailed review of itscustomer relationshipmanagement system,client administration andreporting platforms, whichthe group said was part ofProject Best Advice.

As part of its participa-tion in Shadforth’s ProjectBest Advice, Snowball isestablishing its BestAdvice Centre of Excel-lence, which the groupsaid would ensure allaspects of adviser serv-ices are focused on deliv-ering value to clients.

Snowball’s client strat-egy suppor t services,including technical expertsand databases, wouldwork together at anational level to supportthe expansion of the proj-ect, the dealer group said.

Project Best Advice wasestablished by Shadforth in2006 and it encompassesall aspects of client serv-ice delivery, from advisersupport systems throughto compliance, client experi-ence considerations andmarketing.

Snowball’s Best AdviceCentre of Excellence,which followed the Snow-ball/Shadforth merger,would be led by head ofbest advice Sally Manion,and chaired by managingdirector, Tony Fenning.

Manion said the projectwould appeal to groups ofpractice principals whowant to focus on deliver-ing “quality strategicadvice rather than beingpart of a product distribu-tion network”.

It will shor tly beexpanded to include theSnowball Outlook andWestern Pacific advisernetworks.

Peter Maher

Maher critical of Government inaction

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News

BT announces restructureBy Chris Kennedy

BT Financial Group hasannounced a restructuredriven by a desire to earnmore of Westpac customers’superannuation, investment,advice and insurance busi-ness, and as a result of Futureof Financial Advice (FOFA)changes.

The restructure will includea new bank distribution andinsurance division to be runby general manager MarkSmith; as well as a new busi-ness transformation divisionto be led by general manager

John Shuttleworth, which willfocus on designing and build-ing the next generationwealth platform.

A new superannuation andinvestment business will bringtogether BT Super for Life,Corporate Super and the BTWrap and Asgard platformswith Westpac’s investmentbusinesses including AdvanceAsset Management, Ascalonand BT Investment Manage-ment. This division will beheaded up by general managerDavid Lees.

Westpac will also bolster itsprivate wealth under Jane

Watts to focus on the bankingand wealth managementneeds of high-net-worthcustomers of Westpac PrivateBank, St. George Private Clientsand Bank of MelbournePrivate.

There are no structuralchanges to the advice busi-ness led by Mark Spiers whichcomprises Westpac FinancialPlanning, St.George FinancialPlanning, BankSA FinancialPlanning, Bank of MelbourneFinancial Planning and Secu-ritor, although Westpac statedthe unit will add 140 plannersover the next three years.

Why advisersare wantingproperty adviceBy Andrew Tsanadis

WITH more and more investors wantingaccess to property investment advice,the expertise required is often beyondthe scope of most financial advisers.

Melbourne-based real estate agencyNext Level Property (NLP) is providingsuch a partnership service to advisersby locating, purchasing and managinginvestment properties.

Joint director Andrew Oscari fromNLP says they look closely at not onlythe criteria set by the financial adviserbut that of the investor as well.

“ We undertake the full propertypurchase from selection to an invest-ment cash flow forecast to sourcingappropriate finance if that is required,”Oscari says.

“Next Level Property also continuesto manage the property and tenancy onbehalf of the investor.”

Oscari also says that NLP assumesresponsibility for liability for propertyadvice, ensuring there is no risk to theadviser’s financial services licence orprofessional indemnity cover.

Despite the fact that the Reserve Bankof Australia has stated that housingprices have “softened” over the last fewmonths, NLP says interest in residentialand commercial property investment byprivate investors and self-managedsuperannuation funds is strong.

Mark Spiers

Hourly fees bad for businessTHE way planning practices charge foradvice will be key to how well they dealwith Future of Financial Advice (FOFA)regulations – and charging an hourlyrate is definitely not the answer, accord-ing to Elixir Consulting business coachStewart Bell.

Pricing comes down to how you charge,when you charge and what you charge –and the options for how you charge arehourly fees, flat fees and asset-based fees,Bell said at a recent Association of Finan-cial Advisers (AFA) roadshow.

Of those three you should take hourlyfees off the table straight away becausethey’re not good for business, they rewardinefficiency and clients don’t like them,he said.

“The last thing you want is a client notpicking up the phone because they’reworried what you’re going to charge them,”he said.

In terms of when you charge, some plan-ners do a discount upfront, which can sendthe message the true value of the advice is

in the ongoing implementation rather thanin the upfront plan. The two prevalentmodels are an all-inclusive annual retainer,or a restricted offer that includes an annual

review and a newsletter, but extra servicessuch as additional reviews and Statementsof Advice cost extra.

In terms of what you charge, it’s veryimportant to put a value on your advice,he said.

“It’s not about time, it’s about expertise,the difference you make to a client – charg-ing by time doesn’t recognise that,” he said.

FOFA will actually create significantopportunities for those who move early,he said.

“My view is that when fees are positionedcorrectly, when it’s clear what they’re for andwhat they’re linked to, and when trust ispresent in a relationship, then fees are rarelyan issue,” he said.

Bell said FOFA is less about radicalchange and more about evolution. It issimply pushing through changes thatwould have happened eventuallyanyway, and for those planners who arewaiting for the details on FOFA there isalready enough detail to be making astart, he said.


Knowledge the key to using SMAs?By Mike Taylor

RATINGS house van Eyk haspointed to the value of separatelymanaged accounts (SMAs), but haswarned that financial planners andtheir clients need to understandthe flexibility and tax benefits couldcome at a cost if they are not usedproperly.

Referring to recent survey data

released by Investment Trends, vanEyk senior analyst Briana Lam saidthe type of investment strategyused in an SMA and how it wasimplemented determined thesuccess of an individual portfolio.

She said SMAs were better suitedto a concentrated portfolio of asmaller number of stocks, toreduce turnover and to keep trans-action costs and tax liability as low

as possible.“We think investors should be

aware not all investment strategiesare suited to an SMA-styleproduct,” Lam said.

She said that while the ability toeasily deviate from a model port-folio when investment opportuni-ties arose was seen as a strength ofSMAs, it could also be a weakness.

“Time lags and lack of monitor-

ing of portfolios by fund managerscan lead to returns in an SMA devi-ating from the manager’s modelportfolio,” Lam said. “Differencescan also arise from SMAs nothaving access to certain invest-ments like initial public offerings,or some transactions taken bySMAs may be too small for a plat-form provider to process.”

Comparing boutique SMAs to

those marketed by large fundmanagers, the van Eyk analysissaid neither was clearly superior.Boutiques often have a betterhandle on the implementationissues surrounding the product,but larger providers often havebetter resources and greateraccess to sources of investmentand market information, theanalysis said.


News

THE strength of theAustral ian dol lar andsoftening equity marketshave impacted the funds posit ion of theCommonwealth Bank,according to the latestdata released to theAustral ian Secur it iesExchange (ASX) lastweek.

The bank announcedthat funds under manage-ment (FUM) for the Junequarter stood at $197bil l ion, a 1.3 per centdecline largely attributa-ble to the appreciatingAustralian dollar and fallsin investment markets,with the ASX200 down 4.8per cent and the MSCIWorld (AUDF) indexdown 3 per cent over thequarter.

However, the bank saidretail net flows were upfor the quarter due tostrong f lows into theFirstChoice and CustomsSolutions platforms,while wholesale productswere impacted by theoutflow of short-termcash mandates.

The ASX announce-ment said that FUM at 30June stood at $149 billion,down 1.9 per cent for thequarter.

It said insurance in-force premiums were up3 per cent for the quarterto $1,640 million withgrowth across all businesslines.

Strong A$ andsoft marketshit CBA

^Gross performance excludes fees and charges and assumes the reinvestment of all distributions. *Net performance of Class D units (min investment $5,000) since inception to 30/06/2011 and assumesthe reinvestment of distributions. It does not take into account the effect of taxes. Inception date is 4/7/05. # MSCI World ex-Aust (hedged) is not the benchmark for this Fund but is used to indicate theperformance of broader global equity markets (hedged in AUD). The Benchmark for the Fund consists of a weighted average of returns for a composite of 36% S&P 500 Composite Total Return), 24%Financial Times/S&P Actuaries World Index ex-US (Total Return), 24% Merrill Lynch Government Index GA05 (5 year Treasury Bond) and 16% Citigroup Non-USD World Government Debt Index. Issued byBlackRock Investment Management (Australia) Limited ABN 13 006 165 975, AFSL 230523 (BlackRock). BlackRock is the responsible entity of the Fund. A PDS for the Fund is available from BlackRock.You should consider the PDS in deciding whether to acquire, or to continue to hold, the product. This is general information only and does not constitute financial product advice. The information doesn’ttake into account an individual’s financial circumstances. An assessment should be made as to whether this information is appropriate for an individual and consideration should be given to talking to afinancial adviser before making an investment decision.

Markets goup and down.

We haveperformed in both.

For more information or to learn about our ratings call 1300 366 101

blackrock.com.au/advisers

A strong market means strong returns. We all know that, but what about uncertain times? TheBlackRock Global Allocation Fund (Aust) has the fl exibility to manage your investments throughall market cycles and aims to provide the best available investments worldwide, across assetclass, region and market capitalisation. Look to the world’s largest asset management company.Look to BlackRock.

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Net Performance* 17.2% 5.1% 6.7% 8.1%

BlackRock Reference Benchmark 19.6% 5.7% 6.0% 6.7%

MSCI World ex-Aust (hedged)# 26.7% 1.2% 2.0% 4.3%

Past performance is not a reliable indicator of future performance.


News

Advice headed to more specialisationBy Chris Kennedy

THE financial adviser of tomorrow will becomeincreasingly adaptable, technologically focused andspecialised, according to the Association of FinancialAdvisers vice president, Adam Smith.

It will be very important to get the balance rightto run an efficient business, he said, and this meansbecoming more process driven, more disciplinedand more focused. Process helps to demonstratevalue, which in turn helps you position fees and buildefficiency, he said.

Efficiency will also come from a turnkey businessmodel, where all staff have their own positions and knowwhat they need to do, enabling the adviser to focus onhis duties, Smith said.

Innovation, particularly in the area of technology suchas applications for smart phones and iPads, will also bekey, he said.

For example, Smith said he uses his iPhone at theend of every client session to take a photo of thewhiteboard and mail it to the client so they have avisual record, and he also emails it to software

provider XPLAN for the client records.The advisers of tomorrow will also have a thirst for

learning, Smith said, but added that the important thingis not how many letters an adviser has after their name,but how well they can transfer their knowledge to clients.

“It’s not just about what you learn, it’s how you useit,” he said.

“Advisers will also become increasingly specialisedas the industry becomes more complex,” he said.

“The world is getting faster, more complicated andmore litigious,” he said, and added that it will be hardenough to keep up in one area without trying to be anexpert in multiple areas.

DKN announces writedowns; decreased inflowsDKN has announced a $21million write down to thecarrying value of goodwill inits accounts in a statementto the Australian SecuritiesExchange, which thecompany said would haveno impact on a proposedacquisition by IOOF.

Together with an underly-ing net profit after tax, DKNanticipated a full year loss of$14 million, subject to audit.

The total funds underadministration in its plat-form and product solutionsdivisions was up by 8 per cent over the 12 months from 30 June2010 to $8.02 billion, although positive inflows saw a 40 per centdrop compared to the previous year to $300 million.

“These figures reflect lower investor confidence, uncertaintyarising from impending regulatory changes and the loss of onemedium-sized wealth management practice from the network,”DKN stated.

DKN also announced that investments were made in two addi-tional practices through its equity partners division, while sevennew associates were added to its Lonsdale dealer group network,bringing the total to 117 practices.

Five new practice associates were contracted to purchase solu-tions from Lonsdale and six existing practice solutions associateswere contracted to purchase additional solutions throughoutthe year, DKN stated.

APRA warned on secrecyprovisions and MTAA SuperBy Mike Taylor

A SENIOR Liberal Senator believes the Australian Pruden-tial Regulation Authority (APRA) cannot avoid answeringquestions about its handling of MTAA Super based onthe secrecy provisions of its governing legislation.

Tasmanian Liberal Senator, David Bushby, has confirmedto Money Management that after failing to extract answersfrom APRA during Budget Estimates earlier this year hehad sought advice from the Clerk of the Senate about theregulator’s reference to the secrecy provisions in side-stepping answers to his MTAA related questions.

In a column published on page 13 of this week’s editionof Money Management, Bushby said he is concerned thatAPRA “appears not to understand the public benefits ofaccountability of regulators such as itself, to Parliament,which provides a vital oversight role of such organisa-tions in a well functioning democracy.

“It is also labouring under the misapprehension that itcould be in breach of its Act if it provides the Senatewith answers to some of the questions that I placed onnotice. The fact is, that answering such questions wouldnot be a breach of its Act,” Senator Bushby said.

“The Clerk of the Senate has provided advice thatstates that any APRA evidence to the Parliament has theprotection of Parliamentary privilege. Furthermore, theClerk advised that: “It is well established that a generalsecrecy provision [which the APRA statute has] does notprevent the provision of information to a House or commit-tee of the Parliament in the absence of an express state-ment to the contrary. In other words, the inquiry powers ofthe Houses are not affected by secrecy provisions”.

Senator Bushby said he believes APRA needed to goback to its code of conduct and reassess its accountabil-ity statements.

“If its regulated entities treated APRA the same way APRAappears to be treating its parliamentary oversight body,APRA would be incapacitated as a regulator,” he said.


