Money Management (April 21, 2011)

www.moneymanagement.com.au

The publication for the personal investment professional

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By Mike Taylor

THE Federal Government’sFuture of Financial Advice(FOFA) changes carry with themthe genuine risk of benefiting thebig banks, institutions andindustry funds at the expense ofmid-sized dealer groups andindependent financial planners.

That is one of the keyconcerns to emerge from aMoney Management roundtablewith five senior players in thefinancial planning and fundsmanagement industry: Fiducianmanaging director, Indy Singh;Count Financial chief executiveAndrew Gale, Colonial FirstState general manager of distri-bution Marianne Perkovic,Fidelity Investments chief exec-utive Gerard Doherty, and Asso-ciation of Financial Adviserschairman Brad Fox.

Each of the participantsexpressed concerns about thepotential for unintended conse-quences to flow from measuressuch as the banning of volumerebates, with Gale saying hebelieved the Government reallyneeded to work through theimplications of its intendedactions.

“I think some of the out work-ings would be that it wouldconfer additional power to thevertically integrated organisa-tions in the market,” he said. “Itwould also have a greater degreeof disruption.

“I think some of the largelicensees are well positioned todeal with that because theywould basically change theirbusiness models – and especial-ly looking at taking on platformmanufacture or responsibleentity type roles,” Gale said.

However, he warned that whilelarger licensees might be able toaccomplish such a strategy, hebelieved smaller to mid-size enti-ties might find it more of a chal-lenge.

“So I think a likely conse-quence if you went down the

purist model route is some indus-try consolidation and arguablythe diminution of independenceof advice in the marketplace,which I don’t think would be agreat outcome,” Gale said.

“That’s not to say that’s not thepath that the Government will orwon’t go down ultimately but Ithink they really need to go ineyes wide open regarding whatsome of the flow on conse-quences are.”

Perkovic also urged theGovernment to move on anylegislative changes with its eyeswide open.

“Without rebates and clarityaround whether white labelpayments are included, the advicebusinesses will become productmanufacturers. You will then havepeople whose core competency isto give advice and run the licencenow having to be a product

manufacturer,” she said. “There are some businesses

like Indy’s that have done thatand can do that, but there’s a lotof other businesses that don’thave that capability. So it willeither lead to consolidation or awhole group of businessesrunning these products.

“If you have a think aboutwhat’s in the best interests of theclients, are they better off tohave been an advice giver whogot a rebate or an adviser that’snow become a product manu-facturer? I think that would be agreater risk. So post FOFA and ifrebates go, that will be thediscussion we’ll have: is theindustry reinventing itself, andare more product manufacturerscoming?” Perkovic asked.

To read the complete FOFAroundtable , turn to page 14.

By Chris Kennedy

GLOBAL institutional investment consult-ant Mercer is looking to increase its com-petitive presence in the Australian retailresearch market by leveraging its institu-tional resources.

Gone are the days when researchhouses could just hand out passwords –they now need to be proactive when itcomes to communicating new opportuni-ties and avoiding the blow-ups, accord-ing to Mercer head of wealth manage-ment for Australia and New Zealand BrianLong.

The problem with local research houses isthey can’t make money unless they chargefor ratings or push product, Long said.

Mercer already rates 22,000 fundsthrough its work in the institutional space,and just needed to map that for dealergroups, he said. “Things happen in instofirst, and then they come to retail,” headded.

Specifically, Mercer would be targetinglarger dealer groups and private banks.Mercer already provides research for Mac-quarie’s global business, Credit Suisse,Deutsche and AXA, among others, he said.

Mercer believes its offering is alignedwith other large retail wealth managerssuch as AMP and ANZ, and is in closenegotiations with further groups, Long said.

Dealer groups are facing huge issuesaround consolidation, and if they’re look-ing to merge, Mercer has experts on prod-uct and platform rationalisation who couldassist in that overall process, he said.

These kinds of groups also want assis-tance with platform and product design tohelp move up to the high-net-worth space,and support for adviser education sys-tems and academies including tools,research portals and webcasts, Longsaid.

Potential changes to the income taxregime could make it more attractive toinvest in overseas domiciled funds if therequirement to pay tax on unrealised capi-tal gains is reduced. This means Mercerwould be well positioned to advise on over-seas funds that local researchers wouldnot have looked at previously, Long said.

FOFA reforms threaten smaller players

Continued on page 3

Mercer targets retail research

TRIO COMPENSATION EXCLUDES SMSFS: Page 5 | TARGETING THE RIGHT AGE GROUP: Page 24

Vol.25 No.14 | April 21, 2011 | $6.95 INC GST

AndrewGale

Differing views about ‘best interest’ options

By Caroline Munro

THE Treasury’s two ‘best interest’ dutyoptions, offered up to the Future ofFinancial Advice Peak ConsultationGroup for discussion, have been met witha mixed response.

Treasury proposed two ‘best interestsof the client’ options last month. The firstoption was: “To act in the best interestsof the client and, if there is a conflictbetween the client’s interest and theinterest of the person providing person-al advice or the providing entity, to givepriority to the client’s interest”; while thesecond option was: “To have properregard to, and act in accordance with,the interest of the client and place theinterests of the client above their owninterests and the interest of the provid-ing entity.”

Chief executive of the FinancialServices Council (FSC), John Brogden,explained that the first option wasoutcomes-based, while the secondoption was process-based. He said theFSC preferred the second option becauseit meant that advisers as well as clientswere protected by standard steps of prac-tice, whereas the first option meant thatwhat was in the best interests of the clientwas subjective and harder to assess.

Chief executive of The Trust CompanyJohn Atkin said the industry needed to

adopt a fiduciary duty obligation if itwanted to be seen as a profession. Hesaid the first option, however, was theless compromised of the two, while thesecond option confused the issuebecause ‘best interests’ was not about thequality of advice.

“Fiduciary obligation is focused onavoiding conflicts of interest,” heexplained. “The second option focusesmore on the premise that if you’ve giventhem the correct advice, then it doesn’tmatter – the adviser will always be at riskof being compromised because of theirpersonal interest.”

Financial Planning Association (FPA)general manager of policy and govern-ment relations Dante de Gori said theFPA was reserving its judgement, becauseno detail had been given whether a bestinterest requirement would be imposedon licensees. However, he said the FPAwas conscious of the direction goingtowards a duty of ‘best advice’ as opposedto a duty of ‘conduct’.

De Gori said the original intention wasthat advisers should always be placingthe interest of the client ahead of theirown. Whether the adviser adhered to areasonable basis for advice was alreadycovered by other legislation and shouldnot be the focus, he said.

Brian Long

Continued on page 3

A hands-off Budget?I

t is now less than a month before theTreasurer, Wayne Swan, hands downhis first Budget as part of a minorityGillard Labor Government.

And if the Treasurer is wise, then he willclosely examine his first Budget as a partof a Rudd Labor Government and theproblems that administration created byneedlessly tinkering with superannuation– specifically, the concessional contribu-tions caps.

Indeed, it would be worthwhile forSwan and Prime Minister Julia Gillard toreflect upon the long-running unintend-ed consequences which can flow from ill-conceived policy and Budget decisions –with the changes to the concessionalcontribution caps being an outstandingcase in point. The changes added only anegligible amount to the Budget bottomline, but the political fallout has beensignificant.

Now, of course, the Government hasindicated it is prepared to review theexcess contributions tax being imposedon taxpayers who, often unwittingly, havebeen found to be in breach of the conces-sional caps.

It follows that any changes to the excesscontributions tax would be announced in

the context of the Federal Budget – some-thing that would be nothing more nor lessthan a tidying up of the badly thoughtthrough changes contained in a previousBudget.

For a party which, with some justifica-tion, claims considerable ownership ofAustralia’s superannuation system, theAustralian Labor Party has arguably failedto deliver any significant policy improve-ments since it was returned to office in2007. Rather, many of its efforts haveserved to reinforce concerns about theuncertain and tenuous nature of theunderlying policy settings.

It is against this background of

perceived policy untidiness that the Assis-tant Treasurer and Minister for FinancialServices, Bill Shorten, should move care-fully with his decisions regarding theFuture of Financial Advice (FOFA)changes.

As this week’s Money Managementroundtable has made clear, the potentialfor unintended consequences flowingfrom the proposed FOFA changes consid-erably outweighs the risks that went withthe Government’s earlier Budget tinker-ing with the concessional superannua-tion contribution caps.

While many of the proposed changeshave merit, it is already clear that,improperly implemented, they carry withthem the danger of actually contradict-ing the Government’s original policyintentions by further entrenching thedominance of the major banks, institu-tions and industry funds.

The Government can ill afford anyfurther policy untidiness in the financialservices sector, and the financial planningindustry can ill afford the imposition ofpolicy which runs counter to the provi-sion of strongly independent advice.

– Mike TaylorAverage Net DistributionPeriod ending Sept '1010,183 ABN 80 132 719 861 ACN 000 146 921

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“ The Australian LaborParty has arguably failed to deliver any significantpolicy improvements sinceit was returned to office in2007. ”

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In terms of global resources, Mercer has 19,000people in 42 countries, 1000 investment professionalsin the investment consulting division, 80 researchersand 100 staff in Australia alone, Long said.

Morningstar co-head of fund research Tim Murphysaid technology was a key focus in terms of targetingthe dealer group market.

“With advisers usually being quite time poor, whatthey really need are a couple of tools that are simple touse, and give easy-to-understand but powerful output,”he said.

Also important is understanding what advisers needand what is important to them on a day-to-day basis,and being able to tailor your offering to them, he said.

Morningstar also has a large global presence, andMurphy said while a global research partner would helpif overseas domiciled funds became more appealing, heexpected the take up would be limited.

Lonsec, van Eyk and Zenith could not be reached forcomment.

www.moneymanagement.com.au April 21, 2011 Money Management — 3

News

Mercer targetsretail research Continued from page 1

Contributions tax heightens alternative strategiesBy Caroline Munro

THE lowering of the super contributionscaps may mean advisers have to looktowards alternative investment strategies,like insurance bonds and gearing, to helptheir clients address a possible retirementsavings shortfall, according to IOOF tech-nical services manager Damian Hearn.

Hearn said while he believed thereneeded to be some legislative changearound contributions caps and the heftyexcess contributions tax, the industrycould also adopt new strategies to helpclients maximise their savings.

“If clients have had to reduce theircontributions from $50,000 to $25,000,they’re effectively paying tax on an addi-tional $25,000 at the marginal tax rate,”said Hearn.

He said advisers were starting to consid-er putting money into insurance bondsand gearing. While insurance bonds arenot as tax efficient as super, money placedwithin insurance bonds could be used assecurity to enable investors to gear intothe market, Hearn explained.

He agreed that this entailed greaterrisk and acknowledged that there wasc u r re n t l y a re d u c e d a p p e t i t e f o rgearing among investors. However, theretirement shortfall was likely to forcepeople to accept additional risk andengage in different investment strate-g i e s t o m a k e u p f o r a re t i re m e n tsavings shortfall.

Hearn said advisers were extremelyconcerned that clients were exceeding thecontributions caps.

“You can see in a lot of advisers that they

are diligent and they are giving goodadvice, but in some circumstances theyare running into trouble with some of thestrategies that they are running forclients,” said Hearn.

While advisers understood that datacollection was critical, often clients didnot provide important informationbecause they felt it was irrelevant to theadvice, said Hearn. Timing issues withemployer contributions were anotherissue beyond the adviser’s control, whichcould lead to hefty excess contributionstax penalties.

“There’s sufficient complexity out therein doing super contribution planningstrategies and working with clients’accountants around it, that you can findyourself backed into a corner and there isno solution,” said Hearn.

“ The retirementshortfall is likely to forcepeople to acceptadditional risk andengage in differentinvestment strategies. ”

The Association ofFinancial Advisers (AFA)government and policychair, Christina Kalantzis,said the AFA would notcomment on any partic-ulars but it wanted toensure that any bestinterests duty took intoaccount the role of thelicensee, its policies andprocedures, as well as therelationship between theadviser and the client.

The AFA also wanted toensure that the concept of‘best interest’ was princi-

ples-based and reflectedwhat was already embod-ied in the current legaland regulatory frame-work, she said.

Differing views about‘best interest’ optionsContinued from page 1

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News

Intra-fund advice no threat to planners: ShortenBy Milana Pokrajac

THE Assistant Treasurer and Minister for Financial Services andSuperannuation, Bill Shorten, has told financial planners that thereis no need to compete with the intra-fund advice services offeredby industry superannuation funds, as they cannot sabotage plan-ners’ businesses.

“If you decide to continue to worry about the industry fundskilling your business, while you do that I think you’ll miss out on anumber of opportunities,” Shorten said.

Shorten’s comments followed a number of questions raised byplanners about the industry super fund advice cross-subsidisationduring the question and answer session at the Financial PlanningAssociation’s (FPA’s) luncheon with the minister.

“How do we compete with industry funds, who cross-subsidiseadvice to members, when they quote figures of $200 or $300 for atransition-to-retirement strategy, which is then effectively paid forby the entire membership?” an FPA member asked.

Shorten responded by telling planners that intra-fund advicecould not compete with the depth of strategies provided by finan-cial planners.

“We did some research about the level of intra-fund advice thatgets cross-subsidised. I don’t know how many of you have been toa retirement planning seminar by industry funds, but it’s pretty

general advice and I don’t think it’s the advice of such depth that youprovide to individuals,” he said.

“I get the point about advice in general and cross-subsidisation.Our view is that having the MySuper licence will make it a lot harderfor everyone to provide cross-subsidies in the price they present topeople.”

The industry super fund sector will not go without a challenge,either, according to Shorten, who reminded the audience thatMySuper will also be available to the retail sector, which wouldcreate more competition.

During the question and answer session at the luncheon, somefinancial planners also raised concerns about the Government’sconsultation process with planners or lack there of.

Fiducian managing director, Indy Singh, pointed out to the minis-ter that no financial planners were represented on the Treasury’ssuperannuation panel and accused Shorten of not consulting withfinancial planners.

“I’m sorry I haven’t consulted you directly, but I’ve spent a lot oftime talking to a lot of planners, and if the FPA is prepared to takeyou to a meeting, you are welcome to come,” he said.

“I do talk to planners and I am standing in your corner for thepromotion of your profession. But if that means that the only way Ican create the profession is by simply agreeing with everything thateveryone tells me, then I’m going to disappoint you.”

No quick-fix solution to flood cover, says IAABy Caroline Munro

MAKING flood insurance compulsory orcoming up with a common definition offlood will not necessarily mean that insur-ers will offer it – nor will it make insurancemore affordable, according to chair of theInstitute of Actuaries of Australia’s (IAA’s)general insurance practice committee,Peter McCarthy.

McCarthy said the issues around floodcover were very complex, and no silverbullet was going to address them. He saidfrom an insurer’s perspective, even if stepswere made by Government to make floodcover compulsory, it came down to a com-mercial decision. McCarthy noted that notall insurers offered flood cover, and if theydid so it would obviously affect the cost ofpremiums.

“If insurers are going to offer flood cover,they would have to charge an additionalpremium for it,” he said, adding that thelevel of the premium would depend on howvulnerable the property in question was toflooding.

“A common definition of flood is justone step in a process that needs to beundertaken to be able to offer flood cover.”

Even if more insurers entered themarket, people whose properties wereprone to floods may find the premiumsunaffordable, said McCarthy.

“That’s a big issue in trying to get peoplecovered for flood,” he said. “Having a defi-nition of flood is fine, and it’s an impor-tant step, but that doesn’t actually meanthat insurers can or want to offer floodcover.”

McCarthy said compulsory flood coverwas a highly emotional subject andentailed tricky social policy issues. The IAArecently conducted a Natural DisasterInsurance Survey of 420 actuaries, whichfound that 55 per cent were againstmaking flood insurance compulsory.

Many respondents felt that those at lowrisk would effectively be subsidising thehigh-risk households, discouraging individ-ual responsibility.

The majority of respondents supportedthe existing risk-rated model for propertyinsurance, while 73 per cent rejected com-munity ratings for flood insurance and 53

per cent rejected premiums being sub-sidised for high-risk policy holders.McCarthy said the survey revealed verydisparate views on the issue among aninformed subset of the community, whichwas evidence of its complexity.

The Australian Direct Property Invest-ment Association (ADPIA) and GSA Insur-ance Brokers noted that the underinsur-ance issue did not only affect homeownersbut also commercial property managers.

“Although the Government is nowmoving to standardise policy definitions,it is doubtful that any such standardisa-tion could be introduced to ensure all com-mercial property managers are adequatelycovered,” said GSA chief executive, PaulHines. He said despite changing businessmodels the funds management industryhad noted a reluctance among insurers toamend or broaden their product.

Platforms engaged in advertising warTHE major investment platform providers have embarked onaggressive advertising campaigns this year in a bid to differentiatethemselves from one another, but whether they are of actual valueis questionable, according to Wealth Within marketing director andindustry stalwart, Colin Owens.

Owens said this year’s advertising campaigns were the biggest ina number of years as the battle for market share between bank-owned platforms rages on.

“I don’t think they can afford to marginalise their fees much morethan what they already have, because they need every cent they getnow through the door to make themselves profitable,” Owens said.

“[Bank-owned platforms] want market share and they wantfunds under management. At the moment, given the way the feesare, they’re not really making bucket loads of cash and they don’twant to lose the independent sector to boutique operators,” hesaid.

According to Owens, non-aligned dealer groups seem to beleaning towards the smaller platforms, which might be the reasonfor the big four’s advertising battle.

“They’re trying to differentiate themselves to attract externalpeople, IFAs [independent financial advisers] and dealer groups,into their platforms and make it attractive for them to join forces.”

Divesificationessential forfixed interestBy Benjamin Levy

INVESTORS in the fixed income marketneed to make sure they diversify withinthe sector to avoid running into troublefrom asymmetric risk/return character-istics, according to the head of fixedincome and credit at Perpetual, MichaelKorber.

Speaking at an Australian Institute ofSuperannuation Trustees seminar inMelbourne, Korber said the key toinvesting in fixed income was to lookafter its asymmetric downside risk.

“ We always emphasise in f ixedincome that it has a risk/return charac-teristic which is very asymmetric. Theupside is a pre-defined coupon, whichis a few per cent a year, but your down-side is your entire capital,” he said.

Diversification was the key to manag-ing that downside risk, Korber said.

“Occasionally you make a wrong deci-sion, so diversification is critical. A lotof the problem with people is that theyput a lot of their money into similarsecurities,” he said.

Diversification in fixed income ismore important than in equities, Korbersaid.

“The measure of getting the benefit offixed income is to understand risk and tomanage risk well in these portfolios,” hesaid.

Investors should hold at least 100-200fixed income securities to protect them-selves against downside risk, Korbersaid.

Korber also warned that investorsshould only invest in the most transpar-ent fixed income funds.

“The moment they start getting toocomplicated, don’t buy them. Fixedincome is about predictability,” he said.

Bill Shorten


News

By Ashleigh McIntyre

THE collapse of Trio Capital andthe subsequent lack of financialassistance for self-managedsuperannuation funds (SMSFs)has revealed a gaping hole in thecompensation safety net forSMSF investors.

This has led to calls by the Self-Managed Super Fund Profession-als’ Association of Australia (SPAA)

to set up a compensation scheme,similar to that of large super funds,to cover instances of fraud.

In last week’s announcement,the Minister for Financial Ser-vices, Bill Shorten, announcedthat only funds regulated by theAustralian Prudential RegulationAuthority (APRA) would be eligi-ble for compensation.

The $55 million of financialassistance will be funded by way

of a levy on all APRA-regulatedfunds, which will then be distrib-uted to the funds whose mem-bers require compensation.

But the 690 direct investors, ofwhich 285 are SMSFs, were toldthey would not be eligible for com-pensation as there was no com-pensation scheme set up forthese investors.

Instead, they were told to con-sider contacting the Financial

Ombudsman Service.Shorten was quoted as saying:

“If people wish not to operateunder those SMSF regulations,they’re free to become membersof the APRA funds.”

SPAA chair Shar yn Longsaid that SMSF membersshould not be forced to turn to apotentially long and expensivecourt process to seek redress incases of fraud.

Keays losesdismissalcourt caseBy Jayson Forrest

A CASE of unlawful dis-missal brought againstJPMorgan Chase by theformer Australian head ofits corporate derivativesmarketing, Colin Keays, hasbeen rejected in the Aus-tralian Federal Court.

In handing down hisruling last week in the caseof Colin Keays v J.P. MorganAdministrative Services Aus-tralia Ltd, Justice RobertBuchanan found there wasno evidence to support abreach of contract or unlaw-ful dismissal of Keays byJPMorgan in 2008.

Keays, who was suingJPMorgan for over $6 mil-lion, argued that JPMorganhad poached him fromDeutsche Bank in 2005with a $500,000 signingbonus and an additional$450,000 performancebonus in the first year ofhis contract heading theforeign exchange desk.

However, Keays testifiedduring the trial that in 2008his position within the com-pany was changed, wherehe was moved from thepublic side of the businessto the private side, servingonly JPMorgan clients.Keays argued that thischange drastically limitedthe customers he woulddeal with, thereby losingpotential bonuses thatwere tied to revenue thathe could bring in for thecompany.

Justice Buchanan, how-ever, found that JPMorganwas well within its rightsunder its contract withKeays to dismiss him bygiving him three months ter-mination notice or pay inlieu of the notice. JusticeBuchanan said the bankhad stood by the terms ofthe employment contract.

Trio compensation leaves SMSF investors in the cold

For more information contact Heather Lawson on (02) 9422 2791 or email [email protected]

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The annual Money Management Fund Manager of the Year Awards recognises excellence in the funds

management industry. This year’s awards will also incorporate the Business Development Manager

of the Year Awards as well as three new categories - Best Advertisement; Marketing Team and Young

Achiever. Go to www.moneymanagement.com.au/FMOTY to view the full entry criteria.

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SharynLong

News

By Ashleigh McIntyre

FUND managers have warned that blindlyrelying on growth stocks to provide outper-formance will not work in the changingeconomic environment.

Investors Mutual Limited (IML) head ofresearch Hugh Giddy said that while a ‘scat-tergun’ approach used to work, investorswould need to be more discerning in amarket that is being driven by leverage.

“The fundamental thing is that house-holds and governments have too muchdebt and that debt environment meansthere is a real constraint on spending,”Giddy said.

“That’s an environment we see as beinga pretty tepid environment for growth.”

He said that over the next five to 10years, investors would need to be veryselective about the types of stocks theyowned.

“That’s not to say you have to have valuestocks or growth stocks, but you have toown stocks that are really able to grow ordeliver for you through income despite thelack of growth,” he said.

Giddy expected to see dividends makingup a bigger percentage of overall marketreturn than what investors are used to –which is currently around half of totalreturn.

On the other side, Aubrey Capital

Management investment manager LynneThornton said growth equities were wellpositioned to outperform in 2011.

“We believe it is a year for growth equi-ties as we see it as a year of inflation ratherthan recession, and equities rather thanbonds.”

Thornton added that growth had outper-formed income over the last 20 years, savefor 2008 when the global financial crisis wasa factor.

Direct propertymanageslongevity risk

By Chris Kennedy

THE use of direct propertywithin self-managed superan-nuation funds (SMSFs) couldhelp to balance longevity riskand investment risk, accord-ing to a report from CharterHall Direct Property and Strat-egy Steps.

For trustees moving fromthe accumulation phase tothe pension phase it isimportant to limit investmentrisk,because if the value of aportfolio drops in a downturnany funds withdrawn serveto lock in those losses,according to Charter HallDirect Property chief execu-tive Richard Stacker.

As a result,many trusteesmove to a much more defen-sive allocation in retirement,but with life expectanciesgrowing and many peopleexpected to live 30 or moreyears beyond retirement agesome allocation towardsgrowth is necessary to main-tain funds while allowing forsome withdrawals, he said.

Direct property helpsmanage longevity riskbecause it provides attrac-tive long-term returns com-pared to defensive assetssuch as cash and fixed inter-est, but has a much lowercorrelation to equities thanlisted property and is lessvolatile than growth assetssuch as equities, he said.

Commercial and industrialdirect property is also far lesssusceptible to interest raterises in the way residentialproperty would be becauseit has a lower gearing ratioand the rent compared toturnover it low, he said.

Fund managers see value in income equities


RichardStacker

$20,000

0.000%

1.000%

2.000%

3.000%

$25,000 $50,000 $100,000 $250,000 $500,000 $750,000 $950,000

FirstChoice WholesalePersonal Super

Average Retail Fund

The above chart shows fees for retail personal super funds at various account balances and compares fees for the FirstChoice Wholesale Balanced option, that has 70% growth assets, to fees for an average retail fund calculated using the included funds’ multi manager option with a 61-80% allocation to growth assets.

Source: Chant West Pty Ltd. The funds included in the calculation of fees for the average retail personal superannuation fund are the funds in the top 10 retail superannuation products either by assets under management or fl ows. Total fees include administration and investment fees but exclude standard commissions paid to fi nancial advisers. The fees for retail funds do not include contribution fees which may be payable in addition to the fees shown above. Fees are at December 2010 and are gross of income tax of 15%. FirstChoice Wholesale Personal Super investment minimums are as at March 2011. The investment fees include the performance fees for the most recent period over which they were disclosed. Transaction fees have not been included in the comparison. For further information on this comparison visit colonialfi rststate.com.au/lowerfees.

Great value for More of your clients.

We’ve lowered the minimum investment on two of our leading platforms,

giving more of your clients the ability to benefit from lower fees and great features

which may have previously been out of reach. The minimum investment for

FirstChoice Wholesale Personal Super is now only $1,500, reduced from $100,000

– and FirstWrap Plus is now only $20,000, reduced from $250,000.

With these lower fees you and your clients still get all the features you’d expect

plus a whole lot more on FirstChoice, including the fastest transactions in the platform

market, great reporting, more flexible insurance and broad investment choice.

To find out more, contact your Business Development Manager, call

13 18 36 or visit colonialfirststate.com.au/lowerfees

The Chant West data is based on information provided by third parties that is believed accurate at December 2010. Your objectives, financial situation and needs have not been taken into account by Chant West and you should consider the appropriateness of this information having regard to your objectives, financial situation and needs, and read the relevant Product Disclosure Statement, before making any decisions. Chant West’s Financial Services Guide is available at www.chantwest.com.au. Different fees and costs apply to other investment options. Fees and costs may change. Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (Colonial First State) is the issuer of interests in FirstChoice Wholesale Personal Super offered through the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557. Avanteos Investments Limited ABN 20 096 259 979, AFSL 245531 (Avanteos) is the issuer of interests in FirstWrap Plus and FirstWrap offered through the Avanteos Superannuation Trust ABN 38 876 896 681. This is general information only and does not take into account any individual objectives, financial situation or needs. Investors should consider the PDS available from Colonial First State before making an investment decision. Colonial First State and Avanteos are owned ultimately by Commonwealth Bank of Australia ABN 48 123 123 124 through the Colonial First State group of companies. Commonwealth Bank of Australia and its subsidiaries do not guarantee performance or the repayment of capital of Colonial First State or Avanteos. CFS1997/FPC/MM

News

By Chris Kennedy

THE National Institute of Accountants(NIA) and the Tax Institute have appealedto the Government to relax the strictconditions around contributions caps inthe upcoming Federal Budget.

The NIA called on the Government toraise the current cap limits, which it saidwere too low for older Australians lookingto retire in the next few years, while theTax Institute said the penalties for thosewho unintentionally breached the capswere too severe.

The NIA said that pre-2008 amountsshould be reintroduced and that all older

Australians should be able to access ahigher contribution cap.

NIA chief executive Andrew Conwaysaid Australians trying to maximise theirretirement nest egg were most in need ofGovernment support as they looked tomake contributions above the superan-nuation guarantee level in the later stagesof their working life.

If it was not possible to reintroduce theprevious cap levels due to fiscal tighten-ing, then Australians over 50 with lowsuper balances should have other meansof increasing their super, according to theNIA.

The Tax Institute stated that while the

policy intent of contributions caps wascorrect, excess contributions made acci-dentally – sometimes by an employerrather than the taxpayer – could be taxedat up to 93 per cent.

Harsh penalties should apply to anyonetrying to rort the system but the Govern-ment should change the legislation toensure superannuation funds rejectexcess contributions without honesttaxpayers being penalised, said Tax Insti-tute senior tax counsel Robert Jeremenko.