By Tim Stewart

A MULTIPORT survey of 1,600 self-managed superannuation funds(SMSFs) has found trustees usinglimited recourse borrowing arrange-ments moved away from propertyand towards financial assets in theJune quarter.

Multiport found that since theMarch quarter there had been a 4

per cent move towards financialassets.

Multiport suggested that theincrease in financial asset borrow-ing could be attributable to thecurrent lull in the stockmarket, withaggressive trustees looking to lever-age their holdings in anticipation ofa recovery.

Another factor noted by Multiportwas the shorter and less complicated

process involved in borrowing forfinancial products, as opposed toproperty.

As at 30 June 2011, property loansmade up 52 per cent of SMSF trusteeborrowing and financial asset loansmade up 48 per cent.

Fourteen per cent of the fundssurveyed in the Multiport researchare currently utilising a borrowingarrangement.

SMSF borrowing shifts to financial assets

ASIC Commissioner goes to FOSAUSTRALIAN Securities andInvestments Commission(ASIC) commissioner ShaneTregillis has been appointedchief ombudsman of FinancialOmbudsman Services (FOS).

Tregillis rejoined ASIC in May2010 after eight years with theMonetary Authority of Singa-pore where he was a deputy

managing director. Tregillis will take up the Mel-

bourne-based role this Septem-ber when he leaves his currentposition later this month.

ASIC chairman Greg Med-craft applauded Tregillis’ roleas commissioner.

“Shane worked on some ofASIC’s most important projects

through their most crucialtimes, including supervision ofASX following the successfultransition to ASIC in August2010,” said Medcraft. “He willmake a superb Chief Ombuds-man at FOS.”

ASIC deputy chairmanBelinda Gibson will assumeTregillis’ responsibilities.

ASIC bans unlicensed Sydney directorBy Andrew Tsanadis

A SYDNEY director has beenbanned permanently by theAustralian Securities and Invest-ments Commission (ASIC) foroperating a financial servicesbusiness without an AustralianFinancial Services (AFS) licence.

Erin Watson was a director ofHome Equity, and remains adirector of Home MortgagesAustralia and Credit Limited.

Between March 2007 andFebruary 2008 Watson met withpotential investors, dealt withclients and signed agreements

entered into by Home Mort-gages Australia.

ASIC determined Watsondeceived clients by advisingthem to invest in property andfinance company US MortgageGiant and that the investmentswere ‘watertight’.

She then lodged misleadingdocuments with ASIC that USMortgage Giant was a legal entityand a significant shareholder ofHome Mortgages Australia.

The investigation also foundthat from September 2006 toMarch 2008 Watson used clients’monies to pay her home loan,

family members, and other clientsof Home Equity and associatedcompanies.

Watson has the right to apply tothe Administrative AppealsTribunal for a review of ASIC’sdecision.

News

Dealer groups looking for a quiet exitBy Chris Kennedy

RECENT industry upheaval has resulted inplenty of small and medium sized dealergroups looking for a quiet exit through a saleto an institution, according to Equity Trusteeshead of wealth management Philip Galagher.

EQT has been approached more than oncea week by groups who are looking for an insti-tutional owner, he said.

“A lot of them can see that there are advan-tages in the vertical integration that an insti-tutionally-owned dealer group can put inplace,” he said.

They may not necessari ly want to getinvolved with a bank, but are looking for aninstitution such as EQT that does have someinvolvement in the advisory side and hassome other interests that could be beneficialin terms of cross selling and so on, he said.

EQT has been open about the fact that ifthe right deal comes along they would beinterested, and that would most likely be agroup that fits in with EQT’s focus on the highnet worth (HNW) client space, Galagher said.

The group would also be likely to look only at“squeaky clean” groups that had already beenoperating a fee for service model for some time.

EQT was targeting growth in the next three

to five years, both through establishing itsown brand and through an agency structurebut most of that growth would likely comethrough acquisitions, he said.

According to Galagher, the synergies froma trustee company’s point of view are not justfrom the advisory side, but the fact thatfrequently HNW clients will want estate plan-ning and to review their wills, which is an areaEQT already focuses on.


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FirstRate Investment Deposits offers a lot of other pluses:

+ Attractive reliable income. Your FirstChoice clients earn the RBA cash rate + 1% return^ p.a.

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It all adds up to a first rate option for you and your clients.

To find out more about FirstRate Investment Deposits,contact your Business Development Manager on 1300 769 619 or visit colonialfirststate.com.au

The FirstRate Investment Deposits product is a deposit product of the Commonwealth Bank of Australia ABN 48 123 123 124, AFS Licence 234945 (the Bank) offered through the superannuation and pension investment options provided by Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State), the issuer of interests (including all investment options) in FirstChoice Personal Super, FirstChoice Wholesale Personal Super, FirstChoice Pension, and FirstChoice Wholesale Pension from the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557. Interests (including all investment options) in FirstChoice Personal Super, FirstChoice Wholesale Personal Super, FirstChoice Pension, and FirstChoice Wholesale Pension from the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557 are not covered by the Australian Government Guarantee scheme. The First Rate Investment Deposits product is administered by Colonial First State. This is general information only and does not take into account any person’s individual needs, financial circumstances or objectives. Investors should read the relevant PDS available from advisers before deciding whether to invest in FirstRate Investment Deposits. ^Rate does not include a deduction for the tax payable by your super fund on earnings, currently up to 15%. *In the event your client needs access to funds prior to maturity, an adjustment cost may apply. CFS2030/HPC/MM

By Milana Pokrajac

A MONTH after hiring CathrynFranks as national boutiquessales manager, Challenger hasadded a further five businessdevelopers to its team.

Pr ior to June 2011, Chal -lengers business developmentmanagers (BDMs) were taskedwith marketing both Challenger’sannuities as well as managedfund products, but greater spe-cialisation would help grow thebout ique’s business andenhance client service relation-ships, Franks said.

Dario Conte has joined thecompany as a BDM and will beservicing financial advisers inNSW and ACT.

Former State Street GlobalMarkets analyst, Jeremy Butter-worth, will be in charge of busi-ness development in SA andWA, while Marietta Gibbs will bebased in Queensland.

Also based in Queensland,Claudia Faundez will work along-side Gibbs. Gibbs was a finan-

cial planner, with a backgroundin Australian equities marketsand managed funds, having pre-v iously worked at Av ivaInvestors and OnePath.

David Livera had made aninternal move and would oper-ate as a senior BDM in Victo-ria, having previously managedboth annuities and boutiques atChallenger. He will now focussolely on boutique funds.

Philip Galagher

Challenger focuses onbusiness development


News

By Mike Taylor

DESPITE being the focus of somecriticism by parliamentarians andothers relating to its handling ofMTAA Super and other issues, theAustralian Prudential RegulationAuthority (APRA) has released astakeholder survey which it saysproduced “an excellent result”.

The survey, commissioned byAPRA and conducted by thecompany, Australian SurveyResearch (ASR) canvassed theviews of 563 regulated entities and150 “knowledgeable observers”and represented a follow-up on asimilar survey conducted in 2009.

According to APRA, of the 45items rated in the survey, only two

scored below neutral, translatinginto the regulator receiving 75 percent positive responses.

“Overall this is an excellent resultand further endorsement of APRA’sprudential framework and approachto supervision,” it said. “Regulatedentities agree that APRA has had apositive impact on their industry.”

The regulator claimed the survey

had revealed that its strengths werethe impact of its framework andguidance material as well as itsstaff’s adherence to its values.

It said the areas that had scoredlower included the cost impact ofregulation, particularly for smallentities, and harmonisation acrossregulators and across standards.

The survey analysis said that

across the survey views haddiffered considerably betweenindustry groups, but with no overallpattern to differences.

It said there were considerabledifferences between the scores givento APRA by the so-called “knowl-edgeable observers” and the entitiesit regulated, with the regulated enti-ties likely to have scored APRA lower.

New super risk measure to helpconsumers compare funds


Despite MTAA questions, APRA rated ‘excellent’

By Ashleigh McIntyre

SUPERANNUATION funds will soon have toprovide consumers with greater transparencyaround investment risk with the introduction ofa new industry guideline.

The Association of Superannuation Funds ofAustralia(ASFA) and the Financial Services Council(FSC) have created a Standard Risk Measure toenable consumers to better understand the invest-ment risk in an option they have chosen.

Investment options are to be labelled with oneof seven risk bands, ranging from ‘very low’ to‘very high’.

The bands are based on the estimated frequen-cy of negative returns for the strategy over a 20-year period, with ‘very low’ expected to have lessthan 0.5 negative returns, while ‘very high’ wouldhave 6 or more.

FSC chief executive John Brogden said theStandard Risk Measure would help consumersto make better informed, confident decisionsabout their superannuation.

“Having a clear understanding of risk is just asimportant as being aware of fees or returns,”Brogden said.

He added that the new measure will enableconsumers to “compare apples with apples”when looking at different investment options.

ASFA chief executive Pauline Vamos said themeasure will also help trustees approach risk disclo-sure on a consistent basis and assist fund managersto better understand trustees’ requirements.

“The release of this guidance paper is a key partof the increased transparency in ‘true to label’reporting that consumers will see from the currentsuperannuation reform process,” Vamos said.

The methodology for determining an invest-ment option’s rating will be supported by a struc-tured review process, with both APRA and theAustralian Securities and Investments Commis-sion (ASIC) reviewing the operation as part oftheir normal activities.

From June 2012, APRA will require superannu-ation funds to identify and disclose, on a standard-ised basis, the risk of negative returns over a 20-year period for each of their investment options.

The measure came about in response to arequest from the Australian Prudential RegulationAuthority (APRA) that the FSC and ASFA worktogether to develop guidance for super fundtrustees on complying with risk disclosure.

Bendigo practice becomesnewest ipac equity partnerBy Chris Kennedy

RETIREINVEST Bendigo has rebrandedas Flack Advisory and switchedlicensees to Charter Financial Planningto become the latest ipac equity part-ner, after 22 years with RetireInvest.

ipac has taken a 50 per cent stake inthe practice that includes three advisersin a total of 12 staff and manages$270 million on behalf of clients. ipacchief operating officer Eric Gibson saidthat while equity partnerships usuallytend to be about a 10-year term, therewas no set duration and a shorter orlonger term could be negotiated.

There is also no reason why principalGeorge Flack could not continue to workin the practice once ipac takes theremaining stake, he said. Two of ipac’soriginal equity partner principals stillwork for the group on a part-time basis,he added.

“George Flack is a highly regardedadviser and business owner. His inti-mate knowledge of social security hasdelivered enormous value to hisclients and grew the practice to beone of the most successful at RetireIn-vest,” Gibson said.

Flack, Money Management Finan-cial Adviser of the Year in 1996 and2004, said he felt it was important to

start looking at his longer-term retire-ment planning goals, although at 58he said he still planned on working inthe practice for another 12 years. Anactive volunteer fire fighter who com-petes in amateur and professionalathletics, Flack said he does not view65 as a ‘Chinese wall’.

Flack said there had been a resur-gence of morale among the staff andin business through the door, and nowthere was greater certainty around thepractice’s future.

“Clients now have certainty that thebusiness will continue, the staff willstill be there, the premises will remainthe same, there is a visible succes-sion plan in place, and the practicewill be able to ensure other qualifiedprofessionals come in to replace theplanners who move on,” he said.

“[Clients] won’t be orphaned, theywon’t have to go out there andsearch for somebody else to haveas a planner that they have to learnto trust again.

“Areas like social security are morecomplex than they have ever been.The partnership with ipac will give usfresh ideas to run the practice better,support for acquisitions to fast-trackgrowth, and provides a certain futurefor our business,” Flack said.

Pauline Vamos

News

ICA urges Government to reduce flood risk By Angela Welsh

MANDATORYflood cover willnot solve the problem ofrepeated flooding to at-riskareas, the Insurance Councilof Australia(ICA) has warned.

ICA chief executive RobWhelan urged the NationalDisaster Insurance Review toconsider regulations to reducerisk to properties in floodprone areas so that homes arenot lost in the first place.

“Forcing all Australians topay extra to subsidise policyholders will neither fix theissue nor will it stop disasterevents such as those werecently saw in Queenslandand Victoria,” he said.

Given that 7 per cent ofAustralian properties arecurrently in flood-prone areas,

Whelan said the Governmentwould have a hard time sellingan increase to the 93 per centof Australians who are not inareas at risk of flood damage.

The ICA warned thatmandatory flood cover wouldincrease the cost of living forall Australians, or force themnot to insure at all.

In its submission to theNatural Disaster InsuranceReview, the ICA called on theGovernment to protectconsumers.

“The Federal Governmentand COAG [the Council ofAustralian Governments]need to reach an agreementon national land policy forhomes constructed on flood-prone land,” Whelan said.

“The real issue here is thatthe same areas flood on a

persistent basis and we needto prevent this getting worseby better regulation,” headded.

Whelan said a compro-mise needed to be reachedthat prohibits the construc-tion of residential propertyon at-risk land unless thereis strict enforcement ofdevelopment controls thatreduce the risk to less than a1:100 year return period. “Weneed to treat the cause, notthe symptoms,” he said.

The ICA urged theGovernment to use some ofthe $5 billion in stamp dutyand fire service levies eachyear from insuranceconsumers. “The funds arethere,” Whelan said. “All ittakes is the political will toaddress the real problem.”


Inquiry into the Collapse of Trio Capital

The Parliamentary Joint Committee on Corporations

and Financial Services is inquiring into the underlying

issues associated with the collapse of Trio Capital.