Rules to reject excessive contributionscan be combined with other integritymeasures to ensure that caps are effec-tively policed, he said.

Robert Jeremenko

Pre-budget calls for contribution cap relief


*as at 31 December 2010. AMP Capital Investors Limited ABN 59 001 777 591 AFSL 232 497. An investor should, before making any investment decisions, consider the appropriateness of the information in this document and seekprofessional advice, having regard to the investor’s objectives, financial situation and needs.

Think

Some fund managers think in boxes. Whatever asset class they work in, that’s their box. But the world doesn’t work like that. That’s why at AMP Capital we believe in thinking wide. We have over 250* investment brains covering every asset class that matters. Each one is a specialist but together we are something far greater. There’s no crystal ball that can see into the future so we offer the next best thing – being able to see right to the edges. Thinking wide is more than a philosophy, it’s what we’ve been doing for over 40 years. Think wide – it can help you and your clients own tomorrow. To find out more speak to your Key Account Manager, call us on 1300 139 267 or visit ampcapital.com.au

ACI004/TEA

/MM/DPS/2

By Caroline Munro

INCREASED disclosure aroundthe history of company directorsand key managers, including pre-vious convictions or personalbankruptcies, is one of the pro-posals outlined by the AustralianSecurities and Investments Com-mission (ASIC) in its prospectusdisclosure consultation paper.

ASIC stated that it sought toimprove disclosure within com-

pany prospectuses used for ini-tial public offerings or by thosewith listing intentions through var-ious proposals set out in itsrecently released Prospectus dis-closure: Improving disclosure forretail investors consultationpaper. The improved disclosurerequirements aim to improve thequality of information releasedon the proposed business modelas well as the associated risks,making it easier for retail

investors to use prospectuses tomake an informed decision, ASICstated.

In its consultation paper, ASIChighlighted a number of short-comings in the current disclo-sure requirements, one of whichwas the absence of completedisclosure on directors and keymanagers that lead or managecompanies. ASIC proposed thatprospectuses should explain therelevant expertise and skill of

directors and key managers, aswell as any criminal convictions,personal bankruptcies, disquali-fications or disciplinary actionwithin Australia or other jurisdic-tions in the last 10 years. ASICalso proposed that an explana-tion be required if a manageror director was an officer of acompany that went insolventduring or within 12 monthsafter their term.

Another shortcoming identified

in current prospectus require-ments was that risk disclosurewas too general, ASIC stated. Itproposed that all principal risksbe highlighted, as a list of everyconceivable risk may not neces-sarily help investors make aninformed decision. ASIC notedthat risk disclosure should bespecific to that company, withan explanation of what is likelyto happen if the risk actuallyoccurs.

ASIC looks to increase disclosure on directors and key managers


News

wide.

By Mike Taylor

THE best efforts of consecu-tive Federal Governments toaddress Australia’s lost superproblem appear to have fallenshort, with new data reveal-ing lost account balances arecontinuing to rise.

The new data, released bySydney-based ratings house,SuperRatings, has revealedthe number of small and lostaccounts flowing to EligibleRollover Funds (ERFs) grew

by an additional 106,000 lastfinancial year.

According to SuperRatings,this brought the total numberof accounts, as at 30 June2010, to 6.1 million – repre-senting around $5.4 billion inunclaimed superannuation.

What is more, SuperRatingsclaims that the fees beingdeducted by ERFs from theinactive accounts remain closeto double those deducted bymainstream superannuationfunds.

“This has allowed suppli-ers to strip an estimated $130million from these accountsin the past financial yearalone, due in part toAustralians’ apathy and inpart to a system that makesconsolidating superannua-tion far too complicated,despite the best efforts ofsome of the better ERFs inthe industry,” the SuperRat-ings analysis said.

The analysis also pointedout that under new regula-

tions that came into effect inOctober, 2010, the FederalGovernment would reapsome benefits from lost andunclaimed super accountswith those with $200 or lessbeing passed on to theAustralian Taxation Office toeventually find their way toconsolidated revenue.

It said it expected theproposed SuperStreamarrangements and tax filenumber matching to improvethe situation.

Lost superannuation accounts still growing

By Milana Pokrajac

FINANCIAL planning software providerMidwinter has released a new version ofits Reasonable Basis software, which isaligned with recent changes to AXA’sNorth platform.

The new AXA North product now haseight administration fee tiering levels withdiscounts to the administration feebased on certain investment optionsselected.

According to Midwinter director for strat-

egy and technical services, Matthew Esler,the new fee structure made the North plat-form a much more complex product foradvisers to model.

Esler said AXA North product fees andfeatures were already loaded into Reason-able Basis 3.12, allowing for an automaticcalculation of administration fee discounts– a process that he said would take a lotlonger if done manually.

Reasonable Basis 3.12 will be avail-able to existing customers by the end ofApril.

Midwinter planning software aligns with North Divorce thereason forvaluationsBy Caroline Munro

RADAR Results has noted a decrease inrequests for financial planning practicevaluations, although the reasons behindgetting a valuation have changed signif-icantly since the global financial crisis(GFC).

The number of valuations conductedby Radar Results has fallen 31 per centon 2010. However, the consultancynoted that the reasons for getting a valu-ation have changed, with the proportionof requests as a result of divorce andproperty settlements increasing dramat-ically. Radar Results noted that beforethe GFC, most valuations were forfinance applications or for the lender tocheck on the equity-to-loan ratio –although few were for those reasonsnow, it added.

Changes to the shareholding betweenpartners in a financial planning busi-ness were also now more prevalentreasons behind a valuation as youngerpartners sought to buy a larger stake intheir planning business, Radar Resultsstated.

Matthew Esler

By Chris Kennedy

THE fees versus commissionsdebate doesn’t have to be aneither/or scenario, and theactuarial profession is in aposition to contribute to thesolution, according to RGAmanaging director PaulineBlight-Johnston.

The debate is taking up a

large part of everyone’s timepurely because commissionshave the potential, in limitedcircumstances, to cause a con-flict of interest, Blight-Johnstontold the Institute of Actuariesof Australia conference inSydney last week.

While a commission ban oninvestments would not be goodfor sales, there would still be a

‘pot of money’ advisers couldtake a fee from, meaning thatit wouldn’t be the end of theworld, she said.

But in a life insurance con-text there was no pot of moneyto take a fee from, and asystem that required anupfront payment would takeaway from the industry’s abilityto meet the needs of Aus-

tralians, Blight-Johnston said.At a time when there was achronic underinsurance prob-lem there should be an effortto make that situation better,not worse, she added.

The mistake the industry wasmaking was thinking the solu-tion was either fees or commis-sions, but it didn’t have to beeither/or, Blight-Johnston said.

There were myriad solutions,and the actuarial professioncould contribute to finding thebest solution, she added.

Those who sell advice needto be fairly rewarded, she said.Blight-Johnston said that thequestion was: how do wereward people who sell advice,and what are the appropriateremuneration structures?

By Caroline Munro

SEVERAL risks, includingAustralia’s high employmentrate, rising oil prices and politi-cal unrest, have resulted inTyndall Investments adopting ashort-term position in its fixedinterest portfolio.

Head of fixed income, RogerBridges, stated that the currentinvestment boom and lowunemployment in Australiaprovided for a strong outlookfor the local bond market.

However, he warned of severalrisks, including high growthacross many sectors aside fromresources and Australia’s highemployment rate that maybecome a headache if notmanaged properly.

“The high employment levelmeans there is a lack of sparecapacity in the job market and,in particular, there is little skilledlabour available, which willimpact on growth,” said Bridges.

“The Reserve Bank ofAustralia needs to slow some

sectors down if it is to manageinflation risk, so interest rateswill inevitably rise, but thetiming is still an unknown –which means that some uncer-tainty is affecting companies.”

He said other risks includedthe price of oil, which, in light ofunrest in the Middle East andNorth Africa, could derail growthacross the world. Policy deci-sions in the US also posed aconcern as its Government grap-pled with unwinding the quan-titative easing package without

reigniting inflation.“In light of these considera-

tions, at Tyndall we are position-ing our portfolio with a slightlyshort term duration, and we arecurrently overweight inCommonwealth Governmentsecurities, which we usuallyavoid because of the liquiditypremium,” said Bridges.

“We are also selling downsemi-government securitieswhich we see as having higherrisk, and monitoring creditwhich is providing good value.”


News

Family violence shouldn’t alter super rulesBy Mike Taylor

THE rules around the earlyrelease of superannuationshould not be altered to takeaccount of family violenceissues, according to theAssociation of SuperannuationFunds of Australia (ASFA).

However, in a submission tothe Australian Law ReformCommission, ASFA indicated itwould not be opposed to theimplementation of measures toprotect members who had been

coerced into transferring contri-butions to their spouse.

The ASFA submission,discussing an issues paperabout dealing with employmentand superannuation withinFamily Law and Common-wealth Law, made clear thatwhile the organisation wouldconsider the matters raised inthe issues paper, its initial reac-tion was the early release ofsuper “should not be broadenedto include family violenceissues”.

The submission also vetoed thesuggestion that fund trusteesshould be obliged to considerwhether a transfer request to aspouse under the super splittingregime was made under coercion.

ASFA said that it did notconsider it practical to expectthe trustee to make enquiriesabout family violence beforeactioning a split, but concededthat the issue should be takeninto account if a member thenseparately made contact withthe trustee advising they had

been under duress.The submission said ASFA

had no objection to a claw-backprovision being introduced toprotect the interests of memberswho had been coerced intotransferring contributions totheir spouse.

But it said ASFA would beconcerned to ensure that sucha provision operated by way of adecision made by the FamilyCourt or other Court and whichdirected the trustee to return theclaw-back amount.

AMP Horizons welcomes education frameworkBy Milana Pokrajac

WITH the Government promising toincrease education requirements for finan-cial planners through its Future of FinancialAdvice (FOFA) reforms package, the AMPHorizons Academy is bracing for the likelychange, according to director Tim Steele.

Steele said while AMP Horizons hadembraced some of the considerations thatwere being made by the regulators to raisethe education standards for financial plan-ners, the company still needed to positionitself so it could operate in an environmentof increased professional standards.

“Through the academy we already offer aprofessional year and we know that that’s oneof the proposals that regulators and profes-sional bodies like the Financial PlanningAssociation are considering,” Steele said.

“And one of the enhancements we’reconsidering is actually mapping that expe-rience to a formal qualification that will put

the planner on track for [the CertifiedFinancial Planner designation],” he said.

The Australian Securities and Invest-ments Commission (ASIC) recentlyreleased a consultation paper, CP153,which contains recommendations that allexisting and new advisers complete anational competency exam followed byknowledge updates every three years, andbe subject to ongoing continuing profes-sional development requirements.

ASIC’s paper also proposed all new plan-ners complete a mandatory professionalyear before being allowed to deal withclients unsupervised.

AMP Horizons Academy, which alsoserved as one of AMP’s main recruitmenttools, had 95 graduates in 2010 – 89 ofwhom currently work as financial plannersat AMP.

This year, 140 new planners will gradu-ate from the academy, with Steeleannouncing plans to double this number in

the next few years.The introduction of the professional year

was a way of staying relevant and retainingthe ability to provide an entry door to theindustry for both new planners and careerchanges even after the changes were intro-duced, Steele added.

ATO warns taxschemes moretargeted, tailoredTHE Australian Taxation Office (ATO) hasindicated it is close to initiating newlegal action related to the promotion ofillegal tax schemes.

The legal action has been signalledby the Tax Commissioner, Michael D’As-cenzo, who told a recent conference theATO was getting close to commencingcourt proceedings during this financialyear in relation to promoter penalty laws.

At the same time, the Tax Commis-sioner pointed to the evolution of taxschemes and the fact that the mass-marketed schemes of the past hadgiven way to the development of moretailored and complex arrangements.

He said that since the introduction ofpromoter penalty laws in 2006, the ATOdetected a more conservative risk appetitewithin the bulk of the tax practitioner, finan-cial adviser and finance sectors.

“The consequence of the changedenvironment has been that some enti-ties have moved out of the marketentirely, others changed their productsand some have sought to go to ground,”D’Ascenzo said.

“The strong likelihood of beingpenalised for promoting tax exploitationschemes is deterring would-be promot-ers from engaging in dodgy behaviour,and encouraging others to curtail theiractivities.”

“However we are now seeing moretailored and complex arrangements onthe landscape as opposed to the mass-marketed ones of yesteryear,” the TaxCommissioner said.

Tim Steele

Tyndall cautious about fixed interest

Actuaries capable of meeting the needs of commissions debateRoger Bridges


News

Bendigo rebrands wealth management servicesBy Chris Kennedy

BENDIGO and Adelaide Bank has broughtits various wealth management servicestogether under the single brand ofBendigo Wealth Management.

The new division brings together thegroup’s cash, margin lending, managedfunds and superannuation businesses.These include Adelaide Bank, LeveragedEquities, Sandhurst Trustees and its newlow-cost investment platform Trinity3.

The division will be overseen by currentexecutive of Bendigo wealth John Billing-ton, who joined the bank six months agofrom his role as IOOF general manager,portfolio solutions.

The changes were initiated based onfeedback that suggested customers wouldlike to be able to access a full suite ofbanking and investment products andservices under the one umbrella, Bendigostated.

“Bendigo Wealth as a brand will make iteasier for our highly valued distributionpartners to explain the product range toclients – and for clients to more easily makethe connection to a financial services brandthat they both recognise and trust,” Billing-ton said.

The rebranding now connects thevarious products and services followingseveral mergers, acquisitions and partner-ing arrangements in recent years, he said.

“We also want to make it easier forfinancial advisers to not only be able tosee the full range of investment solutionswe offer, but to make it easier for themwhen they are having conversations withtheir clients about our products,” he said.

The bank is currently looking to growfrom its current level of around 70 advis-ers and 50 tier-one staff who are qualifiedto provide limited, over-the-counter advice,Bendigo stated.

Bendigo managing director Mike Hirstsaid: “The realignment and expansion ofour wealth management operations willsee us pursue opportunities that will posi-tion the group to manage a greater shareof the growing Australian managed invest-ment pool.”

By Mike Taylor

ONE of the men at the centre ofone of Australia’s most signifi-cant recent financial servicescollapses, the former chairmanand chief executive of FincorpInvestment Limited, Eric Kreci-chwost, has been sentenced tothree and a half years’ jail with a

non-parole period of eightmonths.