The committee is particularly interested in how the

collapse affected people who invested in self-managed

superannuation funds. The committee will also look into

the role played by financial advisers, the state of the

general regulatory environment, and the appropriateness

of information and advice provided to consumers.

Submissions are required by 19 August 2011, and can be

made online at the committee’s website or by email to:

[email protected]. Further information is

available at: http://www.aph.gov.au/senate/committee/

corporations_ctte/index.htm; tel: (02) 6277 3583.

Please note that submissions to inquiries become

committee documents and are made public only after a

decision of the committee. Persons making submissions

must not release them until they have been published by

the committee. The prior publication of a submission will

not be protected by parliamentary privilege. If you want

information on how to make a submission, guidance

to witnesses appearing before committees, or what

parliamentary privilege means visit

www.aph.gov.au/Senate/committee/wit_sub.AG48672

Financial planning jobsshow steady growthBy Ashleigh McIntyre

THE number of advertised financial planningroles has increased 17 per cent year-on-year,showing stronger demand for financial plan-ning staff as firms continue to recover fromthe global financial crisis (GFC).

The latest eJobs Recruitment Specialistsmarket commentary found advertised finan-cial planning roles rose by 4.5 per centnationally over the last three months to 31July,with Queensland (44 per cent) and SouthAustralia (21 per cent) leading the way.

Victoria experienced a slight increase ofjust 3 per cent, while New South Waleswent backwards by 3 per cent.

The state lagging the furthest behindwas Western Australia, with job advertise-ments falling by 17 per cent.

The report said the fact that numbers fell

in July 2010 and rose in July 2011 sug-gested stronger demand for staff this finan-cial year. It also said there was no evidenceof increased candidate supply, but rather atighter candidate market.

For the first time, eJobs also undertook asurvey of paraplanners and found that 70per cent of respondents were no longeracting as paraplanners.

The main reason for this was the resultof career progression (often into a financialadviser role) as well as remuneration, legis-lation and job recognition factors.

The report found that the majority of can-didates who wanted to move on to otherroles had to change firms in order toprogress, more often than not to a bank.

It found that many paraplanners also foundtheir way into education and compliance posi-tions with dealer groups and banks.

By Milana Pokrajac

THE Commonwealth Bank of Australia (CBA)has launched an online property investmenttool that simulates real-time exposure tothe property market, meaning users do nothave to put their own capital at risk.

Investorville, which combines real datawith gameplay, was designed to educatepotential investors about property invest-ment and remove common misconceptionsabout the market, the bank said.

CBA general manager for consumer mar-keting Mark Murray explained that buyingan investment property can seem dauntingfor many people, and that Investorvilleallowed users to “try before they buy”.

“The properties and data are reflective ofthe Australian property market and the typesof properties available,” he added.

Investorville targets existing homeown-ers who might feel insecure about buying an

investment property, as well as those whoalready own one, Murray said.

At the same time, property experts calledfor investors to “leave their ego at home”when investing in property, because it couldhelp their portfolio grow faster.

Kevin Lee of Smart Property Adviser saidmany are seduced by an impressiveaddress instead of sound investment funda-mentals.

Lee claims this was driven by the “desireto impress”.

“Generally speaking, these ‘dinner party’properties end up being massively nega-tively geared. Negative gearing to this extentis not a smart strategy and it’s the numberone reason why so many Australians ownonly one investment property,” he added.

Lee believes affordability is the mostimportant consideration when investing inproperty, because both tenants and buyerswould be easy to find.

CBA launches property investment game

Broaden skills to get the jobBy Andrew Tsanadis

ACCOUNTANTS and auditing professionalswill need to develop broader skills in order tosecure a job, according to the latest ClariusSkills Index (CSI) from Lloyd Morgan Account-ing Talent Specialists.

The CSI is the only measure of underly-ing demand and supply of skilled labour inAustralia.

According to the latest results, the demandfor wider skills is being driven by the uncer-tainty that exists around Australia’s econom-ic conditions, particularly the imminentintroduction of a carbon tax, which in itselfwill increase demand for accountants withskills in auditing and risk analysis.

Paul Barbaro, Executive General Managerof accounting and finance specialists forLloyd Morgan, said the Index report was inline with the recent approach by employersin the accounting industry to hold back onhiring during uncertain times.

“The current global economic situationand uncertainty about our own economyhas resulted in employers pulling back ontheir hiring intentions, with an increasingshift towards employing short-termcontractors rather than full-time employ-ees,” he said.

June quarter results from the Indexshow an oversupply of approximately2,300 accounting professional and 300

auditors – the closest tension betweensupply and demand of skilled labour in adecade, according to Lloyd Morgan.

Barbaro pointed to the stringentreporting financial and corporate gover-nance requirements that most organisa-tions are subject to as another factor thathas placed a “great strain” on the need totake on more skilled and experiencedindustry professionals.

He said auditors will be among thehighest sought after professions within theoverall accounting industry over the nextfive to 10 years.

“In the area of tax, particularly tax law,we have seen an increase in demandacross many sectors as clients continue toseek high level talent from a diverse back-ground,” he said.


Tighter SMSF regulation unwarranted: MackayBy Damon Taylor

THERE has been insufficienttrouble within the self-managedsuperannuation fund (SMSF)sector to warrant significantlytighter regulatory restrictions.

That is the analysis ofQuantum Financial Advisersdirector, Tim Mackay, who saidhe could not see the justificationon experience to date.

“Personally, I can’t see it,” hesaid. “There has been this incred-ible growth over time, and yet wehaven’t seen a material numberof SMSFs get into trouble.

“Yes, some do, but we haven’thad problems over time despitethat spectacular growth,” Mackaycontinued. “So to make thatjump from growth to trouble, I’m

just not sure that one necessari-ly leads to the other,” he said.

And though he admitted thatthere would always be newtrustees who were not preparedfor the responsibilities startingan SMSF entailed, Mackay saidit was incumbent upon theindustry and incumbent uponthe Australian Taxation Office[ATO] to make sure that appro-priate education was in place.

“The industry is alreadyhelping on the education side,”he said. “Some of the accountingbodies are putting out some freeonline education resources thatpeople can read and educatethemselves with.

“It’s a bit like a self assessmentthat takes place before they evenconsider an SMSF set-up, and it

can give them an indication as towhether it’s suitable for them intheir current circumstances.”

Yet not all financial plannersdealing with SMSFs on a regularbasis are as convinced that trou-bles of this nature will not arise,or even that they have not arisenalready.

Merideon Wealth Strategiesprincipal Mark Rattigan said thathis business had probably closeddown more SMSFs than it hadopened in the past few years.

“It’s a big issue,” he said. “A lotof people go into it blindly anddon’t understand what theirresponsibilities are. We know thatfrom talking to people who havesmall balances, or we ask themwhy they’ve got a SMSF and theycan’t give us any reason for it.

“It might be that their account-ant told them to do it, or it got setup as part of their business struc-ture or something like that,” Ratti-gan continued. “So we actually

spend quite a bit of time talkingabout what the advantages anddisadvantages are, and whetherthey actually need the responsi-bility of having a SMSF to meettheir goals.”

Rattigan said that following theglobal financial crisis, a numberof people set up SMSFs onlinewithout really knowing whattheir responsibilities were – orwould be.

“So, in my mind, there’s nodoubt that we could end up withmore breaches and more compli-ance issues,” he said. “Becauseeven now, we’re finding thatpeople who have been passingaudits for 10 years, or have anaccountant, are still not neces-sarily running a compliant fund,”Rattigan said.

Retail versus Group comparisons not clear cutGROUP insurance within superannua-tion does not necessarily hold a com-petitive advantage over what can beachieved in the retail environment.

That is the conclusion of MerideonWealth Strategies principal, MarkRattigan, who said that making com-parisons is not necessarily a simplequestion of black and white.

“Depending on the situation, Iactually find that most of the timethe group level covers aren’t neces-sarily more competitive than whatSMSF members can get elsewherein a retail environment,” he said. “Alot of times it comes down to under-writing issues, so if they’re unableto get cover somewhere else orthey’re a smoker, the group covertends to be more competitive orbetter.

“But when we actually do full com-parisons and things like that, we findthat, all else being equal, they canactually get cheaper cover throughtheir SMSF or individually than theycan through their group coveranyway,” he said.

Rattigan said that this was partic-ularly the case for non-smokers andthe insurance premiums that weresubsequently available on that basis.

“A lot of the group covers dosmokers’ rates, so for non-smokers,

we often find that it’s cheaper toredo their insurance through a retailoffering, because they’re not subsi-dising the smokers’ rates,” he said.“The other thing we’re finding is theability to link covers inside and out-side super can be an attractive fea-ture,” Rattigan said.

“So you can get policies whereyou can link trauma cover and ownoccupation TPD [total permanent dis-ability] covers to covers inside yoursuper fund, which then gives you theability to get the discounts on thosebecause they’re riders rather thanstandalone policies,” Rattiganadded. “So across their whole insur-ance suite, if you have stand-alonetrauma cover or own occupation

cover in your own name and yourgroup cover from your previousindustr y fund, you’d tend to bepaying more than you would be ifyou could group them all and linkthem all together,” he said.

For Rattigan, customisation ofinsurance cover is another definiteadvantage.

“Normally, with group cover you’veonly got group and your occupation’sTPD, and some limited salary con-tinuance options and things likethat,” he said. “So the ability to havefull cover and to tailor it to your ownneeds is significant.

“The other thing with group coversis that a lot of them decrease invalue as you get older, whereas alot of people may want to have fixedlevels of cover,” Rattigan continued.“So what I find is that the peoplewho are going into self-managedsuper funds tend to want to take abit more control of their situation.

“And as a part of that, you’d hopethat their advisers would be coveringoff on this as well. You’d hope thatthey’d understand more about whattheir needs are and what their desiredoutcomes are than people in an indus-try fund who tend to have a passiveapproach to their insurance and theirretirement,” Rattigan said.

More certainty in corporate trusteeshipsCORPORATE trusteeshipswith respect to self-managed superannuationfunds offer much morecertainty, according tospecialist trustee company,Clime Super.

Clime Super generalmanager Darren Katz lastweek extolled the virtue ofcorporate trusteeships overindividual trustees sayingcorporate trustees do notdie, while when individual

trustees eventually did die,i t resulted in a t imeconsuming rearrangementof affairs.

He said the death of anindividual trustee createdthe need to re-register all of

an SMSF’s assets and officebearers.

“With a corporate trustee,the assets of the fund aretransferred seamlessly tothe remaining members ofthe fund,” he said.

Tim Mackay


SMSF Weekly

Reporting seasonto provide pointersBy Mike Taylor

WITH Australia’s publicly-listed companies aboutto enter the so-called ‘reporting season’, CMCMarkets has suggested that while some good valuemay be found, investors need to exercise somecaution.

CMC Markets chief market strategist MichaelMcCarthy said last week the Australian bourse hadbeen recently weighed down by international issuessuch as a potential China slow-down, Europeanand US debt issues, along with local concerns suchas the high Australian dollar and consumer reluc-tance to spend.

“Depressed share prices have attracted manyinvestors to companies which are looking like goodvalue now on their price to earnings ratios and divi-dend yields, but whether their earnings are sustain-able will determine their value as an investment,”he said.

He believes the reporting season, which will carrythrough the next four or five weeks, will providesome valuable insight into earnings sustainability.

He said that for investors it would also be impor-tant to be on the alert for companies and indus-tries displaying earnings growth, as this will be amajor factor in share price growth.

McCarthy said the past 12 months have seenanalysts downgrade earnings forecasts across theboard as optimism about a global recovery hadfaded to concern over mixed economic signals.

“The good news is, for the most part, any surpris-es have already been captured in those downgradesso the surprises are likely to be better than expect-ed earnings, albeit with a few exceptions,”McCarthy said.

Under the APRA Act 1998 our pruden-tial regulator must develop andpublish a code of ethics. With thisobligation, the Australian Pruden-

tial Regulation Authority (APRA) is perhapsunique among Federal agencies. I have taken theopportunity to peruse this code, and it is a well-formulated governance statement that could bemade to apply to other agencies. This is impor-tant if our Federal regulatory agencies and theirmanagement are committed to making theirorganisations look and feel like a modern corpo-ration working under listing rules and securitiesregulations, which have dramatically changedfor the better during the past decade.

One of the quite commendable statements inthe APRA code is in relation to accountability:

• We hold ourselves to at least the same stan-dards that we expect of regulated entities.

• We welcome independent scrutiny, andrespond promptly to aspects of our performancethat are identified as needing improvement.

In the past few years and months there havebeen a number of articles in Money Manage-ment on one of our major superannuationfunds, the MTAA. These articles have reportedto readers matters relating to the fund’s gover-nance and regulation, and the role that APRAmight or might not have played. I would addthat Money Management has often reported onother funds and financial institutions, especial-ly when regulatory concerns have arisen. I canremember AMP, Zurich and MLC being thesubject of enforceable undertakings followingregulatory action by our twin peak regulators(ASIC/APRA) and the regulators making publicstatements on these outcomes. Furthermore,the public release of this information informedthe market, and the institutions in questionwent on with their business.

It is important that the media cover suchissues just as the media does for our banks andother financial institutions. After all, for most

Australians, superannuation is their largest assetafter their family home. Also, the media needsto report on what is happening in the commu-nity and its economy, and this in turn acts as anautomatic regulatory control over those bodiesthat have been assigned the task of protectingother people’s money. The role of the media ona day-to-day basis is not dissimilar to that of thecontinuous disclosure regime that makescompanies divulge to the market any materialmatters which might impact their business orunderlying shareholder value.

Having read some of the MTAA articles, Idecided to ask APRA some questions – 11 in all– at the June round of Estimates on the mattersthat Money Management has reported. Sixweeks later I received its answers. To say theleast, I was somewhat deflated when I read theregulator’s response. In relation to nine of thequestions, APRA advised it would provide noanswer whatsoever. APRA said it was preclud-ed from doing so under the secrecy provisionsof its parent Act.

The questions were hardly earth-shattering or

market busting probes. They included howmuch APRA had paid for a consultant to reviewMTAA, and what powers it had conferred.Another question (not answered) related towhat options APRA had when it had concernsabout a particular fund’s governance arrange-ments. Yet another question was even moregeneral, since it related to APRA’s in-house regu-latory capability and whether its resources weresufficient to conduct investigations of this type.

What concerns me in relation to APRA is thatit appears not to understand the public benefitsof accountability of regulators such as itself, toParliament, which provides a vital oversight roleof such organisations in a well functioningdemocracy. It is also labouring under the misap-prehension that it could be in breach of its Act ifit provides the Senate with answers to some ofthe questions that I placed on notice. The fact isthat answering such questions would not be abreach of its Act. The Clerk of the Senate hasprovided advice that states that any APRAevidence to the Parliament has the protection ofparliamentary privilege. Furthermore, the Clerkadvised that: “It is well established that a generalsecrecy provision [which the APRA statute has]does not prevent the provision of information toa House or committee of the Parliament in theabsence of an express statement to the contrary.In other words, the inquiry powers of the Housesare not affected by secrecy provisions.”

Of course, there are accepted and clearlyunderstood circumstances under which anentity such as APRA can avoid answering ques-tions in parliamentary forums, generally relatedto public interest. But APRA did not seek toinvoke any of those exceptions.

APRA needs now to go back to its code ofconduct and reassess its accountability state-ments. If its regulated entities treated APRA thesame way APRA appears to be treating its parlia-mentary oversight body, APRA would be inca-pacitated as a regulator.

InFocus


As controversy continues to swirl around industry fund MTAA Super,Tasmanian Liberal Senator David Bushby argues it is time for the AustralianPrudential Regulation Authority to step up on the question of accountability.

“APRA appears not tounderstand the public benefitsof accountability of regulatorssuch as itself, to Parliament,which provides a vitaloversight role of suchorganisations in a wellfunctioning democracy. ”

Holding APRA to account

Breakdown of SMSFtrustee borrowing over the

June quarter

52%

Source: Multiport

Property loans

48%Financialasset loans

What’s on

SMSFSNAPSHOT

AFA: Practice ManagementRoadshow19 August 2011 – Gold CoastSouthport Yacht Club, MainBeach, Qldwww.afa.asn.au/profession_events.php

FINSIA Workshop: Trends inDebt Financing23 August 2011The Ivy, George St, Sydneywww.finsia.com/events

FSC Professional Series:Policy & Research Briefings23 August 2011FSC offices, Level 24, 44 MarketStreet, Sydneywww.ifsa.com.au/events/events-overview.aspx

FPA Seminar: Building a MoreReferable Business 24 August 2011Wesley Conference Centre, PittSt, Sydneywww.fpa.asn.au/events

MFAA Event: NSW BrokerSymposium31 August 2011The Sebel, Parramattawww.mfaa.com.au/event_calen-dar.asp

How this compares to theMarch quarter:

4%Swing towardsfinancial assets

No investment trend is perma-nent. Yet for now, there is noend in sight to the growingpopularity of direct shares

and exchange traded funds (ETFs). Directshare trading has continued to increasein funds under management over the lastyear as investors seek out more control,more flexibility, and more value formoney. Industry research house Invest-ment Trends has predicted that 40 percent of new client funds will be placedinto direct shares within the next threeyears, up from 28 per cent in 2011.

Platforms, the primary source formost planners wanting access to directshare investments, are benefiting from

this growth. BT Wrap saw their directshare investments on the platform jumpfrom $4.2 billion in June 2009 to $7.1billion in June 2011. While the amountof funds under management as aproportion of total platform assets onlyrose from 16.2 per cent to 17.5 per centduring the same period, it is stil l asignificant amount.

But some advisers are concerned thatplatforms are not delivering enoughwith their direct share offering, an accu-sation hotly disputed by the platformproviders.

While managed funds have contin-ued to decline as direct equities gain instrength, ETFs are continuing to

expand, combining benefits from bothsectors and providing a source ofcompetition to direct equities.

More control, more efficiency“There’s no question for me that peopleare taking increasing ownership of theirretirement portfolio. They’re morehands on and switched on with it, andthat’s not going to go away,” saysAndrew Bird, Australian executive direc-tor of online portfolio managementcompany, Sharesight.

Self-managed super fund (SMSF)investors, who are more sophisticatedand involved, are one of the main inter-est groups involved in direct share

trading. With investments in any super-annuation account being long-termaccumulation assets, direct shares willplay an important role within SMSFportfolios for many years.

The main driver of interest in directshares among SMSF investors, and forfinancial planning clients, is morecontrol and flexibility over investments,Bird says.

“People are going to be better educat-ed and more hands on with their invest-ments, I think, and that tends to supportdirect equities,” Bird says.

A significant amount of the direct sharetrading growth on BT Financial Group’sBT Wrap is driven by the SMSF sector.


Share trading and direct investments

The right platform?


As managed fund inflows struggle to return to pre-GFC levels, share trading and directinvestments became increasingly popular with retail investors over the past couple of years.Financial planners seem to prefer platforms as a tool to manage direct investments and BenjaminLevy examines why this is the case.

“If someone has enough investmentdollars to warrant a self managed superfund, typically they’re going to be moresophisticated in terms of investmentcriteria, and therefore more interestedin shares,” says head of BT Wrap, ChrisFreeman.

The portion of direct shares on BTWrap is growing both as a proportion oftotal assets and in terms of absolutenumbers, Freeman adds.

Direct equities traditionally representaround a third of the assets on theMacquarie Wrap platform.

“The use of direct equities continuesto increase and interest in them contin-ues to increase,” says Macquarie AdviserServices head of insurance and plat-forms, Justin Delaney.

According to Delaney, Macquarie hasthe highest proportion of equities ontheir platform compared to the rest ofthe Australian market, with investorsable to access every stock listed on the

Australian Securities Exchange.“I expect that to increase, so certain-

ly from the trend we see by talking toadvisers, they talk about increasedappetite from their clients to add equi-ties to the platform,” Delaney says.

Cheaper for planners“Reporting and optimisation of theportfolio can be a lot easier with directshares, and they can be cheaper tomanage and administer depending onhow you do it,” according to Bird.

Using direct shares means that advis-ers often deal with 20 to 30 stocks in aclient’s portfolio instead of a handful ofinvestment funds. Once you multiplythat by your number of clients, a pile ofpaperwork becomes a mountain and aonce-simple process can seem over-whelming. However, the extra work isoften illusory.

“If you’re organised, a lot of the workis fairly mechanical record keepingrather than complicated issues, whichI think sometimes gets lost in the debateabout wrap platforms and reporting andeverything,” Bird says.

Investment Trends indentified a clearattraction towards cost saving measuresin its 2011 Planner Direct EquitiesReport. In a multiple question survey inthe report, 58 per cent of financial plan-ners said they recommend direct sharesto their clients because it was cost effec-tive, according to senior investmentanalyst, Recep Peker.

The platforms are also aware of costconcerns among clients and are takingmeasures to lower transaction fees. BTimplemented bulk trading capabilitieslast year to improve efficiency for advis-ers, allowing them to bulk buy sharesfor up to 25 client portfolios at once.

Freeman indicated at the time thatplanners were struggling to service largenumbers of clients and simultaneouslymanage costs.

One of the barriers to building directequity portfolios on the platform was ahigh administration burden involved intrading shares across a diverse clientbase, Freeman said last year.

Platform offerings prove popularPlatform providers are the principalbenefactors of any growing interest indirect equities trading. Around 60 percent of financial planners use an invest-ment platform for the share exposure,with the other 30 per cent relying on anonline broker, according to InvestmentTrends research.

Pooling all your direct investmentsin one place and letting the platformtake care of the administration is nodoubt what lures most planners to theplatforms.

Macquarie’s Delaney said the grouprealised that many advisers were toyingwith the idea of using equities on plat-forms, but they were unsure about theperceived high costs of doing so.

The company ran research indicatingthat advisers would be able to service40 per cent more clients on average withdirect equity trading on a platform thanif they left the direct equities off theplatform.

“The eff iciency of having equitymanaged through the platform for an

adviser was significant,” Delaney says.However, there have been accusa-

tions that some platforms are failing todeliver on their direct share offerings.

Only 16 per cent of financial plannerswho use platforms said the direct equi-ties offering was ‘very good’, accordingto Investments Trends’ report.

Furthermore, the number of plannersusing platfor ms appears to haveplateaued. No extra planners are usingplatforms for direct investments thanwhat has already been recorded inprevious years.

Platforms have improved their offer-ing by fixing shortcomings, but newproblems with share market research,

timelines of data and pricing are emerg-ing, Peker says.

However, providers are vigorouslydefending their role against questionsof discontent.

“We spent a lot of money over the lastthree years improving our equities func-tionality because we saw that as agrowing trend,” Freeman says.

“The big thing for us – and this is fromadviser feedback – is that advisers usingour models are saving up to 2.5 hourson portfolio rebalancing compared todoing things manually,” he says.

BT has improved its access to infor-mation, with tailor-made watchlists andsame-day trading also being availableto advisers.

OnePath’s wholesale administrationwrap platform, Oasis Asset Manage-ment, launched a new online directshare trading facility last year to combatconcerns that advisers didn’t haveenough control and had to deal withperplexing systems.

The feature allows advisers to hold aseparate Holder Identification Numberfor each client and maintain control oftheir share holdings, according toOnePath head of superannuation andinvestment platforms, Mike Pankhurst.

Macquarie also worked on removingthe cost concerns that worried advisersand clients.


Continued on page 16

Key points

• Most planners use platforms to accessdirect investments.

• SMSF investors are the main groupinvolved in direct share trading.

• 40 per cent of new client funds will beplaced in direct equities, research shows.

Andrew Bird



However, Delaney acknowledged thatthey could do more to evolve researchand trading services for advisers.

Despite most signs pointing to plat-forms as the optimum direct investmentmanagement tool, Morningstar co-headof fund research, Tim Murphy, saidadvisers tended to complain about plat-forms because they don’t have the rightstructure.

“Platforms in general were designedwith managed funds in mind, theyweren’t really designed for trading secu-rities on live exchanges,” he says.

“Some platforms have addressed thatsituation better than others, but it variesacross the board,” Murphy says.

With ETFs and direct shares becom-ing more popular, platforms have beenploughing money into their structure,but they are at di f ferent stages ofsuccess.

But Investment Trends’ claims of gapsin market share research among plat-forms ring hollow. Share research iswidely available, with online brokingcompanies such as Bell Direct offeringresearch and trading abilities for just$15, while Westpac broking andCommonwealth Online securities alsooffer these services to advisers at aslightly higher price of $20.

Freeman denies that there is aproblem with platforms’ provision ofshare research.

“Research is like a commodity, youcan get it anywhere,” he says.

“Most advisers are part of dealergroups, and they have their ownresearch areas that have dif ferentarrangements with different brokers,who also provide their own research. SoI don’t think research is much of anissue,” Freeman says.

Whatever the criticisms, platformscan take comfort in the fact that theyare the favourable investment manage-ment tool in the sector.

“If you tell advisers that there wasonly one place for direct share tradingand what should it be, then investmentplatforms do come out on top slightly,”Peker says.

Direct shares vs managedinvestmentsInvestors have a nasty habit of aban-doning one investment solution infavour of another when things don’t gotheir way in the short term. The disillu-sion with fund manager performanceduring and immediately after the globalfinancial crisis (GFC) has continued toforce a shift away from managed fundstowards more transparent solutions likeindex funds and ETF’s, and direct equi-ties are riding that wave all the way tothe top.

In a multiple choice question fromthe Investment Trends direct equitiesreport, 58 per cent of financial plannerssaid they used direct equities becausethey’re transparent.

“If I’m just holding managed funds, myclients don’t see what’s in them, but byholding direct shares they understand

what they’re holding, and there’s nofund manager to pay, its only whateverfee I’m charging,” Peker says.

Managed fund investments also have alag time between the end of the financialyear and when they distribute their finaldistributions, which can be frustrating foradvisers unable to tell their clients howmuch money they are receiving.

“That’s a significant issue, certainlyfor a lot of advisers, because they can’tclose off the investments often untilSeptember or October [after the finan-cial year],” Bird says.

Managed funds typically containmultiple layers of fees that take awayfrom the final return for the investor.Management expense ratios (MER),buy/sell spreads, internal portfoliotransaction costs, performance fees,arranger fees and platform shelf fees alladd up, and make managed fundsincreasingly opaque and expensive.

A natural benefit of transparency isthat bad shares can be easily indenti-fied and sold off, according to GodfreyPembroke principal consultant, DavidBenney.