Krecichwost was sentencedin the Parramatta District Courton three offences relating tobreaches of the CorporationsAct involving dishonest use ofhis position as a company direc-tor with the intention of gainingan advantage for himself and

others.Krecichwost has also been

disqualified from managing acorporation in Australia, includ-ing as a director of a company,for five years from the date ofhis release from prison.

Krecichwost was convicted ofthe offences in February after ajury found that in September

and October, 2003, he dishon-estly signed three companycheques for $900,000,$825,000 and $1,980,000 topay for services that were neverprovided.

It was alleged that Krecich-wost personally received themajority of the proceeds of thecheques.

A RANGEof changes to the tax system govern-ing managed investment trusts (MITs) hasbeen pushed back a year to 1 July, 2012, theGovernment has announced.

The extra 12 months will allow MITs andother sectors of the financial services indus-try to make any necessary trust deed amend-ments and systems changes, FinancialServices Minister Bill Shorten announced.

This came just a day after Shortenannounced the current exemption of financial

planners from the tax agent services regimehad been extended to 30 June, 2012, to allowtime for the regulatory model to be developed.

The tax laws will also be amended toprevent income tax consequences that mayarise from a resettlement where a MITchanges its trust deed to meet requirementsunder the new system, Shorten stated.

“These amendments will ensure MITsneeding to amend their trust deeds, to beeligible for the attribution method of deter-

mining tax liabilities and deemed fixedtrust treatment, are not deterred by incometax consequences from making the neces-sary amendments,” Shorten said in a state-ment.

The de minimis rule that allows MITs tocarry forward ‘under and over’ distributionsinto the next income year without adversetaxation consequences will be changedfrom a dollar value per unit test to a percent-age of net assets test.

Dealer groupstightening APLsBy Milana Pokrajac

DEALER groups are increasingly scalingdown their Approved Product Lists(APLs) and creating their so-called ‘bestpicks’, according to AMP CapitalInvestors head of retail distribution BenHarrop.

Harrop said term deposits offered bybanks had been very successful sincethe global financial crisis, and thatdealer groups had started to think aboutnew ways to shape their APLs to makethem more attractive to spookedinvestors.

“Dealer groups will still have a rangeof products on their APL, but they’renow saying there will be a core offeringwhich will be around their model port-folios,” Harrop said.

Harrop believes financial plannershave embraced the new trend, which hesaid was due to multiple layers of scruti-ny applied to funds.

Many dealer groups have their in-house research capabilities as well asratings provided by research houses,which created at least two layers of filter-ing, according to Harrop.

“This is a change just from overlyexpansive APLs. People have beenbreaking them down, consolidatingthem down to be much more manage-able,” he said.

However, Harrop said appearing onmore top lists than usual could oftenbackfire on fund managers.

“If there is the same Aussie equitymanager on every list because they’rethe same top pick from every researcher– all of the sudden you go from $2 billionto $10 billion – it’s going to be hard toreturn alpha.

“To date it hasn’t been the casebecause the beauty about this is that inthis industry research houses havedifferent views and factors they take intoconsideration,” Harrop added.

Managed investment trust tax changes deferred

Jail sentence for former Fincorp chief executive

John Billington

THE Federal Parliament sat for 15 daysduring the first three months of 2011. Therehas been a round of Additional Estimatesby the powerful Senate EconomicsCommittee, and an Australian Securitiesand Investments Commission (ASIC) over-sight committee hearing by the Parliamen-tary Joint Committee on Corporations andFinancial Services (PJC).

The financial services industry playerswould no doubt say that there is a high levelof activity in Canberra, but in a parliamen-tary sense the level of engagement was notexactly running at a frantic pace. QuestionTime provides a useful measure of what isimportant when it comes to political andpolicy priorities. During the 15 or so Houseof Representatives Question Times in Febru-ary and March, superannuation was thesubject, albeit incidental, of just one ques-tion – which was on the mining tax. It seemsthat most of the hard yakka in Canberra insuper and financial planning is being doneby the workers in the bowels of Treasury,and in the Senate and its committees.

HIGHLY regarded Treasury official, JimMurphy, who heads up Treasury’s marketsoperations, has no doubt been one suchtoiler. On Australia Day he was awarded aPublic Service Medal for ‘outstandingpublic service in developing public policywhich delivered world’s best practice stan-dards of corporate governance and finan-cial system regulation, and in advising theAustralian Government on its response tothe global financial crisis’. Jim has been thefirst advice port of call for governments ofall persuasions for more than 20 years –only interrupted with a short stint at theInternational Monetary Fund in Washing-ton DC. He has been accessible to the

industry in a way that few other publicservants could rival, and his candour andindustry knowledge have been appreciat-ed immensely. It would be difficult to findin the public service anywhere in the OECDworld, an officer who occupied the ‘hotseat’ during the property trust failures, thebond crash, the tech boom correction, themillennium bug, the Asian financial crisisand more recently the global financial crisis– but Jim has been there.

THE Senate Economics Committee held itsFebruary Additional Estimates Hearings onTreasury, ASIC, the Australian PrudentialRegulation Authority and the AustralianCompetition and Consumer Commission(ACCC). This committee is led by SenatorAnnette Hurley (Labor, SA) who has a repu-tation for being a fair and hard workingcommittee chair. She retires from theSenate in July 2011 and will be a loss to theCommittee. Parliamentary enthusiasts findthe transcripts of these hearings to be alively reading exercise, as are some of theanswers to the 200 or so questions that aretaken on notice.

BERNIE Ripoll, Member for Oxley, Qld,continues to chair the PJC. Bernie isanother chair who is respected for hisbalance and objectivity. In a first, and coin-cidentally in the wake of the James Hardiejudgement in the NSW Court of Appeal, thePJC took evidence from the AttorneyGeneral’s Department on the Model Liti-gant Rules (MLRs) as well as its views onASIC’s adherence to the MLRs. In an inter-esting twist there was not a single mentionof the high profile James Hardie case onwhich ASIC is seeking leave to appeal in theHigh Court, and one of the hotly contested

issues is the MLRs. And there was not asingle engagement during the three-hoursession on ASIC oversight on what FOFAwould mean for ASIC. Perhaps this mightbe an issue at the next round of ASIC oversight.

FOFA is a hot issue for the industry. Thenational dailies report on FOFA, but the realaction is in the trade papers. Clearly, manyin the financial planning industry feelunjustifiably threatened by the changes. TheMoney Management website’s lead article of31 March, 2011 on FOFA attracted severalcomments, all of which contained fairlystrong language on the opt-in and its outworkings. Whoever is advising MinisterShorten on this one should set aside sometime to read these comments, and others inthe trade press, as they contain messagesthat reflect an apparently high level of frus-tration with FOFA. The financial planningindustry is a fundamentally good one byOECD standards. Advice can be accessedvia a number of different channels and thereis intensely strong competition betweeninstitutions and funds. However, rules whichset out in fine detail how a contract for theprovision for a service should proceed runthe risk of being overly onerous, impossibleto police and attractive to somehow avoid.As well, they could be expensive and workagainst financial advice being both afford-able and accessible.

ONE of the interesting battles of the mindsand tactics will occur in the Senate when itresumes for the 2011 Budget. The currentSenate Notice Paper records the extantSenate Orders for the production ofGovernment documents. The list is not along one, since Governments usuallyrespond promptly to such orders – not onlyas a mark of respect to Senate procedures,but also to avoid needless debate whichtakes up valuable time for legislation.However, in relation to two Senate Orderson superannuation default fund arrange-ments and the provision of report to theSenate by the Productivity Commission(PC), the chairman of the PC has advisedthe Senate that it is not in a position tocomply. When the Senate returns for theBudget sittings, there will no doubt be adebate on this matter led by Oppositionshadow minister for superannuation,Senator Cormann.

The second motion agreed by the Senateincludes the following paragraph: ‘Undersection 49 of the Constitution the Senatehas the undisputed power to order theproduction of documents necessary for itsinformation, a power which encompassesdocuments already in existence and docu-ments required to be created for thepurpose of complying with the order’. Onesuch order for the creation of a documentoccurred in relation to a corporate law bill,where the Senate made an order requiringthe Australian Securities Commission toproduce a report on the first two years ofoperation of certain amendments to thebill. The report was duly produced in 1998.

Richard Gilbert is a former CEO of the Investment and Financial ServicesAssociation (now known as the FinancialServices Council).

CapitalComment


High-net-worthinvestor stats

$1.1bn

Source: Investment Trends

spent on primaryinvestment advice

57% wish torecieve moreadvice

$420 million more tobe spent onadvice

What’s on

HNWSNAPSHOT

The Future of Financial Advice changesmay be dominating the attention of thefinancial services industry but RichardGilbert points out that the Governmenthas a great deal more on its plate.

Federal matters

Small Firms Forum 2011 for Accounting Professionals

2-4 May

Bayview Eden, 6 Queens Road,

Melbourne

www.fmrcsmithink.com

AIST’s Fund Governance Conference

4 May

Swissotel, Sydney

www.aist.asn.au/fundgov_

overview.aspx

Successfully Selling Fee for Service

9 May

190-200 George St, Sydney

www.fpa.asn.au

Investor Roadshow – SMSFs

10 May – 8 June

National

http://www.asx.com.au/

resources/calendar.htm

Money Management FundManager of the Year Awards

26 May

Sheraton on the Park, Sydney

www.moneymanagement.com.

au/FMOTY

$819 billion held in investibleassets


FOFA roundtable

FOFA reforms roundtable

MT Thank you everyone forjoining us. We’ve reached a veryinteresting point with respect to

financial planning and financialservices generally.

We’re on the cusp of the ministermaking a statement with regard to theFuture of Financial Advice (FOFA) reforms.But the bottom line seems to be that theindustry probably won’t get an entirelydesirable environment to operate in, andthe first thing on the list for most peoplehere would be volume rebates and theform they’ll take after any legislation theGovernment imposes.

Andrew, what do you think will be the

situation confronting dealer groups andothers in the post-FOFA environment?

AG Obviously the Government is goingthrough its final deliberations on that andin terms of volume related paymentsthere’s two primary models on the table.One is the so-called purist model, whichwould prohibit all volume relatedpayments.

The other one is the pragmatic model,which says if you’ve got volume relatedpayments that conflict advice or have thepotential to conflict advice they’d beprohibited – but if you have payments thatdon’t conflict advice and are in fact an

advantage to clients perhaps they shouldcontinue. So they’re the two primarymodels being looked at.

The Government really needs to workthrough what the implications are going tobe if they pursue any particular path. Ithink one of the issues with the so-calledpurist model is some of the out workingsof that. I think some of the out workingswould be that it would confer additionalpower to the vertically integrated organi-sations in the market. It would have agreater degree of disruption.

Some of the large licensees are wellpositioned to deal with that because theywould basically change their business

models – especially looking at taking onplatform manufacture or responsibleentity type roles. So larger licensees cando that, but it’s more challenging tosmaller to mid size licensees.

A likely consequence if you went downthe purist model route is some industryconsolidation and arguably the diminu-tion of independence of advice in themarketplace, which I don’t think wouldbe a great outcome. That’s not to saythat’s not the path that the Governmentwill or won’t go down ultimately, but Ithink they really need to go in with theireyes wide open regarding what the flowon consequences are.

Mike Taylor – Managing editor, Money Management

Indy Singh – Managing director, Fiducian Portfolio Services

Andrew Gale – Chief executive, Count Financial

Gerard Doherty – Chief executive, Fidelity Investments

Marianne Perkovic – General manager distribution, Colonial First State

Brad Fox – Chairman,Association of Financial Advisers

PresentMoney Management recently hosted a roundtable aboutthe effects of the Government’s proposed Future ofFinancial Advice reforms. The key concern of those presentwas that big banks, institutions and industry funds wouldbenefit at the expense of mid-sized dealer groups and IFAs.

Left to right: Marianne Perkovic, Mike Taylor


FOFA roundtable

MT Indy, do you have a view?

IS Not much of a view because we don’ttake volume rebates, we don’t pay volumerebates because of our model. But whatwe see is that it will always be difficult todistinguish between where the conflictarises, whether it’s a purist model or aconflicted model or a pragmatic model.And the proof will lie eventually in how adealer that is accepting a volume rebatecan justify that payment.

In many instances in the past, from mydiscussions with people, it hasn’t exactlybeen disclosed fully because apparentlyit goes to a dealer.

And it might be much simpler to add tothe total fee and explain to the client thatthe total fee is whatever the percentage ofthe rebate is added to the adviser fee,which then makes it much higher thanwhat is represented. I think if it is notclearly disclosed, I think that’s an error.You must disclose fully and I think that’swhere the difficulty will rise.

AG If I can respond to that a little bit.There are a range of business models outthere and each of them, as you say, areslightly different. But there are certainlywhat are called volume rebate paymentsout there which are basically fee structures

through platforms and Count has got thatin place but it’s basically a margin whichwe’ve effectively determined.

There’s no conflicts involved, it doesn’tinfluence asset allocation, it doesn’t influ-ence fund manager selection, it’s platformneutral, it’s product neutral, it’s transpar-ent, it’s fully disclosed, it doesn’t conflictadvice in any way. It’s simply that themargin that is involved in financing licens-ee activities is reflected through the plat-form mechanism, is fully disclosed, anddoesn’t conflict advice.

Our contention would be that thosesorts of arrangements are sound and are inthe client’s interest because there is noconflicted advice – and you can tap intoscale limits through accessing some of ourlarge platforms.

MT Marianne, you’re coming from adifferent position from 18 months ago,how do you see it?

MP Andrew’s comment about theGovernment needing to go in with its eyeswide open is a very clear one. Withoutrebates and clarity around whether whitelabel payments are included, the advicebusinesses will become product manu-facturers. You will then have people whosecore competency is to give advice and runthe licence now having to be a productmanufacturer.

There are some businesses like Indy’sthat have done that and can do that, butthere’s a lot of other businesses that don’thave that capability. So it will either lead toconsolidation or a whole group of busi-nesses running these products.

If you have a think about what’s in thebest interests of the clients, are they betteroff to have been an advice giver who gota rebate or an adviser that’s now becomea product manufacturer? I think thatwould be a greater risk. So post FOFA andif rebates go, that will be the discussionwe’ll have: is the industry reinventing itself,and are more product manufacturerscoming?

IS Marianne, you’ve been involved withlarge scale financial planning and there’sbeen a move for a number of small orindependent dealer groups to start club-bing together to force a platform opera-tor to give them a rebate because theythen have muscle of coming together. Isn’tit actually a function of their ability tosurvive? I mean, if they do not get theserebates, their survival comes into ques-tion because they don’t have the revenue.So as you said, the Government needs tolook very carefully or it will destroy theindependent advisers who got together.

MP Under the current discussion onbanning rebates there’s less choice for aconsumer to go to an adviser, and they’llbe forced to become vertically integrat-ed or institutionally owned. But that’sbeen brought to their attention manytimes. I get the feeling they don’t careabout it.

IS There’s many other things too.

MP Yes, and a couple of the minister’sstaff have made it clear in makingcomments about the fact that these busi-nesses are such a small part of the indus-

try, change will force structural change,but it’s such a small part of the industrythat they don’t seem to care.

ASIC scrutiny of aggregatorsIS So do you see problems with these

structures of cooperatives that just gottogether to get a better fee from a platform?

MP Yes. ASIC has already come out tosay that their focus for 2011 is to look ataggregated models and I think that’s a

good thing because they’ve all just bandedtogether to get a rebate. And institutionsthat pay rebates are actually – obviously Ican talk about Colonial First State (CFS) –thinking about whether under this newenvironment, is it right for people to clubtogether and get paid a rebate that ispassed onto the adviser.

IS Is there a broader question that thedealer who’s got this disparate group ofadvisers doing pretty much what they likeis abrogating their responsibility as adealer?

MP It’s a bigger risk to the industry, yes.

AG I think one of the core issues is thatif what you end up with is business modelswhere in some cases the licensee or dealerfunction is disintermediated, then I thinkthere’s some risk issues. Licensees anddealers exist for a reason and part of it is ascale advantage. But it’s also around riskand compliance, and quality assuranceprocesses and constructing ApprovedProduct Lists, and practice managementand all those things.

If you set up a framework whereby someof that role gets diminished or is restrict-ed by some of the regulatory changes in

Continued on page 16

“Without rebates andclarity around whetherwhite label payments areincluded, the advicebusinesses will becomeproduct manufacturers. ”- Marianne Perkovic

Andrew Gale


FOFA roundtable

terms of the commercial model, then Ithink you actually increase the risk in thesystem by diminishing the role of thedealers and licensees. And I don’t thinkthat point is clearly understood.

One of the points I’ve certainly submit-ted to some of these regulators and publicpolicy makers is to look at the UK experi-ence. There’s 20 years of experience thereto look at. They brought in their FinancialServices Act in the late 1980s, the inten-tion of which was to increase the inde-pendence of advice. They set the hurdleso high in terms of what was independ-ence of advice that it had precisely theopposite effect – you had a big shifttowards aligned advisers, and a big reduc-tion in independent brokers. And they’vespent the last 20 years playing around withthat system trying to clean it up.

Now whenever you’ve got regulatorychange, one of the big issues is always thelaw of unintended consequences. Theyare absolutely at large with whether you’retalking about the volume-relatedpayments or opt-in issues etc, thinkingthrough the real consequences and someof the unintended consequences.

The same thing applies with opt-in.Some people argue that opt-in isn’t actu-ally in the client’s interest. I think there’ssome very potent arguments as to whyopt-in is actually against client interest.Now some of the consumer representa-tive bodies such as Choice and the likemay not want to listen to those argumentsclosely – maybe that doesn’t resonatepolitically.

BF I’d like to make a comment. MinisterShorten said that he is a true believer ofthe law of unintended consequences andthe Association of Financial Advisers’

(AFA’s) view regarding volume bonuspayments is that this is precisely the likelysort of thing we will see, because what wedon’t need is increasing concentration inthe marketplace. And the likely outcomeof this is that it will put a real squeeze onthe mid tier dealer group. And we tend toagree that we’ll see vertically integrateddealer groups creating their own product,which perhaps creates more bias aroundadvice rather than less.

So if we’re going to put the consumerfirst, we need to separate product fromstrategy advice (knowing that at timesthere will be overlap) but we do need toseparate that as much as we can. Andhaving a well-preserved advice market-place is the key and we don’t think volumepayments will achieve that. By banningvolume payments, we don’t think that willachieve that.

Valuing adviceMT Gerard, you’re coming at it from a

somewhat different perspective and Iwould like to think a dispassionate observ-er almost at this point. What’s your feel onwhere it’s going?

GD I’d make a couple of comments.Firstly, Australia is well ahead of the worldin heading down the path that it’s headingdown. In the majority of countries,

commissions still live and volume rebatesstill live – and in large countries, with loadsof money flow. So Australia is at theleading edge, or bleeding edge, of this.We’re a much better quality financial plan-ning world than the majority of countries(maybe the US I’d say is equal, maybeCanada) but well behind in other coun-tries where products are still flogged withrebates. So I think we should be proud thatwe’ve got an industry that’s been able toprogress so well.

As a bystander, I’ve seen this. If you playthe devil’s advocate you’d have to ask, Ilistened to Brad’s comments there and I’mprobably echoing some of what’s going onin the minds of regulators I talk to. Ifadvice is so valuable, why can’t advicestand alone and justify a fee purely foradvice alone? And that’s where this volumerebating comes from, whether it’s a goodrebate or a bad rebate, it’s still a paymentthat’s coming from somewhere else tocover the cost of advice. So their thinkingis: ‘Why can’t advice stand completely byitself if it’s so valuable?’

We’ve got to think through the way theregulator is thinking about this and argueagainst its perspective. I certainly thinkhaving product separate from advice isimportant, the question is, can advice livewithout product? Can you run an advicebusiness without a product being able to

generate the fees? That’s the critical issue.And they’re posing the question, surelyyou should be able to do that. But thereneeds to be a long transition. So if you’regoing to introduce a world like that youdon’t do it quickly, you do it gradually.

AG I think if you’ve got payment struc-tures, either from fund managers or plat-forms, which go through to advisers thateither conflicts advice or has the poten-tial to conflict advice, which in many casesit would, then those sort of arrangementsshouldn’t exist in the industry becausethey do have the potential to influenceadvice. So in the main I think advice bythe adviser will still stand on its own withexplicit advice fees and some base fees orretainers. The issue is if you then also havea licensee function, what’s the commer-cial model that is going to apply forfunding a licensee function? And there’s acouple of models there. One could be thatthere’s an explicit margin for licensees andthat gets bundled in with the advicemargin and that’s fully disclosed, that’sone model.

Another model is that you’ve got a marginfor licensees that they determine and if alot of the advice is executed through plat-forms – as long as that’s on a platformneutral basis and it’s not related to volumetargets or anything like that, in other wordsits non conflicted – that’s another modelthat can apply. So I think the advice portionprovided by the adviser is already largelystand-alone and explicit. Obviously there’san opt-in/opt-out issue to sort out. But partof the model is how do you fund some ofthe licensee functions and one of the riskswith the purist model is that that becomesa lot less transparent in vertically integrat-ed organisations.

Continued from page 15

“ Some people argue that opt-in isn’t actually in theclient’s interest. I think there’s some very potent argumentsas to why opt-in is actually against client interest. ”- Andrew Gale

Continued on page 18

Left to right: Brad Fox,Indy Singh, Andrew Gale

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FOFA roundtable

GD I was going to go on and say that thechallenge to me is the licensee. You couldprobably have a world of advisers who arepurely paid on advice with no conflict, buthow does a licensee – particularly oneoutside the vertically integrated group –survive?

You could argue firstly do we need themto survive and I think the answer is yes. Andthen how should they survive, their raisond’être is advice, not product. And that’sonce again the regulator saying: ‘Hang on,isn’t the licensee part of the advice func-tion?’. So the people who choose to takeadvice have to pay for the licensee and allthat goes with that and the advice.

So I understand how the regulatorthinks and from the sidelines you can seewhy they’re asking those questions, butthat takes us as I say right to the bleedingedge globally. And what would worry meis if you did it quickly you’d drop a wholebunch of licensees out which drops awhole bunch of financial planners out,and we end up with a world that’s got fiveor six very large industry funds and five verylarge banks and insurance companies.

AG So the potential irony is that the initialconcern was around conflicted advice orbiased advice, and the outcome of theprocess is if you went down that path youend up with a significant increase in thevertically integrated, which probably bydefinition means I guess more independentadvice and a greater degree of advice whichis oriented to in-house institutions.

GD The argument against that isthere’ll be no advice that’s anything but

independent. All advice must be inde-pendent. By the definition of the fiduci-ary role it must be independent.

MP The main point is businesses likeCount, Andrew’s business, that sit in thatindependent space now become productmanufacturers, and that’s okay, who haveto be forced to come up with their ownfunds, their own model portfolios, theirown ETFs, etc. So ultimately then thelosers are stand-alone investment busi-nesses and others because they’re notgoing to outsource that or use best ofbreed. For them it’s going to be aboutlooking at where that revenue has got tocome from.

AG That’s just best quality Marianne.

MP I know.

IS I would like to make a point. Thepoint really is conflicted advice and I thinkwe’ve made a mountain out of a molehillbecause there’s been few instances ofconflicted advice but magnified to asubstantial degree. You talked about anadviser charging and being independent.

Let me put the point before you: howmany people would go to a GP if theyhad to pay the cash or the cheque by

themselves? It’s a collection mechanism.The Government collects from us andpays the GP. The GP does not have to becharging because of a drug or a product,and the drug manufacturers don’t haveto disclose how much each percentageor every little component of a drug costs.

There’s a drug in France that I hadsomething to do with years ago. But thereare reports of 500 to 1000 people who havedied taking this drug. So are they suing thedoctor or are they suing the productmanufacturer? They’re suing the productmanufacturer.

I say one thing all the time, I’m sayinghow far is the responsibility taken by theFinancial Services Council, and ASIC,because rarely ever has it been found thatan adviser has got into trouble because aproduct has not failed. Very rarely. It’s onlygot to be bad strategy. And there has to bea sense of responsibility there but they justwalk away from it.

When a product fails the financialplanner is the softest target and we willalways be attacked in spite of the good workwe do. So when an adviser says he wouldlike to charge a percentage, we’ve had ChrisBowen who’s the minister come out andsay an asset-based charge is allowed.

ASIC has put out a statement on itswebsite saying ‘do not trust an adviser who

charges an asset-based fee’. Well, I’d love tosee a Wikileak on it. Where is JulianAssange when we need him? Who actual-ly got these guys to put it on the websiteand what right do they have independent-ly and unilaterally to do that when 80 percent of the industry is already involved inthis. So I don’t believe that it’s always thefault of the adviser.

You have lawyers and you would knowwhen they manage a deceased estate theycharge a percentage; you have a real estateagent who sells your property who chargesa percentage; you have a person whoproduces a loan for you for a mortgage,they charge a percentage. What’s wrongwith us?

GD I wasn’t saying any of that, I wassimply saying that the regulator wants tosee that advice is separated from theproduct decision. And the issue that thewhole thing raises, the biggest issue forme is where does the dealer fit in all of this,because the dealer is not currently sharingthe advice fee – they’re making their feeselsewhere. But under the rebate, if rebat-ing goes, then that whole model is tippedupside down.

AG I think the difficulty is that whenpublic policy makers or regulators seekto start getting involved and determin-ing which particular business modelsare endorsed or legitimate or valid intheir view and which may not be, andthey make that as an explicit or animplicit decision, I think that’s a danger-ous decision to get to in terms of publicpolicy.

They’re saying let’s get the principles right.Principle number one should be non-

Continued from page16

“ The biggest issue for me is where does the dealer fit inall of this, because the dealer is not currently sharing theadvice fee – they’re making their fees elsewhere. ”- Gerard Doherty

Left to right: Mike Taylor,Gerard Doherty


FOFA roundtable

conflicted remuneration and paymentstructures. We shouldn’t have remunera-tion and payment structures and commer-cial models which conflict advice. If you’vegot that as one fundamental principle,you’ve got a second fundamental principlewhich is the best interest that is still beingdefined.

But if you’ve got a best interest obliga-tion to have proper regard to a client’scircumstances, to give them appropriateadvice and in the event of a conflict youput the client’s interest ahead of theadviser’s interest, if you’ve got that frame-work in place and you’ve got non-conflict-ing commercial models, they’re the twofundamental underpinnings. And it thengoes on to say if you’ve got those under-pinnings, what’s the need for somethinglike an opt-in which can be shown to benot in the client’s interest and what’s theneed to be basically giving blessing tocertain commercial models and limitingthe other ones, rather than just sticking tothe principles.

Intra-fund adviceMT Brad I’ll throw to you. I notice today

that you guys were out saying once againthat in this whole debate that adviceprovided in the form of intra-fund adviceought to be treated in the same way underthe FOFA changes as any other advice. Itake it that’s based on your belief that thedispensation that was offered for intra-fund was not appropriate in the first placeanyway?

BF A couple of elements to that Mike.One is that when we go to the chargingstructures of some of the Industry SuperNetwork members there is free financialadvice that goes above and beyond RG200exclusion that is available to any memberwho calls up and chooses to accept thatadvice. In those models we would suggestthat in the administration fee there’s ameans of paying which is a percentage offund, which is the same way most advis-ers are paid.

But the percentage of what they’repaying is obviously been allocated for thefund generally to provide these adviserson a salary, they’re available to allmembers. So by inference, every memberof that fund is paying something for finan-cial advice whether they receive it or not.So wouldn’t it then be reasonable to expectevery member of that fund paying someportion of their ongoing cost for advice toalso be subject to an opt-in regime?

The second part would be that in a levelplaying field debate the exclusion avail-able there is they’re extended to too manysegments of so called simple advice. Wethink that has an enormous potential tocause a further negative view of financialadvice as a whole.

Hypothetically, you can imagine thestory on Today Tonight. Someone soughtadvice. They did it over the phone. Theygot a bit of advice on a transition-to-retirement strategy at this point, perhapsa bit on salary sacrifice at another point,another bit around estate planning,another bit around insurance andsomehow it all ends up pear shaped.They end up on Today Tonight saying:‘Look, I went to all the trouble, I gotfinancial advice, and look what’shappened to me’.