A more active managed fund with 100per cent total fund turnover each yearwill also incur more capital gains tax(CGT ). While a less active fund can

lower its CGT, knowing whether it is amore active fund or not won’t be possi-ble until after the end of the financialyear, Benney wrote.

Direct shares, on the other hand, canhave their CGT and franking creditscontrolled.

“Managed funds typically invest indirect shares anyway to generatereturns, so the end investment is oftenthe same stock,” Benney added.

However, only a minority of investorsbel ieve they can get a better dealthrough direct shares than throughmanaged funds, according to Freeman.

There has been a bit of disillusionwith active fund managers who havehad performance issues since the GFC,he says.

Good fund managers that are deliv-ering above benchmark returns are stilltaking significant amounts of money,Freeman adds. The bulk of BT Wrap’sinvestments are managed funds, as wellas a significant amount in cash andterm deposits.

The best way to increase an investor’sinvestment potential is by increasingyour tax benefits, and the tax optimisa-tion structure within direct equities thatthe platforms offer is pulling advisersinto the sector.

BT Wrap has just released a new taxoptimisation functionality, in which advis-ers can set a default method of calculat-ing tax on each transaction to minimumgain. Advisers are also warned aboutincurring capital gains tax on any trans-action less than 12 months old.

“I wouldn’t underestimate the impactof tax, because in a flat market, after taxinvestment returns means better valuefor clients,” Freeman says.

“Tax management can give you signifi-cant benefits in terms of direct shares asopposed to other investments,” he adds.

ETFsDirect equities don’t have a monopolyon transparency and simple products.ETFs have seen growth of 70 per centevery year over the last three years since

the end of the financial crisis, accordingto an ETF report released by Tria Invest-ment Partners.

The value of the ETF sector is meant tojump by nearly $2 billion by the end of theyear, according to a Russell Investmentsanalysis of ETF market trends.

For advisers who don’t want to movetoo far away from managed funds but stillwant to have the benefits of direct equi-ties, ETFs can provide a unique blend ofcharacteristics found in both sectors.

“ETF’s are interesting because they’re asort of a hybrid between managed invest-ments and direct equities. I think theplain vanilla type ETFs give you thebenefits of both worlds, because theygive you the ease of holding and recordkeeping everything in stocks but let youachieve the diversification and easyasset allocation that you can get with afund,” Bird says.

ETF provider Australian Index Invest-ments (AII), which was launched in May


“If you tell advisers that there was only one place fordirect share trading and what should it be, then investmentplatforms do come out on top slightly. ” - Recep Peker

Continued on page 18

Justin Delaney

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Equities TradingGearingDebt OptimisationPortfolio AdministrationTax ReportingPortfolio ConstructionIPOs & Placements



2010, owns six sector specific ETFs infinancials, financial ex-REITS, industri-al, development mining, resources andenergy, corresponding to sectors estab-lished by Standard and Poor’s.

Much l ike macro investing, AII’smulti-sector approach to ETF invest-ment means clients can split their fundsup and overweight to certain sectorsbased on their performance.

“If you buy the broad benchmark, it’svery difficult to overweight and under-weight, you’ve just got to take the wholelot,” says AII chief executive AnnmareeVarelas.

Not only has the f inancial cr is iscaused a significant shift in investor’sappetite for liquidity and transparency,but the incoming Future of FinancialAdvice regulations will also spur contin-ued investment in ETFs, according toVarelas.

“The current moves by many of thef inancial planning groups at themoment to a non-commission paymentfuture means you see them looking forcheaper products and a product that iseasily accessible - and that’s where ETFscome into their own, because they are alot cheaper than traditional managedfunds,” Varelas says.

Splitting their ETF products among

sectors like industrial, resources, energyand mining also ensures that the sharesare even more liquid and high volumethan investors have come to expect.

Statistics provided by AII found thatETF trade volumes were up 3.6 per centover the last 12 months to June, whilethe market cap for the ETF sectorincreased by 33.7 per cent over thatperiod to $4.6 billion.

The 12 month average value of ETFtrading also increased by 14.7 per cent.

However, ETFs may not be as popularas they are made out to be. While the

sector has grown by $ 4 billion up untilthis year, managed funds grew by morethan $1 trillion at the same time. It is aminiscule amount comparatively.

“ There’s a lot of ta lk about thisproduct at the moment, and a lot ofeducation going on, but the actualamount of money going into ETFs fromAustralian advisers still isn’t big. If youdefine popularity by chatter, they’repretty popular, if you define it by actualmoney trading hands, it’s not so popularyet,” Murphy says.

This product has also come underincreasing criticism from researchers

and regulators in the industry.The Australian Securities and Invest-

ments Commission (ASIC) recently raisedconcerns that retail client orders for ETFswere not being appropriately priced.

A number of times orders for indexETFs were placed well away from thevalue implied by the underlying index,resulting in an increase in pre-emptiveactions against the practice, ASIC said.

Tr ia Investment has also beenwarning investors to research their ETFsbefore choosing them.

The emergence of increasinglycomplex and risky structures meansthat investors and advisers should dotheir homework first, the companywarned.

However, Murphy defended theproduct against ASIC’s claims, sayingthat most of the regulator’s issues cameabout as a result of inexperienced sharetraders and were a concer n wheninvestors traded any direct stock.

“I think all those specific cases that ASICraised were self directed investors whoweren’t trading ETFs in the way that theyshould be traded,” Murphy says.

“It just comes down to understand-ing if you’re going to trade ETFs withthe best trading or implementationmethod. In the scheme of things, it isa fairly miniscule proportion of whatgoes on.”

“I think all those specificcases that ASIC raised wereself directed investors whoweren’t trading ETFs in the way that they should be traded. ”

- Tim Murphy


Chris Freeman

As populations rise, economiesstrengthen and living standardsimprove, the long-term demandfor energy is expected to increase.

The trajectory of rising energy consumptionis likely to be dictated by the pace ofeconomic growth and demographics inemerging markets. Many of these countries,which are relatively low energy consumerstoday, are likely to see their demand forenergy rapidly accelerate.

Meeting this future demand presents amajor challenge that requires a cohesive andstable global energy policy, which drawsupon all sources of energy supply. Ifsufficient capital is not encouraged to flowinto the global energy industry, the underly-ing growth capacity of the global economycould be constrained.

A number of recent events have high-lighted the persistent risks that face theenergy industry. The global financial crisisof 2008, the Macondo oil spill in the USGulf of Mexico in 2010, the political conta-gion that swept through Africa and theMiddle East, and the devastating earth-quakes witnessed in Japan earlier this yearare just some recent examples. These risksare extremely difficult to accurately fore-cast and their consequences are equallydifficult to quantify. It is this situation thathighlights the importance of portfoliodiversification: not just at the countrylevel, or by commodity, but by company aswell.

Demanding timesMore people with more money tend toconsume more energy. Since 1970 the world’spopulation has almost doubled to sevenbillion people and the world’s primary energydemand has risen 120 per cent. By 2050, theglobal population is forecast to increase by upto four billion people (see figure 1).

The level of global urbanisation is alsoexpected to rise from 50 per cent today toaround 70 per cent by 2050. In India andChina alone, more than 300 million peopleare forecast to move from rural to urbanareas over the next two decades. Put anotherway, the world’s energy industry will need

to accommodate the urbanisation of acountry the size of the US.

The energy challengeThe scale of the future energy challenge isperhaps best illustrated by the disparity inenergy use and population levels betweenthe US, China and India.

In 2010, the US consumed 19 per cent ofthe world’s primary energy despite makingup only 4 per cent of the world’s population.By contrast, China and India combinedconsumed 24 per cent of the world’s primaryenergy, while comprising 37 per cent of theglobal population (see figure 2).

Developing economiesEconomic growth in developed economieshas slowed in recent years – a situationwhich is allowing developing countries torapidly close the income gap in absoluteterms. As relative wealth in developing coun-tries rises, so does the increase in energyintensity. Increasing populations, wealth andurbanisation drove primary energyconsumption levels in developing countriespast those of their more developed counter-parts in absolute terms for the first time in2009 – a trend which continued during 2010.

These structural changes will have impor-tant implications for global energy supply –not least from a competitive perspective asless developed economies seek to diversifytheir own energy sources both domestical-ly and internationally. In short, geopoliticalrelations will play an increasingly importantrole in shaping the future path of energydemand and economic prosperity.

Earthquakes, oil spills and politicsDespite increasing demand and limitedsupply, navigating global energy markets isnot without risk. With virtually all of the world’sspare crude oil capacity located across Africaand the Middle East, crude oil prices rosedramatically following the political contagionthat swept through the region earlier this year.Geopolitics has been, and will remain, acentral risk to the energy industry.

Furthermore, with two-thirds of theworld’s oil reserves located in predominant-ly Muslim countries and two-thirds of theworld’s oil consumed in predominantlyChristian societies, religion could alsoamplify future supply risks.

Up until the tragic events at the Fukushi-ma nuclear power plant in Japan, nuclearenergy was expected to play an importantrole in meeting future energy demand whileshifting to a lower carbon footprint. Theresulting uncertainty in the nuclear industry,most recently with Germany announcing itwill phase out nuclear power by 2022, hascaused a significant share price reaction inmany nuclear-related stocks.

Although this will almost certainly lead toa slowdown in new capacity construction,it is expected that nuclear power will playan important role in meeting the world’slonger term energy needs. However, nuclearenergy will only form part of the solution.Meeting the world’s energy needs will requireinput from all energy sources and socommodity diversification remains key.

Operational risk is also an importantfactor to consider and even large, well-diver-sified companies can be exposed to signifi-cant and unpredictable risks. At its worst,BP’s market capitalisation fell by almost onehundred billion US dollars following theMacondo well blowout in 2010. Diversifica-tion and risks cross more than just geograph-ic boundaries and commodity prices.

Supply vs. demand The global energy industry faces significantand persistent challenges. On one hand, thelong-term outlook for primary energyconsumption remains robust, anchored oneconomic growth, urbanisation and popu-lation growth, particularly from emergingmarkets. If left unchecked, the current supplyoptions will struggle to keep pace with under-lying consumption growth, which is alreadybeing felt in global oil markets.

On the other hand, from a supply perspec-tive there is no silver bullet. Nuclear energyremains under a cloud following the tragicevents at the Fukushima nuclear reactor inJapan. Geopolitical risk across Africa and theMiddle East has unmasked the fragility inglobal oil markets and their ability to copewith resurgent demand. Furthermore, theBP-operated Macondo well blowout under-lines the significant risks that are taken by theindustry on a day-to-day basis.

In short, risks are prevalent and oftenunpredictable across the global energyindustry, despite the supply and demandfundamentals. Navigating these challengescan be fraught with risk but can bemitigated through appropriate diversifica-tion across a high quality global portfolio ofinvestments.

Mark Hume is a senior equities analyst inColonial First State Global AssetManagement’s global resources team.

Global energy needs power up

OpinionInvestment


Increasing demand for energy combined with limited supply sounds like the perfect investmentequation. However, as Mark Hume explains, it’s not without some risk.

2

4

6

8

10

12

1970 2000 2010E 2020E 2030E 2040E 2050E

Popu

latio

n, b

illio

ns

Low Medium High Constant

Source: BP Statistical Review of World Energy 2010, UN Population Division,World Bank, Colonial First State Global Asset Management estimates.

Figure 1 World population

19%17%

20%

4% 4%

19%

0

0.05

0.1

0.15

0.2

0.25

China India US

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010

Tota

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Population Primary Energy Demand

Source: BP Statistical Review of World Energy 2010, UN Population Division, Colonial First State Global Asset Management estimates.

Figure 2 Population and primary energy demand

There are many ways in which tosave for retirement – fromcomplex structured investmentsto keeping cash under the

mattress. Superannuation is one of themost popular retirement savings vehiclesdue to two main drivers:

• It comes with significant taxationconcessions; and

• Employers have superannuation obli-gations to meet in relation to theiremployees.

In each case, a key requirement is thata ‘complying superannuation fund’ isinvolved.

So just when will a superannuationfund be (or, of more concern - not be) acomplying superannuation fund? Let’s

take a look at how the process works fora typical new superannuation fundwanting to qualify as a self-managedsuperannuation fund (SMSF). Similar(but not identical) rules apply to otherclasses of superannuation funds.

Qualifying as an SMSFA good starting point is to determinewhether a fund is an SMSF.

To be an SMSF our fund must:• Be a superannuation fund;• Have fewer than five members; and • Have each member as either an indi-

vidual trustee of the fund or the directorof a corporate trustee (and vice versa).Somewhat surprisingly, only about 30 percent of SMSFs have corporate trustees.

Further, a member cannot be anemployee of another member (unlessthey are related) and no trustee or trusteedirector may be remunerated for actingin that role.

Most of these requirements are relativelyeasy to understand and monitor. However, ifan SMSF failed to meet those requirementsthen it would (after a six-month grace period)revert to being a ‘standard’ superannuationfund – and would need to comply with anumber of different regulatory provisions.

But what technically is a superannua-tion fund?

Superannuation funds A superannuation fund is defined in theSuperannuation Industry (Supervision) Act

1993 (SIS Act) as an indefinitely continu-ing fund that is a “provident, benefit, super-annuation or retirement fund”.

These terms are not defined further,and therefore take their ordinary andnatural meaning in the context in whichthey appear. There were a number ofcourt cases that considered these termsback in the 1960s and 1970s when theywere being used in the taxation legisla-tion applying to superannuation funds inthose times.