Once those sort of things surface it’starred not against the super fund it will betarred against advisers generally as anoccupation. So it concerns us greatly thatthey may get far more than they bargainedfor in terms of what gets through in advice.

IS I tend to agree with Brad in that youcan’t have partial advice, you can’t havehalf-baked advice, you need holistic andcomplete advice. And a financial plannerin the commercial sector has to gothrough some serious regulatory require-ments, including as Gerard said aboutfiduciary responsibility where their liabil-ities are not just $500 but $200,000, whichis something a financial planner would

earn in a few years no matter what peoplemight think.

The Government doesn’t fully under-stand the difference between what they’retrying to push for the industry funds andthe unions in terms of intra-fund adviceto compete with the commercial sectorand the way that we in the commercialsector actually have a contract with ourclients to provide a certain level of advice.And to meet that commitment through anagreement with the client.

There’s a lot of difference betweencorporate superannuation where anadviser may not see one member out of5,000, but where we come from it’s a one-on-one personal contract. And I can’tunderstand – as I think Andrew referredto in the opt-in situation – how a Govern-ment can interfere with my contract withmy client.

AG Just on the advice models, I’ve got aslightly different perspective on that one.I think intra-fund advice has got a veryvaluable role to play, especially withinsuper funds, where people have got simpleenquiries and advice requirements relat-ing to their current superannuation inter-est if it’s contained to that, and I thinkthat’s a valuable role.

What we want to be doing is increasingaccess to advice for all Australians and Ithink that means there’s a whole range ofadvice models that are legitimate andvalid. So I think intra-fund advice has arole to play, as does limited, scoped andcomprehensive advice.

If anything, I think intra-fund adviceshould be extended to being an intra-advice concept. And for a lot of advisersthey can actually use that framework to

look after their clients, especially clientswith smaller contribution levels andsmaller account balances. They actuallycan have the same framework whichapplies under the class order exemptionwithin super funds. It’s important thatsomething similar to this is available toadvisers, especially those who look aftertheir clients.

I think it’s the case that for middleAustralia, the most common form ofadvice five years out is going to be what Iwould call serial limited advice, a series oflimited bits of advice. So we just need tomake sure that the framework andconsumer protections we’ve got in placefor that sort of thing apply. Now there’s acouple of key principles here.

The reality is a lot of the super funds,especially the industry funds, are runninga subsidised advice model. There’s a largeportion of them that offer intra-fundadvice on a no-cost basis and there’s asignificant portion which offer scopedadvice or limited advice also on a freebasis. Now it is a subsidised model andit’s not transparent. So there is a real issueabout a non-level playing field, becausethis is a margin that all the super fundmembers are paying for advice that isprovided to a portion and it’s not trans-parent. And if the Government is true toits principles it should really sort thatout.

Secondly, if you’re going to have a bestinterests obligation in terms of duty of carewhich the industry is working through atthe moment, it’s important that the duty ofcare concept applies right across theadvice level and it suits what’s called strat-ified advice models.

It’s not just that there’s a duty of care

requirement that applies for comprehen-sive advice – there’s a duty of care obliga-tion that applies to limited or scopedadvice and also for intra. You can scopethe advice up front in your discussion withthe client as to whether it’s intra or limitedor comprehensive, but within that scopeyou need to then fulfil the best interestobligation.

BF The difficult thing with scoping isclients don’t understand the terminology.

MP I think as an industry we’ve just gotto improve because at the end of the dayI think you’ve got to sit back and say there’sonly 20 per cent of Australians whocurrently get advice and how do we reachthat 80 per cent. So in the business that Irun we have a limited advice ASFL thatjust focuses on clients with simple adviceneeds.

This is continuing to be more and morepopular throughout our dealershipsbecause clients are saying: ‘I don’t neces-sarily need to sit across a table and gothrough my whole life story and have thisfull page document plan come out. Todayall I need to know is where do I put thismoney that I saved or what superannua-tion options do I have’. And I think prob-ably more advice businesses need to havea look at how to extend and offer thosecapabilities.

There’s a lot of cross-subsidisation. Wecross subsidise in our industry, industryfunds are cross-subsidising, but we have tojust work out how we can leverage and useand continue to get the intra-fund adviceextended to advisers to make that easier.I think that’s got to be the focus of associ-ations and the industries. MM

“You can’t have partialadvice, you can’t have half-baked advice, you needholistic and completeadvice. ” - Indy Singh

Indy Singh

Despite the impact of floods andstorms since the beginning of theyear, and overall economicuncertainty following events in

Japan and the Middle East, the major prop-erty sectors are generally sound – with themarket skewed towards undersupply inmost capital cities.

As a result, property markets are expect-ed to achieve solid growth this year, and theevidence from the first quarter of the yearsupports this view.

In particular, office markets are expect-ed to perform well due to sustainedemployment levels and lack of construc-tion in most city centres in recent years.Melbourne and Adelaide currently retainthe strongest market fundamentals, whileSydney should see improved growth levelslater in 2011 since vacancy levels aretrending downwards.

In Perth and Brisbane, continued demandfor office space has surprised the industry.These markets are generally recovering morequickly than anticipated from the econom-ic downturn, although there remains someuncertainty about the effect of the floodingin Brisbane.

However, the January NAB businesssurvey showed Queensland recordedstronger business confidence levels, with

expectations that rebuilding will spur busi-ness activity. So even in this market, funda-mentals for office property are lookinghealthy.

The weakest of the city markets remainsCanberra, which has increasing supplylevels. This, in turn, leads to stagnant orcontracting rents. Indeed, a further soften-ing of yields is expected throughout 2011.This is exacerbated by Government steps toreduce costs by reducing staff levels ormoving into smaller office spaces.

Industrial and retail propertyMeanwhile, the industrial and retail prop-erty markets are both showing positive signs.The only potential threat to these sectors isan increased number of properties comingonto the market as the banks look to forcethe sale of distressed assets, placing down-ward pressure on prices. This trend will playout for the remainder of 2011 but shouldstart to tail off in the latter half of the year.

With industrial property, there has beenlittle speculative activity in Melbourne andSydney. This has resulted in tighter supplywith limited new stock forecast to becomeavailable in the short-term due to fundingconstraints. Such circumstances create thebest underlying property fundamentals inthose markets as supply is only being

added to meet actual demand. The marketfor existing space remains patchy, withoccupier growth more or less exclusive tonew facilities.

In the retail market, turnover has taperedrecently and consumer sentiment hasbecome more cautious. Retail investmentyields remained largely stable in recentmonths, with slight tightening seen acrossthe Sydney prime central business districtmarket.

2011 is expected to continue to be toughfor retailers, which in turn will make it moredifficult for landlords to negotiate rentalincreases. Nevertheless, rental growth isexpected to be in line with retail sales growth,forecast to be 3 per cent over 2011.

Opportunities for buying retail propertiesare likely to be driven by property specificsrather than geographic considerations.Overall, with little new development on thehorizon, the retail sector is expected to with-stand the presently difficult retailing condi-tions and we should see yields compressover the next three years.

Healthcare buildingsOne dynamic centre of interest is health-care. Significantly increased interest inhealthcare property in Australia is stillevident, as offshore investors seek to acquirewhole portfolios of healthcare property. Thiswill lead to a general tightening of capitali-sation rates, and will in turn lead to increasedproperty values in the medium term.

Demand from healthcare service providersfor high profile, well-located properties also

continues to increase. Such factors underpinthe rental levels and provide a positiveinvestment position for buyers seeking toenter the property market.

Historically, the performance of health-care property has been more stable thanother property sectors. This proved to be thecase even during the economic downturn,and the underlying fundamentals suggestthat healthcare property will continue toperform strongly.

This is due to several factors, includingthe specific assets in the healthcare sector,the types of tenants it attracts, and theunique environmental factors in which itoperates, not least of which are Australia’sageing population and ongoing Govern-ment funding commitments.

For instance, many healthcare properties– including hospitals and nursing homes –need to be built or fitted out to defined spec-ifications, which makes them relativelyscarce. Tenants tend to stay put for longerperiods (the average tenancy for a privatehospital is 20 years).

Demand for dedicated facilities will onlyincrease as the Federal Governmentprovides incentives for Australians to takeup private healthcare.

These factors combine to make theoutlook for healthcare property particular-ly strong, and now is a good time forinvestors to consider taking advantage ofthe opportunities in this sector.

Martin Hession is head of property atAustralian Unity Investments.

Martin Hession takes a look at theproperty market and finds it is trackingwell in spite of the recent natural disasters.

Weathering the storm


OpinionProperty

Acommon Australian greeting is‘How are you going?’. But mostpeople don’t expect a responseto the question – especially

when the person they’ve asked is experi-encing health problems.

The same cannot be said for financialplanners, who have a vested interest inbeing all ears when it comes to their client’spersonal circumstances, as they may indi-cate potential eligibility to make an insur-ance claim or alter their financial plan.

AMP data shows that 70 per cent ofinsurance claims are notified by the finan-cial planner. However, less than 50 per centof planners actually work with the insureron the claim.

Although planners take the time torecommend the right insurance productinitially, many may not realise the impor-tance of playing a part in the claim process.However, helping clients during the claimsprocess is fundamental to a planner’s roleof ensuring the best financial future possi-ble for their clients.

There are two very basic things a plannershould know well: their client, and theproduct they have recommended. Theability to both identify and manage a claimthrough to completion draws on their

detailed knowledge of both. A planner’sinvolvement in a client’s insurance claimis therefore essentially an extension of theirservice to their client. It also adds an addi-tional level of due diligence to the process.

Since the outcome of any claim couldseriously alter or even derail a client’s exist-ing financial plan, involvement in theprocess seems not only logical, but also vital.

Adding valueA planner should always be on the lookoutfor a potential claim event in their discus-sions with their client. A client may notrecognise the significance of an injury orillness themselves, so the planner’scombined knowledge of the client’s situa-tion and their insurance products is crucial.

For example, a client may casuallymention to their planner over the phonethat they recently broke their arm, not real-ising that they may be able to claim for thiscondition. A planner can help the clientunderstand their contractual rights in prac-tice, not just when they recommend theinsurance product in the first instance.

Secondly, the planner can make sure theclient is prepared before they discuss theirclaim with a claims assessor by explainingthe process to them, what is involved and

making sure they have all the facts andinformation required for their first conver-sation with the assessor.

For example, the claims assessor mayrequest accurate financial data to deter-mine the level of monthly benefit for anincome protection claim. In this instance,the financial planner could help instructthe client’s accountant on these require-ments in advance. This saves time andmoney if, for example, incorrect instruc-tions are given to an accountant and alsoensures the assessor receives all requiredinformation to progress the claim.

Once the client has lodged their claim,their planner can ensure the process runssmoothly by acting as an intermediarybetween their client and the assessor toresolve any issues. This ensures the bestoutcome for their client and is especiallyimportant if the client is not physically or

emotionally capable of managing theprocess on their own.

Finally, a planner has a vested interest inany claim their client is currently or poten-tially making as it is likely to have an impact,to a greater or lesser extent, on their client’sexisting financial plan.

Claims process checklist• Have regular conversations with your

client over the phone or on email – don’tjust wait for the annual review. Checkingin regularly and asking open-ended ques-tions can unearth information the clientmay not even realise is relevant, like achange in job, a pay rise, or a recent injuryor hospital stay. The latter may trigger aconversation about their potential eligibil-ity to make an insurance claim, dependingon what cover they have;

• Once you have identified a claim event,the more information you can glean fromthe client before they speak with the claimsassessor, the better. Ensuring they have alldocumentation and data required will helpthem deliver what is needed to have theirclaim processed in a timely and efficientmanner;

• Once your client has lodged a claim,track the claim to ensure it stays on courseand any issues are resolved early. Someinsurers allow planners to ‘opt in’ receive acopy of all correspondence between theinsurer and their client. This is an easy wayto ensure you stay on top of your client’sclaim;

• If an issue does arise between theclaimant and the insurer, act as the inter-mediary and liaise with both parties toresolve any problems and provide theinsurer with the information they need;

• Once the claim has reached its finality,this is a good time to revisit your client’sfinancial plan. Whether the client receivesincome protection, which may be areduced amount to their salary, or a lumpsum, or nothing at all, they will need towork with you to adjust to any changedfinancial circumstances. This may includeadvice around what to do with a lump sumpayment, how to finance medical bills orhow to continue paying the mortgage on areduced income; and

• Review the claim process with yourclient. Were they happy with the insurer?Were they happy with their insuranceproduct? Did they think the process wentsmoothly?

Financial planners can play a valuablerole in the insurance claim process. Whilethe client and the insurer have the mostdirect relationship, including the financialplanner can ensure a smooth process – withall parties working together to deliver thebest outcome for the client.

Assisting a client through the claimprocess is an extension of a planner’s adviceand service. Planners have the experienceand knowledge necessary to ‘demystify’ theprocess for their client.

Supporting a client through the claimprocess can be a critical part of a planner’sjourney with that client, working towardstheir financial future, and addressing anybumps in the road along the way.

Simon Stanton is head of claims, wealthprotection products at AMP.

Staking yourclaim

OpinionInsurance


Simon Stanton explains why financialplanners should not leave themselvesout of the insurance claim process.

“While the client and theinsurer have the most directrelationship, including thefinancial planner can ensurea smooth process. ”

Private equity is an asset class thatis familiar to most institutionalinvestors – major institutionshave long used an allocation to

private equity as a way to enhance returnsand reduce overall portfolio risk. Recentchanges in the Australian wealth manage-ment market are leading to an increasingfocus on private equity among individualinvestors and financial planners, and allo-cations to alternative investments (andprivate equity in particular) are rising.This creates a need for a greater level ofunderstanding about the asset class, itsrisk and return characteristics, and therole that it can play in investors’ portfo-lios.

What is private equity?As its name suggests, private equityinvolves investing in private companies(ie, those not listed on public equitymarkets like the Australian StockExchange). Private equity includes a rangeof investment strategies (includingventure capital, leveraged buy-outs, andgrowth capital), all of which share threecommon characteristics:

• Investing in private companies allows

private equity managers to take a medium-term view on business performance.Investee companies are not subject tocontinuous disclosure or half-year report-ing requirements, so management teamscan make decisions that are in the long-term interests of the company, without fearof short-term share price fluctuations;

• Private equity investors take meaning-ful equity stakes in the companies in whichthey invest, exercising significant influenceover the strategy and operations of the busi-ness, and taking board seats to oversee andcontrol the company’s performance; and

• Private equity investors invest with amedium-term exit horizon, planning tohold the business for three to five yearsbefore selling the business at a profit.