However, as long as an SMSF has thesole purpose of providing retirement ordeath benefits then there is not muchdoubt that it will, at least, be a superannu-ation or retirement fund.

An SMSF will be indefinitely continuingas long as it is not established for a fixedterm. The fact that the trust deed has atermination or perpetuities clause in it,does not prevent the fund being indefi-nitely continuing. As an aside, it shouldbe noted that the legal rules against


OpinionSMSFs

Keeping the concessionsToo much attention on the details can mean forgetting about thefundamentals. David Court traces the intricate eligibility rules applyingto SMSFs and the consequences of not meeting those rules.


perpetuities do not actually apply to regu-lated superannuation funds (section 343of the SIS Act).

So, we have a superannuation fund thatmeets the SMSF requirements. How dowe ensure that it is complying?

Being a complying superannuation fundBecoming a complying superannuationfund actually involves much more thanmerely complying with the operatingstandards.

An SMSF will be complying for taxpurposes (and hence for superannuationguarantee contribution purposes) if it is acomplying superannuation fund for thepurposes of section 45 of the SIS Act. Underthat section, an SMSF is complying if it hasreceived a notice under section 40 of the SISAct stating that it is a complying superannu-ation fund and has not subsequentlyreceived a notice stating otherwise.

Under the same section of the SIS Act,the Australian Taxation Office (ATO) maygive a notice that an SMSF is a comply-ing superannuation fund. However, undersection 42A an SMSF can only be acomplying superannuation fund if it is a“resident regulated superannuation fund”for a particular year of income and has

not contravened a compliance test.So how do we make sure that our SMSF

is a resident regulated superannuationfund?

Resident regulated super fundTo be a resident regulated super fund, anSMSF needs to be both regulated andAustralian. This means that we need todrill down even further.

Regulated super fund To be a regulated superannuation fund,section 19 of the SIS Act requires SMSFs tohave either a corporate trustee or have asole or primary purpose as the provisionof old age pensions. One or both of theserequirements would be reflected in thetrust deed for our SMSF.

Further, our SMSF’s trustee must haveelected to the regulator that the SIS Act isto apply to the fund. Making this electionis a relatively straightforward form-fillingexercise that must occur within 60 daysof establishment of the fund.

Assuming that our fund’s trust deedis worded appropriately and the elec-t ion made, we need to considerwhether our SMSF is an Australiansuperannuation fund.

Australian super fund Although the criteria is complicated (seesection 295-95(2) of the ITAA 1997), beingan Australian superannuation fund essen-tially means that SMSFs continue to bemanaged in Australia, have assets inAustralia and a majority of its assets orbenefit entitlements are held by activemembers who are Australian residents.

It is possible to lose this status relative-ly easily if the members (or a majority ofthem) leave Australia for an extendedperiod. Accordingly, the trustee should bewary if any members of an SMSF expressa desire to leave Australia for an extend-ed period.

Having made sure that an SMSF is aresident regulated superannuation fund,we need to consider the compliance test.

The compliance testTo meet the compliance test, SMSFs mustnot have contravened certain regulatoryprovisions during the year of income. Itis beyond the scope of this article toconsider these compliance requirementsthemselves.

However, if our SMSF did contravenean applicable requirement, it can still becomplying if the ATO is prepared to over-look the contravention.

Failing that, the ATO would issue anotice of non-compliance and an SMSFwould cease to be a complying superan-nuation fund. Such a notice can apply toone or more financial years.

The issuing of a notice of non-compli-ance is actually a fairly rare occurrence –only 185 notices were issued by the ATOin the 2009-10 financial year, up from 99in 2008-9. Given the severe consequencesof being made non-complying and theATO’s ability to overlook contraventions(either because they are trivial or havebeen rectified), the ATO seems to issue anon-compliance notice only as a lastresort in serious cases.

Interestingly, the Cooper Review hasrecommended that the ATO be given thepower to issue administrative penaltiesagainst SMSF trustees on a sliding scalereflecting the seriousness of the breach.The penalties would be payable by thetrustees personally and not from theassets of the fund. This would give theATO a range of penalties to impose onSMSF trustees who contravened theregulatory requirements, rather than theexisting ‘all or nothing’ nature of the non-compliance notice. The Government hasindicated that it supports this recom-mendation, and it is likely that such asystem will be introduced at some pointin the future.

However, for the time being, assuming

that our SMSF does not receive a notice ofnon-compliance then it will receive anotice of compliance and will, therefore,be a complying superannuation fund.

The effect of losing complying statusAs mentioned above, once an SMSF hasreceived complying status it will general-ly continue to have that status until theATO notifies it that it is non-complying.

Keep in mind that our SMSF could alsolose its complying status if it ceased to bea superannuation fund or if it lost itsstatus as an Australian super fund.

The consequences of becoming non-complying are quite onerous. Obviously,an SMSF will no longer be eligible toreceive SG contributions (although thereare ‘safe harbour’ provisions for employ-ers affected by this situation) and will loseits tax concessional status (so that, forexample, its income will be taxed at 45per cent rather than 15 per cent).

Further though, our SMSF will, uponbecoming non-complying, have to payadditional tax equal, in effect, to all of thetax concessions that it has received in thepast. This amount can be quite large for afund that has been in operation for sometime. There is also the possibility that theATO may impose interest charges andother penalties, depending on the natureof the contraventions that occurred.

One ‘non-consequence’ of being non-complying is that our SMSF is still regulat-ed under the SIS Act and must complywith the requirements of that Act.

Room for improvementTracing our way through the legislativeprovisions above reveals a fairly convo-luted and unnecessarily technicalprocess for establishing an SMSF (whencompared with establishing a company,for example). Further, this article hasnot addressed the actual operating stan-dards that regulate the activities of ourSMSFs, and which create their own setof issues.

The Cooper Review recognised thisissue, and recommended that the legis-lation covering SMSFs be included in aseparate division of the SIS Act or even begiven its own legislation. With the longterm decline in corporate funds, thesuperannuation industry is increasinglydividing between public offer funds andSMSFs. The time might soon come whenit makes sense to recognise an SMSF as aunique type of entity rather than just asmall version of the generic superannua-tion fund.

David Court is a lawyer with HolleyNethercote commercial lawyers.


“With the long term decline in corporate funds, thesuperannuation industry is increasingly dividing betweenpublic offer funds and SMSFs.”

At a recent investment seminar, afund manager at a large institutionsaid he wasn’t worried about infla-tion developing as a problem in

the US because their bond rates remainedwell behaved at close to historically lowlevels. In my view, this is flawed thinking ona number of levels.

Firstly, the bond market’s record of antic-ipating major changes in the inflationoutlook is a pretty poor one. When inflationin the US began a long decline from a peakof almost 15 per cent in 1980, it took years forbonds to recognise that the trend hadchanged and to more fully reflect it. Thesame was true of the prior rise in inflationfrom the late 1960s, through the 1970s. Bondrates generally only slowly follow big increas-es or decreases in inflation, they don’t antic-ipate them.

This is not a forecast, but if inflation wereto begin moving significantly higher incoming years, don’t bother waiting forpredictive signals from the bond market. Bythe time they are reacting to it, you can besure that inflation is already a majorproblem.

Secondly, in recent times US bonds havehardly represented a free market, devoid ofgovernment or structural distortions. Themost obvious intervention has been the twoprograms of quantitative easing where theUS Federal Reserve has become the largestpurchaser of treasury debt. But even outsidethis there are also some structural rigiditiesin the US treasury market, particularlyaround the requirements for certain insti-tutions (including banks, insurance compa-nies and other government authorities) tohold ‘risk free’ AAA-rated treasury assets, irre-spective of price. Then there has been themassive build up of overseas reserve hold-ings of US treasuries, particularly by theChinese who need to put the US dollarsgenerated by their massive trade surplusessomewhere.

The fund manager’s thinking above isindicative of a widely held view that themarket for bonds is broadly efficient andtheir prices do a good job ofdiscounting/anticipating the future. Given

the distortions described above and the pastrecord of bond markets anticipating majorturning points, this view is seriouslymisplaced.

Credit riskThirdly, and perhaps more importantly inthe current environment, it is not just infla-tion that is a big determinant of governmentbond rates. Increasingly credit/default risk isa major factor determining the level of evensovereign bond rates. While to date this hasbeen a driving factor mainly for peripheralEurope, it increasingly looks like a storycoming to other highly indebted countrieslike the US, UK and Japan.

Perhaps most alarmingly, the events inperipheral Europe have shown how quicklythis perception of credit risk can change anddramatically impact the level of bond rateswithin weeks or months. One only has tolook at a graph of 10 year bond rates ofvarious peripheral European countries tosee this in action. Greek bonds moved from8.5 per cent to 12.4 per cent within a fewmonths in 2010, while Irish bonds rose from11.3 per cent to 13.7 per cent and Portuguesefrom 10.6 per cent to 12.9 per cent mostrecently. All three 10 year rates were around5 per cent in mid-2009. Even Italian andSpanish bond yields haven’t been immune,surging more than 1 per cent over a fewweeks recently.

Could this happen to other bond marketsof highly indebted countries, even whenthey are major economies? Why not?

Australia has been better placed becauseour sovereign debt levels are much lowerand the absolute level of 10 year bonds rateshas been relatively high. Still, Australian 10year bond rates are now around 5 per centand the current government is not inspir-ing confidence in the foreign holders thatown the majority of these bonds.

Government bondsIn my view, one of the dumbest investmentscurrently for the long term is a global govern-ment bond index product. The more debt acountry owes the bigger weighting it has inthe index. For example, Japan, Europe, the

US and the UK make up almost 95 per centof one of the commonly used indexes, theCitigroup World Government Bond index.The yield on this index is a little over 2 percent per annum.

Of course you pick up the interest ratedifferential through currency hedging whichcurrently adds a few percent per annum tothe low ongoing yield, but this will notprotect you from serious capital losses ifthere is a significant move up from thecurrent low level of bond rates in these coun-tries. This is also assuming that none of theunderlying countries default, which is farfrom certain these days. Investing in thistype of fund reminds me of the proverbial“picking up pennies in front of the steam-roller”. Still, this hasn’t stopped many globalgovernment bond index funds, or low track-ing error funds, ranking highly amongst thevarious research houses.

Global impactIn many respects, it is the US bond marketthat is critical because it has become a keylynchpin of global financial markets. UStreasuries are the world’s ‘risk free’ rate, theasset that most other assets are priced off,one of the most liquid markets globally andthe collateral used for many transactions.

A major downgrading of US bonds -whether formally by rating agencies or infor-mally by the markets requiring much higheryields - would have a massive impact, notjust on investment portfolios, but on theglobal financial system itself. Indeed, thisimpact would likely be much more signifi-cant than the dramatic increase in bondrates in the 1970s. It would leave the globalfinancial system somewhat rudderless andin search of other riskless assets and bench-marks. Risk premiums across all asset classeswould likely rise at least for a period untilmarkets adjusted to a radically different envi-ronment, in which the position of the US asthe reserve currency and centre of the globalfinancial system would be challenged.

This is not some apocalyptic fantasy. Thepolitical circus over raising the US debtceiling is demonstrating just how difficultreal progress to actually decrease the US

public debt burden and move to a sustain-able long term fiscal track will be in the US.It is easy to conclude that the only thing thatwill really bring about the necessary majorhard decisions is a market crisis. That is,holders will lose confidence in US bondsand the market will start demanding signif-icantly higher rates. However, as has beenshown in the European situation, this risein rates can actually accentuate the crisis asthe higher cost of debt makes balancing thebudget even harder.

Some say this won’t happen becauseChina, which owns US$1.6 trillion in USdebt, would never let the value of its reservesbe so badly impacted. This is wishful think-ing. The Chinese alone don’t set the price ofbonds and in any case have been graduallyworking towards deploying their reservesinto other investment areas.

US bonds ratesCould we therefore see a dramatic rise in USbonds rates where, from current low levels –below three per cent on the 10 years - theydouble or even triple over a period of weeks,months or a few years? It certainly cannotbe ruled out as one possible endgame forthe current dilemma.

It is true that as one of the lower taxed


Observer

Bonds caught inthe slipstream

Many experts look at the bond market as an indicator forfuture inflationary changes. Dominic McCormick arguesrecent events, particularly in the US, prove otherwise.


countries globally, the US could solve itsfiscal issues over time with some hard deci-sions. It also has greater flexibility than mostgiven that all the debt is in their own curren-cy and they can also help ‘manage’ the debtby currency debasement and inflation.However, these latter solutions are not goodones for holders of bonds, as they will leadto very poor real returns.

The investment portfolio implications ofbig moves in the US and other bond interestrates would be profound. When somethingperceived as ‘risk free’ fails or severely disap-points, it has a much bigger impact thanfailure of those areas already perceived tobe risky. Investment implications wouldinclude:

- De-rating of other financial assets,including shares, as bonds eventuallybecome more attractive at higher interestrates;

- A period of uncertainty, which wouldlead to investors chasing other ‘safe haven’or lower risk assets. Possible candidateswould include the corporate debt of theworld’s largest, safest companies, the fewavailable lowly indebted governments andvarious hard assets such as gold, and

- Continued risk aversion among retailinvestors in particular who would stick to

the safety of cash and term deposits despitelow returns.

Arguably, some de-rating of shares hasalready occurred, as investors grow cautiousover the various macro risks – including, butnot limited to, sovereign debt – even if theseproblems/risks have not been fully reflect-ed in certain bond markets at this point.