Private equity: risk and returnPrivate equity has historically generatedstrong returns for investors. As table 1shows, Australian private equity managershave achieved higher returns than boththe S&P/ASX 300 Index and the S&P SmallOrdinaries Index over one, three, five and10 year periods.

The superior returns from private equityinvestment in Australia are consistent with

the experience in other markets, andunderpinned by three features of theprivate equity model:

• A robust investment process thatinvolves rigorous due diligence on poten-tial investees;

• An active approach to investing, withprivate equity managers actively guidingthe businesses in which they invest; and

• The ability of private equity managersto attract high quality management teamsto the businesses in which they invest, andto align their rewards tightly to the successof the business.

A feature of private equity investing thatdistinguishes it from other asset classes isthe importance of manager selection.Private equity exhibits a much greater‘dispersion of returns’ (ie, the difference inreturns between top quartile and bottomquartile fund managers) than other assetclasses. In addition, private equity features‘persistence of returns’ (where top quartilefund managers tend to remain in the topquartile over time). This persistence of

returns is in contrast to listed equity fundmanagers, where managers tend to revertover time to the performance of the index.This combination of dispersion and persist-ence of returns makes it important forinvestors to select private equity fundmanagers carefully.

Another key difference between privateequity and other asset classes is the liquid-ity profile of the investment. Private equityfunds invest in private companies with athree to five year exit horizon, and as aresult are illiquid and closed-ended.Investors considering an allocation to

private equity should ensure that theiroverall portfolio construction providesthem with sufficient liquidity to meet theirlikely personal circumstances.

Private equity has an important role toplay in the portfolios of institutional andhigh-net-worth investors. In addition togenerating superior returns, private equityintroduces an important element of diver-sification in portfolios – with returns beingrelatively uncorrelated with public equity


OpinionPrivateEquity

Clearing the air

Alexander McNab looks into the private equitymarket and explains the risks, potential upsideand misconceptions that accompany the sector.

Australian private equity returns Year to date 1 year 3 years 5 years 10 years

Australian Private Equity 2.24% 17.19% -0.41% 7.46% 7.95%

S&P/ASX 300 Index -10.09% 13.05% -8.05 4.49% 6.95%

S&P/ASX Small Ordinaries Index -12.98% 11.18% -14.20% 2.74% 6.20%

Table 1 Private equity: A comparison

Pooled, end to end return net of fees, expenses and carried interest to 30 June 2010

Source: Cambridge Associates/AVCAL, June 2010

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By Mike Taylor

AUSTRALIAN financial advisers appear tohave shrugged off at least some of the gloomthat saw sentiment descend to lower levelsbetween April and August this year.

The latest Wealth Insights adviser sentimentsnapshot for September has seen sentimentreturning to levels similar to those recordedat the close of last year, but still well below thepeak achieved in late January and early Febru-ary and less than half that recorded at the peakof the market in February 2008.

The new Wealth Insights data, releasedexclusively to Money Management, appearsto reflect planners’ acceptance of the reali-ties flowing from the Federal Election and agrowing confidence in their ability to adaptto a new fee-for-service environment.

The degree to which planners are accept-ing the inevitability of the move to fee-for-service has also been reflected in datacompiled by Colonial First State (CFS) fromflows into its FirstChoice platform.

Announcing last week that FirstChoicehad grown to become the largest platform inthe space, CFS chief executive Brian Bissak-er also pointed to data indicating that fewerplanners were utilising those elements ofthe platform delivering commissions.

He said the flow to what was regarded asthe fee-for-service options now stood ataround 60 per cent.

Wealth Insights managing directorVanessa McMahon said the data around theflows on the FirstChoice platform tended to

confirm the feedback provided by plannersduring focus groups conducted by WealthInsights.

She said planners had accepted theinevitability of the need to shift to a fee-for-service model and were adjusting theircommercial models accordingly.

McMahon said the focus groups had alsorevealed the degree to which planners wereconscious of the pressure on fees and wereacting to keep them contained.

“But they recognise that there are only twoareas they can act on fees – platforms andthe member expense ratio [MER],” she said.

“There has not been a lot of relief withrespect to platform costs, so the focus hasbeen on MER,” McMahon said. “Thatexplains recent adviser preference forindexed funds, exchange traded funds anddirect shares.

“Putting aside the performance ofindexed funds, the recent preference exhib-ited by planners has also had a lot to do withfees,” she said.

By Caroline Munro

IMPROVING online capability is only the start

of technological innovation in the financial

services sector, with the next milestone being

mobile capacity, according to technology lead-

ers in the industry.

The financial services industry is nearing a

mature phase in terms of online capability

and the next big mountain to climb is mobil-

ity, according to AXA Australia’s general man-

ager for digital business, Cam Cimino.

“For our industry, mobility is in its infancy,”

he said. “I haven’t seen many applications

that I think are of great value to the user at

this point. I think there are great opportuni-

ties in that space and as the devices

become easier to use in a business format

rather than in an end-user format, we expect

Continued on page 3

Mobility the nexttechnology frontier

National Australia Bank declines stake in PIS: Page 4 | Technology driving industry innovation: Page 18

Vol.24 No.37 | October 7, 2010 | $6.95 INC GST

THE financial planning software market is headed for some

major adjustments, with product innovation and

simplification the likely results of recent market upheaval.

Following a sustained period of regulatory review and market

uncertainty as a result of the global financial crisis (GFC),

the financial planning software sector is now in a state of

transition, according to market players.

While the market remains dominated by larger players

such as Coin and Iress, smaller players are keen to seize

their share of the market and address the growing needs of

planners looking to transform their businesses.

However, with many practices reluctant to change their

planning software because of legacy and business planning

issues, gaining ground may not be that simple.

Full report page 18

161515

38

24 22

-3

-36

53

31

-31

-19-9

-60

Feb 08

Apr 08

Oct 08

Dec 08

Feb 09

May 09Ju

l 09

Oct 09

Dec 09

Feb 10

May 10Ju

l 10

Sep 10

-40

-20

0

20

40

60

Source: Wealth Insights

Graph: Adviser Sentiment

Software sectorheaded for change

FINANCIAL PLANNING SOFTWARE

Planners accept the inevitable

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*All savings are based on the cover price of Money Management and

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markets. As a result, an allocation to privateequity can enhance overall portfolio returnswhile reducing overall portfolio risk.

Some common misconceptionsPrivate equity is an asset class that attractsa significant amount of media attention,not all of it balanced or well informed. Asa result, a number of misconceptionsabout private equity have arisen.

1. Private equity is only for institutionalinvestorsHistorically, private equity was thepreserve of institutional investors andultra high-net-worth individuals. Institu-tional investors have long seen the returnand diversification benefits of alternatives(including private equity), and globalinstitutional allocations to alternativesare expected to increase to 20 per cent ofoverall portfolios by 2012, with privateequity making up one quarter of this allo-cation to alternative investments.

However, private equity is also becom-ing an increasingly important source ofreturns and diversification for individualinvestors. Globally, high-net-worthinvestors are increasing their allocations toalternatives (including private equity) from6 per cent to 8 per cent of their portfolios.In Australia, this trend is being reinforced bythe increasing prevalence of SMSFs, where

investors with relatively large superannua-tion balances are looking for opportunitiesto diversify outside conventional equities,property, fixed income and cash allocations.

Private equity fund managers areresponding to these important changes inthe market by broadening their fundrais-ing strategies. More and more privateequity managers are exploring ways tointroduce their offering to a broader rangeof investors, including SMSFs, high-net-worth individuals and financial planningclients. Leading financial planning groupsare increasing their allocations to privateequity, and independent research housesare beginning to provide ratings on retailprivate equity funds. Over time, this willimprove access to private equity fundsamong financial planners and their clients.

2. The GFC was hard on private equityThe global financial crisis (GFC) was atesting time for investors across manyasset classes. It is commonly believed thatprivate equity was an asset class badlyaffected during the crisis, perhaps due tothe number of high-profile private equityinvestees that experienced financialdistress. While private equity was notimmune from the downturn in condi-tions, recent performance data does notsupport the view that private equity wasworse affected than any other asset class.

In fact, as the performance data previous-ly quoted demonstrates, private equity hasoutperformed both the ASX 200 index andthe ASX small caps index during the GFC.

Additional research from the USsuggests that private equity-backedcompanies weathered the GFC betterthan other businesses. According to Bain& Company, the default rate in for privateequity backed companies was less thanhalf that of other companies with similarcredit ratings.

3. Private equity is a debt-driven modelPrivate equity is often perceived in themarket as an asset class that relies onhigh levels of leverage to generate returns.However, a detailed analysis of privateequity returns from 1989 to 2006conducted by Bain & Company indicatesthat only one-third of returns fromprivate equity were attributable to lever-age. The primary driver of returns overthat period was from increases in theoperational performance of the underly-ing businesses and, less importantly,increases in earnings multiples.

On the upPrivate equity as an asset class has a longhistory of enhancing returns and reduc-ing portfolio risk for institutionalinvestors. However, with recent changesin the Australian wealth managementmarket, the profile of private equity isincreasing among individual investorsand financial planners. This is beingreflected in greater allocations to privateequity across this segment of the wealthmanagement market, a development thatwill most likely work to the long-termbenefit of an important set of Australianinvestors.

Alexander McNab is a strategy director atBlue Sky Private Equity.

“Additional research fromthe US suggests thatprivate equity-backedcompanies weathered theGFC better than otherbusinesses. ”

Insurers like to claim they are particular-ly competitive when it comes to select-ing ‘target markets’. A recent poll ofseveral insurers led to claims along the

lines of: ‘A prime area of strength for us isterm insurance where the benefit amountis in excess of $1 million,’ or ‘Our offeringfor occupations such as farmers is verystrong’.

It would not be unusual for advisers totarget people for whom they feel the great-est level of empathy, that is, the tradition-ally popular market of professionals aged35 to 55.

The reasons for targeting particulargroups include factors such as:

• The large number of potential clients,which in turn may be a factor of the grossnumber or a lack of competitors;

• The level of wealth and disposableincome enjoyed by the particular market,which translates into a heightened need andmarket for risk insurance; and

• Geographic proximity, which mightreflect a strong, broad distribution or aconcentration in a particular region.

When it comes to clients who appear tosatisfy all of the above factors, and some inaddition, it would be difficult to find a betterqualified group than the over 55s.

The opportunityThe number of Australians in the age group55 to 75, according to the Australian Bureauof Statistics (ABS), is shown in table 1. Notethat the total number of people in this agegroup is close to 22 per cent of the popula-tion. Also, 35 to 55s are not much larger,making up around 6 million people or closeto 28 per cent of the population.

The average net wealth and disposableincome of the over 55s is shown in table 2.

We don’t need the ABS to tell us that whilepeople over 55 are more concentrated insome areas, they are well represented in allareas.

There is no better demonstration of theimportance and size of this particularmarket than the constant warnings we arebeing given about the ageing populationand the inability of those coming after themto fund for their needs, which of courseleads into the most important of all consid-erations.

The needIs there a compelling need and a realisationof that need by members of the over 55smarket?

There would be little argument about theneed for risk insurance when it comes to‘working’ Australians over age 55, since theirneeds fall into the traditional personal andbusiness areas.

But priorities change over time, so theneed to protect future income (as distinctfrom current income) becomes more criti-cal. Future income translates as retirementsavings.

If a 35 year old was disabled and unableto work for an extended period of time, thismay well have a devastating effect on anyretirement savings already made. However,the good news is this person is likely to havemany years left to retirement in which torecover their position.

But someone over 55 who is disabled andunable to work for an extended period doesnot have this luxury. Thus, the protectionof their future lifestyle/retirement savingsis of critical importance.

The various superannuation protectionoptions that can be added to incomeprotection insurance policies may wellmove up the priority list.

Even after retirement, however, some ofthe traditional risk insurance needs willcontinue:

• Asset protection – Many retirees will stillhave a mortgage on their home or they willhave borrowings against investment prop-erties;

• Estate protection – Issues such as estateequalisation and the funding of bequeststo children and charities may have to beconsidered;

• Partner protection – Leaving sufficientliquid assets such that someone’s lifepartner is able to maintain their lifestyle;

• Medical care – The risk of suffering amajor medical trauma or a sickness orinjury that will severely disable, increasesexponentially with age. Without properfunding, expenses associated with medicalcare and rehabilitation could severelydamage a lifetime of asset accumulation orforce someone into a less than optimalhealth care facility; and

• Final expenses – The costs associatedwith funerals can easily run into tens ofthousands of dollars.

Going further, it is not just the over 55sthat will have a need for risk insuranceprotection – it is their children and grand-children. If an adviser is doing the right thingby one group this would naturally increasethe likelihood of being introduced to others.

It may even be that parents and grand-parents could see the funding of insurancepremiums for their family as one way ofshowing their love and support – not tomention reducing the need for familymembers having to look to parents andgrandparents for financial support shouldsickness or injury impact on their ownfinancial position.

Premium funding by the over 55s wouldpotentially cover all the risk insurance needsbut it may be particularly appropriate forgrandparents offering protection by way ofchild trauma insurance.

The risksNotwithstanding the above needs, it isnecessary to sound a special word ofcaution when dealing with the over 55s.

Product knowledgeThe products available and the facilities

within those products that satisfy the riskinsurance needs of younger clients tend tobe more ‘mainstream’. As a result, theadviser’s knowledge of those products issuch that misunderstandings about themare less likely to occur.

Impact of errorWhile advisers will naturally take a consid-erable amount of care in making a recom-mendation to younger clients, on averagethese clients will be better placed to obtainalternative or additional cover so that, if amistake occurs, it is less likely to be irre-deemable.

On the other hand, there is a need for aneven greater level of care when dealing withclients over age 55. If an error occurs in thegiving of advice to this group, recovery fromthat error may be impossible for the clientand very expensive for the adviser.

Client expectationThe over 55s have been around longer andexperienced more and so are likely to havea higher expectation of their adviser bothin the areas of the advice itself and also theservices that are offered. This expectationmay well extend to quality assistance if aclaim is made.

It is not unreasonable that this expecta-tion should exist. After all, the premiumsbeing paid are likely to be considerable.