What about the positive arguments forUS bonds? Deflation is still a risk. Why could-n’t US bond rates go much lower – even tothe 1 per cent rates of Japanese 10 yearbonds? Also, bonds are already a very ‘out offavour’ asset amongst institutional investors,so from a contrarian point of view doesn’tthis make them attractive?

Anything is possible and an extendedJapanese-like deflationary situation cannotbe ruled out. However, the US clearly hasbeen much more aggressive in fighting defla-tion than Japan ever was. And unlike Japan,a significant component of US bonds isowned by foreign investors who are likely tobe less loyal when the going gets rough.Finally, because many bond markets are notoperating in a truly free market, one shoulddiscount arguments suggesting that thenegative investor sentiment towards themis causing them to be priced at attractivevalues. Arguably, many of the US (and other)

bonds are being held and bought for non-investment reasons (e.g. quantitative easing,AAA rating, trade imbalances, etc.) ratherthan as a judgement of whether they offergood value.

On balance then, the medium to long-term bullish case for bonds is weak andwould only be realised in the narrowest ofscenarios. In any case, the gains to be realisedare relatively small compared to the poten-tial losses in the more adverse scenarios.

However, there is no certainty that thenegative scenario for US bonds, even if ulti-mately proven correct, will play out in thenear term. The US public debt has beengrowing for 30 years, why would marketslose confidence now?

Crisis timeHaving said that, there are a number ofreasons why a crisis may be close at hand.Firstly, it is only in the last year thatperipheral Europe has shown, for the firsttime in more than half a century, the first-hand market consequences of a loss ofconfidence in developed country sover-eign debt. Markets have a tendency toextrapolate the experience of one countryto others with similar characteristics, atleast over time. Secondly, the ratingsagencies, criticised for their slow reactionand inherent conflicts in previous corpo-rate and structured debt failures, arelosing patience and keen to demonstratetheir newfound objectiveness.

Government bonds generally, and USbonds particularly, were an asset class thatin hindsight, you wanted to own a lot of in2008. Increasingly, the signs are that notonly will these bonds not deliver in thenext crisis but also that they could well beat the centre of it. Investing via the rearvision mirror, which is the essence ofpassive/index investing, has never beenso dangerous.

Dominic McCormick is the chief executiveofficer of Select Asset Management Limited.


“In my view, one of thedumbest investmentscurrently for the long termis a global governmentbond index product. ”

Separately managed accounts(SMAs) have emerged in theAustralian market over the pastdecade, although they have a

longer track record and enjoy greaterpopularity in the US market. SMAs canbe seen as an evolution of the platformbusiness and share some of the benefits ofmaster trusts and wraps (such as ease ofreporting), while providing investors witha number of new benefits, most visiblythe ability to hold assets directly in the

investor’s name (as opposed to being heldin the name of the platform).

What is an SMA? An SMA can be seen as a further develop-ment of the platform. Rather than holdingunits in managed funds, an SMA is ableto bypass the managed fund structure andhold the same underlying investmentportfolio, but in the name of the investorrather than the platform.

Typically, the SMA provider will offer

investors a ‘model portfolio’ in order toconstruct the underlying investment port-folio. This model portfolio can be passivein nature (such as an index like the ASX20)or can be actively managed by a fundmanager. Where it is managed by a fundmanager, the investment strategy drivingthe model portfolio may be the same as,or close to, an existing managed fundproduct.

Benefits of SMAs SMAs have a number of benefits overother investment platforms as a result ofinvestors directly owning underlyinginvestments. These include:

Tax efficiency In a standard managed fund, normal trustaccounting often creates a disconnectbetween the realised capital gains/lossesgenerated by the underlying portfolio andthe capital gains/losses actually distrib-uted or attributable to each investor. Forexample, where one investor lodges aredemption and causes a managed fundto realise some capital gains/losses, thecapital gains/losses are distributedequally amongst all investors. An SMAavoids this situation as each investor ownstheir own portfolio rather than holdingunits in a common fund alongside otherinvestors.

Tax efficiencies are also evident whereinvestors seek to change managers. Achange of manager in a direct managedfund investment would involve redeem-ing units (crystallising capitalgains/losses) and purchasing units in anew fund. In an SMA, investors wouldonly need to trade securities where thereis a difference between the new and oldmodel portfolios, potentially reducing the

amount of realised capital gain/losses thatmay be generated.

Lastly, SMAs allow investors to be moretactical in the way trades are executed. Forexample, where a change in a model portfo-lio may cause capital gains to be crystallised,investors may be able to offset the gain byalso selling a security that has unrealisedcapital losses. In a managed fund, investorshave no ability to tactically trade to minimisethe impact of capital gains.

Tax reporting In a managed fund, the fund’s tax reportsneed to be generated and finalised beforetax reports for each individual investorcan be produced. In an SMA, as individ-ual investors own their underlying portfo-lio, tax reporting should occur in a moretimely fashion.

TransparencyInvestors in managed funds typically do nothave timely access, or have limited ability toview the underlying investments. In an SMA,investors have full transparency of invest-ments they are holding.

Customisation Implementation of changes in modelportfolios may be tailored for each indi-vidual investor. This is generally possiblewhere the SMA implements the modelportfolio, as opposed to a manager. Exam-ples of customisation may include screen-ing some model portfolio stocks onethical grounds. In a managed fund, suchspecific tailoring would not be possibleas investors simply own units in a fund.

Current limitations While some of the main benefits havebeen outlined, a number of limitations


OpinionSMAs

SMA benefitsweighed upLin Ngin looks at how SMAs operate andexplores some of the features and benefits onoffer as well as some of the current limitations.


Feature IMAs SMAs Managed Funds

Portfolio management

Customised portfolio construction

Client retains beneficial ownership

Minimises portfolio rebalancing

Internally geared mandates

Fees tailored to investments

Access via a product disclosure statement

Low minimum investment

Corporate actions administered

Tax reporting

Transparency

Ability to view underlying shares

In specie transfers

Avoid embedded capital gains tax

Netting of transactions

Exclude stocks from portfolio

Tax efficiencies

Snapshot of differences between IMAs, SMAs and Managed Funds


tion of the model, may contributeto a divergence in the perform-ance of a model portfolio and itsequivalent managed fund.

Australian shares focussed SMAs have been particularlyactive in offering model portfoliosin the Australian equities space,but less active in other assetclasses. As a result, the SMA plat-form in itself is not a single solu-tion for investors. That said,

Lonsec notes that someproviders, for example Aviva,currently integrate their SMAplatform with their main wrapplatform, providing a singleaccount, which contains SMAmodel portfolios and managedfunds. While this al lows forconsolidated reporting, investorsstill remain unable to benefitfrom the advantages of SMAs inasset classes like internationalequities at this time.

Differences from IndividuallyManaged Accounts (IMAs)IMAs are managed accountswhere the fund manager’sinvestment decisions are madein conjunction with investors’specif ic needs and require-ments. Effectively, investorshave their own personal fundmanager acting on their behalf.Due to the labour intensivenature of IMAs, minimuminvestments are typical ly

upwards of $500,000.SMAs are managed accounts

where the investment decisionsare made entirely independentlyof an investor. Investors may alsofind they have some control overfiltering the available stocks andassets invested into, but the port-folio management remains inde-pendent of investors.

Lin Ngin is a senior investmentanalyst at Lonsec.

currently exist. These include:

Limited manager choice Investors in managed fundstypically have a wide choiceof products offered by fundmanagers. For example, inthe area of large capAustralian equities, Lonsecprovides research on morethan 30 fund managersoffering products in theAustralian market; there arealso a large number ofmanagers that Lonsec doesnot research. In the SMAspace, a much smalleruniverse of managers isavailable to provide modelportfolios. In the case ofsome of the smaller SMAservice providers, the lackof recognised managersproviding model portfoliosis a significant limitation.

Reticence on the part ofsome managers may belinked to concerns over theleakage of a manager’sintellectual property.Lonsec also notes thatsome differences inopinion exist in regard tothe management fee, whichmay add to the lack ofmanagers providing modelportfolios. Some industryparticipants believe themanager’s fee should belower than the equivalentfee in a managed fund (dueto the manager’s lowercosts from only providingmodel portfolios ratherthan managing and admin-istering a fund), while thereis a view that the fee shouldbe higher (to compensatefor the possible leakage inintellectual property).

Limited model portfoliochoice Lonsec notes that themodel portfolios on offerare predominantly concen-trated and large cap innature. The reason for thisis that shares in these port-folios would be the mostliquid and easiest toexecute and implement.However, this means thatinvestors are not currentlyable to access small capand other strategies withinan SMA framework.

Execution Risk Execution risk is a majorfactor in assessing theeffectiveness of an SMAprovider. Any lags in thetransmission of modelportfolios from managersto the SMA provider, andany delays in implementa-

Do you provide recommenda-tions to clients who arecontractors or use contractorsin their business?

The term ‘contractor’ can be misleadingand clients who do not understand therules can be liable to significant penaltiesunder state and federal laws. Employerclients may incur non-tax deductiblecharges, including administration andinterest penalties, if less than the requiredsuper guarantee amount is not paid forcontractors who qualify as employees.Good advice ensures clients satisfy theirlegal obligations, avoid unnecessaryexpenses and focus on running their busi-ness. Similarly, clients who are contrac-tors may actually be considered employ-ees and an opportunity may arise toestablish super guarantee entitlementsfor them.

Why does it matter if a person is anemployee?If a person is an employee, by using theprocess below, in most situations they areentitled to have super guarantee paid forthem and their salary is subject to Pay AsYou Go (PAYG) withholding. If a person is

a contractor, super guarantee and PAYGwithholding obligations do not apply.

You should also consider the relevantstate or territory laws to identify anypayroll tax and workers’ compensationcover obligations. These laws may havedifferent tests to determine when contrac-tors are considered employees.

When is a contractor an employee?Although clients may call themselves orothers contractors, it’s important toconsider how it is defined in the legisla-tion. For superannuation and tax lawpurposes, a contractor could be consid-ered an employee in either of the follow-ing two circumstances:

1. A person works under a contract thatis wholly or principally for their labour. Ifthe terms of the contract pay the personfor the performance of their labour andskills and they are not paid to achieve aspecific result then it will most likely be acontract wholly and principally for theperson’s labour.

2. A person whose contractual relation-ship is defined by an employee/employerrelationship, rather than as a contractor.Key indicators consider the relationship

based on common law and the AustralianTaxation Office (ATO) guidance. These indi-cators are outlined in the table below.

Other factors may be relevant to estab-lish whether the relationship is anemployer/employee or contractor rela-tionship. For example, a person could beconsidered an employee if the principalhas the right to dismiss the person, orthe principal provides benefits (e.g.annual leave) or the person is requiredto wear a uniform. The balance of allindicators must be considered to deter-mine the relationship, rather than anyone indicator alone.

If an individual performs work foranother party through a company or trust,there is no employer/employee relation-ship between the individual and the otherparty. This is because the company ortrust (and not the individual) has enteredinto an agreement with the other party.However, the individual may be theemployee of the company or trust.

If there is any uncertainty to a client’semployee/contractor status, the clientshould refer to a tax adviser. Alternative-ly, the ATO decision tool on its websitecan assist.

What does the case law tell us?If you consider the employee/contractorissue for your clients, you can preventpossible court cases from arising, such asthose outlined below.

In Hollis versus Vabu Pty Limited, bicyclecouriers were engaged in the running ofits business and were treated as if they werecontractors.

The High Court decided that becauseVabu had considerable scope to exercisecontrol over the performance of the couri-ers’ activities, such as the allocation anddirection of the various deliveries, that theywere employees. In addition, the courierswere also required to wear uniforms incarrying out their duties. The High Courtnoted the distinction between an employ-ee and contractor is rooted in the differ-ence between a person who serves theiremployer and a person who carries on atrade or business of their own. According-ly, the couriers were not running their ownbusiness, nor did they have independencein how they conducted those activities.

Even though the couriers were paid perdelivery, rather than per time periodengaged, it was considered to be consis-tent with an employment arrangement.The couriers owned their own bicycles,bore the expenses of running them andsupplied many of their own accessories.Although it may be argued they providedthe necessary tools and equipment, theHigh Court considered that thetools/equipment should be significant andrequired great skill or training for the indi-vidual to be considered an independentcontractor.

A more recent case, On Call Interpretersand Translators Agency (On Call) versusCommissioner of Taxation, highlights howbusinesses should carefully apply theemployer/contractor determination foreach individual. In this case, On Callengaged interpreters and translators andtreated many as contractors. The FederalCourt found that while some were runningtheir own business, others were not. Thetest applied by the Federal Court waswhether an individual had a business andwhether the work was being performed inand for the business of that person. Thoseconsidered employees did not have clientsin sufficient numbers or operations tosuggest they were operating a business.

ConclusionClients who run businesses should beextremely careful in classifying those theyengage as contractors. The wrong decisioncan result in non-tax deductible expens-es, such as the superannuation guaranteecharge, and may end in costly, protractedcourt cases. Alternatively, if your client iscurrently treated as a contractor you maybe able to establish that anemployer/employee relationship existsand allow the client to receive additionalbenefits such as superannuation guaran-tee and workers compensation cover.

Mark Gleeson is the technical servicesmanager at OnePath.


Care needed with contractor classification

Toolbox

Clients who run businesses should be extremely careful inclassifying those they engage as contractors, as the wrong decisioncan result in many unfavourable outcomes, writes Mark Gleeson.

Key indicator More likely to be employee More likely to be a contractor

Terms of contract Employee is more likely to respond to job Contractor is more likely to advertise services to public

advertisement or agency

Employee more likely to work for one employer Contractor is free to work for others

Control over work Employer has control over employee in how the work is performed Contractor has more control in how the work is performed

Results Employee more likely to be paid by reference to hours worked, Contractor more likely to be paid by referring to results achieved

rather than specific results achieved

Power to delegate Employee generally expected to perform work personally Contractor may arrange for some or all of the work to be delegated

and cannot delegate tasks

Risk Employee is not generally liable for costs of injury or defects Contractor is generally liable for costs of injury or defects of work

of work (employer is generally liable)

Tools and equipment Employee does not generally provide tools and equipment Contractor provides tools and equipment

Table Contractor or employee?

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

SENIOR FINANCIAL PLANNERLocation: MelbourneCompany: Terrington ConsultingDescription: A progressive financial services firmis seeking a qualified senior financial planner tojoin their respected team.

Specialising in the provision of holisticfinancial services strategies to new and existingclients, the successful applicant will bepassionate about delivering the tailoredsolutions to accommodate client needs. You willbe responsible for servicing existing clientrequirements, proactively seeking new businessopportunities and contributing to the strategicdirection and success of the Adelaide team.

DFP 1-4 are essential for this position andCFP qualifications are highly sought after. Thesuccessful applicant will be remunerated at anextremely competitive level and have access toa lucrative commissions scheme.

For more information and to apply, pleasevisit www.moneymanagement.com.au/jobs orcontact Emily on 0422918177 for aconfidential discussion.

FINANCIAL PLANNERLocation: SydneyCompany: St. GeorgeDescription: St. George is seeking a financialplanner to join its wealth business. The benefitsof this role include a structured career path, anestablished client base, referrals, and practice

management support with access to coaching,tools and business planning support services.St. George also offers training and development,including an induction program, developmentdays and mentorship programs.

To be considered for this role you will requirean ADFP (modules 1-6 minimum), at least 2-3years’ experience as a financial planner, strongnegotiating skills, a proven track record ofachieving high sales targets, excellent technicalknowledge, along with professional presentationand communication skills.

For a confidential discussion, please call LizGiltaine on (02) 8219 8963 and to apply, visitwww.moneymanagement.com.au/jobs

ASSOCIATE ADVISER/ SENIORPARAPLANNERLocation: MelbourneCompany: FS Recruitment SolutionsDescription: An independent financial planningbusiness dealing with high net worth clients isnow seeking an experienced associate advisor/senior paraplanner to join their team. Thisestablished business has been in operation for25 years.

As an associate advisor you will beresponsible for the construction ofcomprehensive statements of advice (SOAs),ranging from wealth accumulation strategies toSMSFs, direct equities and managed funds.

Although your role is very technical, you must

also have excellent communication andpresentation skills as you will be very heavilyinvolved in some client meetings.

To be successful in this role, you will havesignificant paraplanner experience within aprofessional environment where you haveproduced tailored sophisticated SOAs.

For me information, please visitwww.moneymanagement.com.au/jobs orcontact Kiera Brown, principal consultant, FSRecruitment Solutions:[email protected] or0409 598 111.

FINANCIAL PLANNING PARTNER Location: AdelaideCompany: Terrington ConsultingDescription: A national financial planning firm isinterested in meeting professional and qualifiedfinancial planners who either own their ownclient base or are able to tap into existingnetworks to build a profitable book of businesswith the support of an outstanding supportstructure and product suite.

If you are an existing advisor, the companyoffers the immediate opportunity to benefit froma proven business model with the assurancethat your valued client base will be purchasedby the business when you are ready to exit. Inaddition, our client is able to play a key role insuccession and exit planning – providing youwith the peace of mind that your client base will

be guaranteed brand and service continuity.For more details about this position, and to

apply, please visitwww.moneymanagement.com.au/jobs orcontact Emily on 0422918177 or [email protected]

PARAPLANNER – STOCKBROKING/FINANCIAL PLANNING FIRM Location: MelbourneCompany Name: FS Recruitment SolutionsDescription: An opportunity has arisen for anexperienced paraplanner to join the financialplanning of an established stockbroking firm. Asa paraplanner in this organisation, you will beresponsible for providing outstanding one-on-one support to two advisers, creating a widerange of statements of advice.

In return for your efforts you will receiveextensive support and training as well asgenerous untapped opportunities to advanceyour career within financial planning.

To be successful in this role you must have aminimum of 12 months experience writingSOAs, and will have completed a DFS,preferably with a degree in commerce, businessor finance.

For find out more about this opportunity,visit www.moneymanagement.com.au/jobs orcontact Kiera Brown:[email protected] or0409 598 111.

JUST weeks after MLC pickedtalent from AXA North’s seniorranks, one of its own executives,Chris Weldon, has moved to IOOFto head platform products.

IOOF had recently reviewed thestructure of its product team,deciding to reinforce the platformteam and appoint Weldon tostrengthen the company’s pres-ence and service delivery to the IFAmarket.

Weldon’s move came weeksafter MLC poached AXA North’ssenior executives, recruiting PaulStrutton, Michael Tobin and RemiBuchenez, as well as formernational development managerfor AXA’s Financial AdviceNetwork, Chris Matlock.

Weldon spent 10 years in thefinancial services industry and hadrecently worked on the launch ofMLC Wrap.

Prior to MLC, he spent four yearsat Aviva where he was tasked withthe development of its services andproducts to independent advisers.

IOOF general manager fordistribution, Renato Mota,announced the appointment,adding the company was attract-ed to Weldon’s experience in bothplatform and IFA markets.

MERCER has appointed CaraWilliams as the global head of its

wealth management consultingservice.

Williams, who will continue tobe based in London, has beenthe global chief operating officerwithin Mercer’s investmentconsulting business for the lastsix years. Her responsibilitiesincluded managing the day-to-day operations, budgets andbusiness strategy.

Prior to joining Mercer,Williams worked in businessdevelopment and clientmanagement roles at MerrillLynch and CDC InvestmentManagement Corp.

The new appointment followssignificant client expansion andbusiness growth in Australia.

“The appointment of CaraWilliams and recent client growthhas allowed Mercer to consolidateour presence as an adviser to thewealth management industry andto provide varied and comprehen-sive solutions for a broad range ofclients,” said Brian Long, Mercer’shead of wealth managementconsulting in Australia and NewZealand.

TAL Limited has added two newdirectors to its Board, RogerGarrett and Japanese nationalTatsuya Yasukawa.

Garrett spent the last 13 years

as head of life for Munich Rein-surance Group, from 1997 untilhis retirement in early 2011. Hehas a strong actuarial and re-insurance background, havingpreviously worked at NZI Lifeand NZI Bank in New Zealand,before moving to Australia.

Yasukawa is presently manag-ing director of TY Japan Consult-ing, a company he established in2003 to provide corporate advi-sory and consulting services toAustralian companies wanting todo business in Japan, and viceversa.

Yasukawa has spent a large partof his career in investmentbanking and has also had severalyears experience in property

investment and development. Hehas worked with the IndustrialBank of Japan (now MizuhoBank) and SG Warburg (nowUBS), both in London and Tokyo.

The new appointments bring thenumber of TAL’s board members to11, chaired by Rob Thomas.

A MONTH after hiring CathrynFranks as national boutiques salesmanager, Challenger has added afurther five business developers toits team.

Dario Conte has joined thecompany as a BDM and will beservicing financial advisers in NSWand ACT.

Former State Street Global

Markets analyst, Jeremy Butter-worth will be in charge of businessdevelopment in SA and WA, whileMarietta Gibbs will be based inQueensland.

Also based in Queensland,Claudia Faundez, will work along-side Gibbs. Gibbs was a financialplanner, with a background inAustralian equities markets andmanaged funds, having previous-ly worked at Aviva Investors andOnePath.

David Livera had made aninternal move and will operate asa senior BDM in Victoria, havingpreviously managed both annu-ities and boutiques at Challenger.He will now focus solely onboutique funds.

Move of the weekAUSTRALIAN Securities and Investments Commission (ASIC) commis-sioner Shane Tregillis has been appointed chief ombudsman of FinancialOmbudsman Service (FOS).

Tregillis rejoined ASIC in May 2010 after eight years with the MonetaryAuthority of Singapore where he was a deputy managing director.

Tregillis will take up the Melbourne-based role this September after heleaves his current position later this month.

ASIC chairman Greg Medcraft applauded Tregillis’ role as commissioner.“Shane worked on some of ASIC’s most important projects through their

most crucial times, including supervision of ASX following the successfultransition to ASIC in August 2010,” said Medcraft. “He will make a superbChief Ombudsman at FOS.”

ASIC deputy chairman Belinda Gibson will assume Tregillis’ responsibilities.


Shane Tregillis

“OUTSIDER’s curiosity was piqued by aninvitation to ‘Speed Date with FinancialSpecialists’ at the Association of Finan-cial Advisers (AFA) Roadshow in Orange.

Had he been attending that leg of theevent, he may have been tempted to seewhat all the fuss was about – albeit witha small degree of trepidation.

Not due to any feelings of intimida-tion of course, but more because heknows that he is such a tremendouscatch that Mrs O would no doubt berightfully concerned about some youngfilly making off with him.

On closer inspection, Outsider mustadmit he was a little disappointed theevent was pitched not so much as achance to hook up with sultry finan-cial services types and bond over amutual disapproval of FOFA, but morean opportunity to meet the local MP,

and spend some quality time withsome AFA-chosen ‘subject-matterexperts’.

When Outsider followed up details ofthe event on the AFA’s website (purelyout of curiosity, naturally), he was thendirected to the brochure for the AFA’sfollowing event, ‘Football for Futures’.

Outsider was somewhat impressedwith the way the AFA managed to linkspeed dating, football and financial serv-ices. If he had known the industry wasthis much fun, he might have jumpedship in his early days of reporting.

What’s more, Outsider is reliablyinformed that he would have been freeto attend as many financial speed-dating events as he liked, young filliesor otherwise. Apparently because “nowoman is that silly”, whatever thatmeans.

Outsider


“I do think we are moving quitequickly (on legislative reform) -like the gestation period of thesperm whale - which I readsomewhere is 16 months.”

Assistant treasurer, Bill Shorten

tells the Financial Services Council

(FSC) conference the Government is

on the job.

“We can’t balance the budgeton the backs of the very peoplewho have borne the biggestbrunt of this recession.”

US President Barack Obama adds

alliteration to his public address now

that the House of Representatives and

the Senate have passed the debt

ceiling bill.

“You can go Green, if you want to back a colour as apolitical credo.”

Shorten teases the Greens as a party

name, at the FSC conference.

Out ofcontext

Keeping up appearances

Escape from New York

Need for speed

NOT that he is sensitive about thesubject, but Outsider usually doesnot choose to disclose his exactage. All he is willing to acknowl-edge is that his birth certificateseems to have taken on a some-what yellowish tinge.

Long has passed since yours trulyhad a full head of hair, a mouth fullof his own teeth, an Adonis-likephysique, and a façade that was assmooth as a baby’s behind.

The years (along with intermit-tent alcohol and nicotine consump-tion) have done their bit. Outsiderdoes not take any joy in saying that,while he has been told numerous

times that he looks astonishinglygood for his age, his looks are notwhat they were a decade ago.

However, it appears that many ofthe financial services types have afar greater reluctance when itcomes to acknowledging the effectsof Father Time.

In fact, it seems many are noteven prepared to admit that theirlooks have shifted even the tiniestbit since 1995, given that some ofthe headshots regularly appear-ing in various publications havenot been updated in what seemsan age.

Flicking through the pages of

Money Management the otherday, Outsider noticed a picture ofa certain industry figure whoyours truly knows for a fact is agrey fox now, but the headshotregularly appearing in MoneyManagement remains that of adashing young man.

Outsider would suggest to thisfellow that he either update hisphoto, or begin to risk not beingrecognised at conferences and keynetworking events. He would alsoargue that providing a photo morethan three years old for publicationamounts to misrepresentation, andshould be a punishable offence.

OUTSIDER has vivid memories of thatpre-cursor to the global financial crisis– the sub-prime loans debacle in theUS, and so he was more than a littleinterested to hear that the new chair-man of the Australian Securities andInvestments Commission, Greg Med-craft, had front-line experience withthose events.

Giving something of a fireside chaton the opening day of the FinancialServices Council conference on theGold Coast last week, Medcraft out-lined his background and the manyyears he had spent in New York –still his favourite city.

But what really caught Outsider’sattention was that Medcraft hadspent a good deal of his timeworking in the area of structuredproducts, which set your ageing

correspondent wondering howfamiliar the now ASIC chairmanmight have been with collateraliseddebt obligations (CDOs).

Whatever the case may havebeen, Outsider also noted that Med-craft got out of that particular area ofthe US financial services industry in2007 – suggesting he was eithervery astute or very lucky.

Discussing his chairmanship ofASIC, Medcraft left Outsider and manyothers in the FSC conference audi-ence with the clear impression thathe salted away a healthy nest eggduring his New York days and wasgiving something back to the commu-nity by heading up a regulator.

Outsider only wishes he was quiteso comfortable and quite so fortu-nate with respect to timing.

A L I G H T - H E A R T E D L O O K A T T H E O T H E R S I D E O F M A K I N G M O N E Y


money management (august 11, 2011)

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