Underwriting issuesThere is a greater chance of issues arisingthat will be material to underwriters (eg,health problems that will lead to cover beingloaded or excluded). In addition there willbe the complexity of assessing factors suchas increased levels of assets, liabilities andinvestment income.

Therefore, if putting insurance in placeand particularly if replacing one policy withanother, the clients understanding of theduty of disclosure takes on even more crit-ical importance.


OpinionInsurance

Hitting theright target

Col Fullagar examines whatadvisers need to know when dealingwith clients in different age groups.

Age Number (million)

55 – 59 1.306

60 – 64 1.170

65 – 69 0.869

70 – 74 0.686

Total: 4.031

Table 1 55-75 age group

Table 2 Net worth and income for over 55s

Age Net worth Income

Couple, 55-64 $895,000 $1,000/week

Couple, 65 and over $714,000 $645/week

Single, over 65 $437,000 $377/week

Source: ABS – Net worth for life cycle groups 2003 – 2004

Source: ABS – Estimated Resident Population 30 June, 2009

On the positive side, over 55s are lesslikely to be engaging in some of the morehazardous activities enjoyed by theiryounger contemporaries.

ClaimsRisk reflects in premiums and thus, in thesame way that premiums for the over 55sincrease, so does the chance of making aclaim – and with it, the risks associated withan ‘unsuccessful’ claim.

‘Unsuccessful’ doesn’t just imply that thecriteria for payment were not met. Allparties – the client, the adviser and even theinsurer – will have a certain amount of dreadthat when a claim is made, an unexpectedproblem will arise.

The problem may be something thatcould not reasonably have been envisagedeven with the wisdom of hindsight and thusit is outside the control of anyone.

On the other hand it may be that either agenuine mistake has occurred or the client’scircumstances have altered resulting in theadviser recommendation being seen as lessthan optimal:

• An income protection insurance policyon an indemnity basis when agreed valuewould have been more appropriate;

• A total and permanent disability (TPD)policy replaced several years before includ-ed an exclusion to cover that did not exist inthe previous cover; or

• A stand-alone trauma insurance policythat the client thought contained deathcover.

‘Unsuccessful’ for an over 55 may meanthat the claims process was not in line withtheir reasonable expectation (eg, a multi-million dollar death claim being unexpect-edly and sometimes unnecessarily delayedwhile claims requirements were obtained).

A recent example was the delaying of aterminal illness claim for many weeks whilea ‘mandatory’ but unjustified Health Insur-ance Commission report was obtained.Eventually the insurer waived the require-

ment in order to enable claim payment tooccur prior to the client dying.

At the time of claim, the correcting oferrors is difficult at best and sometimesimpossible.

Policy expiryPolicies can end for various reasons, suchas premiums not being paid. However, theyalso end when the policy expires – either asa result of the client reaching the policyexpiry date, or the client taking some otheraction such as permanently stopping work.

As clients draw closer to the policy expirydate, there is a growing importance for theprecise date of expiry to be known andcommunicated.

An income protection policy or a busi-ness expenses policy may have beenpromoted by the insurer, understood by theadviser and presented to the client as beingrenewable to age 65. However, if the policyexpiry date is the policy anniversary priorto age 65, this may be anything up to 12months earlier (eg, if the policy anniversarywas the 1st January and the client’s 65thbirthday was the previous 31 December).

If clients are looking to work to age 65and they need their insurances to contin-ue working with them, the clients are unlike-ly to be impressed if the cover ends earlierthan they want it to.

With retirement ages being extended, itmay be necessary for the adviser to planclient needs several years in advance. Forexample, income protection insurance poli-cies with benefit periods to age are avail-able, but there will be age limits as to whenan application for them can be made.Waiting until the client’s existing policy isabout to expire before replacing it may betoo late.

Claim paymentsThe vast majority of income protectioninsurance policies in place have a benefitperiod ‘to age 65’ and it is not unreasonablethat they would be promoted in this way.

Unfortunately, when a claim is being paidunder a policy with a benefit period ‘to age65’ this does not necessarily mean benefitpayments will continue to age 65. There isusually a policy provision that states claimspayments cease when the policy expireswhich, as indicated, may be one day afterthe client turns age 64.

With the larger average benefit amountthat will exist for the over 55s, the ‘loss’ tothe client could be considerable and notjust financial (eg, the early cessation of abusiness expenses claim could endangerthe financial viability of the client’s busi-ness).

If the duration of claim payments is notin line with the client’s expectation andneed, disputes may ensue.

Loss of policy facilitiesNot only does the policy itself have an expirydate, but various facilities within it havetheir own expiry date that may be relatedto the client’s age or actions the client maytake.

Examples might include:• Guaranteed insurability options ending

at age 55;• Automatic indexation increases ending

at age 65; or

• A lump sum insurance waiver ofpremium ceasing at age 70.

Some policies provide for the level ofcover to reduce after a certain age, forexample, TPD reducing to a pre-set amountafter age 65.

Alternatively, some policies provide forthe insured benefit amount under TPD toreduce by 20 per cent each year from age60 through to age 65. If the client is notaware of this or if there are any avoidabledelays in claim assessment this could leadto the client receiving a nasty and unexpect-ed surprise when their claim proceeds arepaid.

In addition to the insured benefit amountpotentially reducing at or from a pre-set age,it is common for the nature of the cover toalso alter. For example, TPD cover maychange from an occupation assessmentbasis to a basis revolving around the inabil-ity to perform a number of the activities ofdaily living.

An adverse client experience caused bythe unexpected activation of a policy facil-ity can lead to disputes in much the sameway as an unexpected policy expiry.

Changes in premium typeWhile some advisers might set up a client’slong-term insurances on a level premiumbasis, the more astute adviser will appreci-ate that level premium policies generallyrevert to stepped premium at certain pre-determined ages (eg, age 65 or 70).

When this occurs, a level premium set upat age 35 for $1,000 a year may well jump to$20,000 a year when it alters to stepped.

A call from the adviser to the client themonth prior to this occurring is unlikely toimpress. It may be that a strategy severalyears before the automatic conversion willneed to be developed and implemented.

This strategy may include identifyingways to set up funding vehicles, streamlin-ing cover or, if necessary, reducing the levelof cover.

LitigationWhile there is a heightened need for careby the adviser when dealing with over 55s,the good news is that if the adviser has beensuccessful on the investment side of theclients financial planning, at least the clientwill be able to afford the best legal repre-sentation available should something gowrong with the risk insurance advice.

The adviser may have worked with aclient over many years and developed asound friendship as a result. Unfortunate-ly, it is likely that this friendship will be setaside either deliberately, because of theclient’s anger over what has occurred or asa matter of necessity, since this is the onlyway for the client to access compensationfrom the adviser’s professional indemnityinsurance.

The facilitiesHaving sounded the appropriate words ofopportunity and warning, what are someof the risk insurance products and facilitiesavailable to and impacting the over 55s?

A request sent to twelve insurancecompanies recently for details of their‘offering for older folks’ generated nineresponses.

The products and facilities offered includ-ed maximum application ages for insur-ances as high as:

• Term – age 75;• TPD and trauma insurance – age 68 but

on a restricted activities of daily living (ADL)basis;

• Income protection and businessexpenses insurance – age 60. For incomeprotection insurance, after age 65, thebenefit period will reduce to one or twoyears. Maximum levels of cover also revertto around $20,000 a month; and

• Specialised income protection – age 69.These typically would have a two-yearbenefit period, total disability only,maximum benefit amount of $6,000 amonth.

The products and facilities offered includ-ed maximum expiry ages for insurances ashigh as:

• Term – age 100;• TPD and trauma insurance – age 70

then converts to ADL; • Income protection insurance – age 70;• Business expenses insurance – age 65;

and• Specialised income protection – age 75;As mentioned above, ‘age’ should be read

as ‘policy anniversary prior to age’ in somecases.

The futureWith the ageing population and the exten-sion of the retirement age, it is inevitablethat more clients will need risk insuranceprotection for longer periods – and it isinevitable that more advisers will start towork and specialise in the over 55 market.

While there are some products availableto satisfy the risk insurance needs of thisgroup, the range is somewhat pitiful whencompared to what is available to the morepopular traditional markets. Dare it besuggested that this lack of insurance optionsmay be contributing to an underinsuranceproblem for the over 55s?

Possibly in the future more insurers willsee merit in moving some of their productdevelopment focus from the continualtweaking of mainstream products andinstead make available a greater range ofquality products for the over 55s – after all,the executives running the insurancecompanies aren’t getting any younger.

Col Fullagar is national manager,risk adviceat RI Advice.


“With the ageingpopulation and theextension of the retirementage, it is inevitable thatmore clients will need riskinsurance protection forlonger periods. ”

Self-managed superannuation fund(SMSF) trustees are required undersection 52(2)(f) of the Superannu-ation Industry Supervision (SIS)

Act to formulate and give effect to aninvestment strategy that has regard to thewhole circumstances of the fund.

The overriding purpose of the invest-ment strategy is to ensure the trusteesmake informed investment decisions thatsatisfy the sole purpose test. This gener-ally means the fund must be maintainedprimarily for the purpose of providingretirement benefits to members, or totheir dependants if a member dies beforeretirement.

What factors should trustees consider?The key factors SMSF trustees shouldconsider when formulating the invest-ment strategy include the:

• Members’ ages, years until they plan toretire, retirement income goals, riskprofiles and assets in and outside super;

• Potential risks and returns from differ-ent investments;

• Fund expenses and liabilities that needto be met; and

• Benefits of diversification.

Is there a prescribed format?While there is no strict template that needsto be followed, the investment strategyshould:

• Reflect the purpose of the fund andthe member’s circumstances;

• Set out the fund’s investment objec-tives; and

• Detail the investment methods that

will be adopted to achieve the objectives.It also needs to be in writing, and should

be reviewed periodically.

What should an investment objectivelook like?The trustees should set an objective forthe fund that is both measurable andachievable. Ideally, the objective shouldinclude a long-term return target, whichmay be expressed in percentage or dollarterms. It should also reflect members’willingness to accept any short-termfluctuations in the value of the fund’sinvestments should they occur.

Should the investment strategy prescribean asset allocation?While this is not a legal requirement, bestpractice would be to specify a percentage(or range of percentages) that the fund caninvest in each asset class.

The asset allocation should reflect thefund’s investment objective. Where range-based asset allocations are used, theyshould not be so wide that they are neithermeasurable nor meaningful.

Can the fund invest in a single asset?Some SMSFs invest entirely or primarilyin a single asset (or asset class). A commonexample is where an SMSF acquires thetrustees’ business premises.

Where an SMSF has a single asset, itshould be reflected in the investmentstrategy and the trustees should considerthe lack of diversification such a strategycould provide, as well as the liquidityissues that could arise.

The investment strategy should alsooutline how the fund will address theseissues. For example, the fund could useearnings from the single asset or newcontributions to meet expenses and diver-sify the portfolio over time.

Can the fund have more than one invest-ment strategy?If there are two or more fund memberswith significantly different situations(eg, different ages, investment balancesor risk profiles) it may be appropriate tohave a separate investment strategy for

each fund member.Alternatively, the fund could have one

investment strategy that takes intoaccount the collective needs and prefer-ences of all fund members, which will beeasier to administer.

How frequently should the investmentstrategy be reviewed?The legislation doesn’t prescribe afrequency for reviewing the investmentstrategy. However, best practice would beto conduct a comprehensive review atleast annually, or more frequently ifrequired.

There are a range of events that couldtrigger the need for the investment strat-egy to be reviewed and amended accord-ingly. Examples include when:

• A new member joins the fund;• Existing members make significant

contributions;• The fund needs to pay a benefit to a

member;• A member’s circumstances change;• There are significant movements in

investment markets;• The fund doesn’t meet its stated invest-

ment objectives during a particular period,or

• The legislation changes.

Stronger SuperLate last year, when the Governmentreleased its ‘Stronger Super’ response tothe Cooper Review, it made someannouncements that have the potentialto impact SMSF investment strategies,if legislated.

Additional factors for trustees to considerThe Government has provided ‘support inprincipal’ for the recommendation thattrustees take into account additionalfactors when formulating their investmentstrategy. These include:

• The expected costs of the strategy,including those at different levels of anyinterposed legal structures and under avariety of market conditions;

• The taxation consequences of thestrategy, in light of the circumstances ofthe fund, and to ensure that trustees

consider those taxation consequenceswhen giving instructions in mandates toinvestment managers; and

•The availability of valuation informa-tion that is both timely and independentof the fund manager, product provider orsecurity issuer.

The Government will consult withrelevant stakeholders regarding thedesign and implementation of theseadditional factors.

Insurance in superThe Government has announced it will‘support’ the recommendation that theinvestment strategy operating standardbe amended so that SMSF trustees arerequired to consider life and total andpermanent disability insurance forSMSF members as part of their invest-ment strategy.

Borrowing in superThe Government will undertake a reviewof leverage in two years, covering all typesof super funds. This review will determinewhat impact leverage has had on the superindustry and whether such arrangementsshould be permitted to continue.

In-house assetsThe Government has agreed that SMSFscan maintain an in-house exposure of upto 5 per cent of the fund’s total marketvalue. The Cooper Review had recom-mended that in-house assets be prohib-ited.

Collectables and personal use assetsThe Government has announced it willcontinue to allow SMSFs to invest incollectables and personal use assets,provided they are held in accordance withtightened legislative standards.

These legislative standards will bedeveloped in consultation with industryand will apply to new investments from 1July 2011, with all holdings of collectablesand personal use assets to comply by 1July 2016.

Kristian Wangvisutkul is a technicalconsultant with MLC Technical Services.


Strategic thinking

Toolbox

Kristian Wangvisutkul answers some commonlyasked SMSF investment strategy questions, andoutlines the Stronger Super announcements thatcould impact future requirements.

“ The Government willundertake a review ofleverage in two years,covering all types of superfunds. ”

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 SPECIALISTLocation: Sydney, NSWCompany: ASICDescription: ASIC is Australia’s corporate,markets and financial services regulator. Thisposition, for which you will get a 12-monthcontract, is part of the Financial Literacy,Consumers, Advisers and Retail Investorsteam, which is responsible for influencinglicensee behaviour to comply with theCorporations Act and other financial serviceslegislation.

In this role, you will provide strategicguidance and technical and analytical supportfor the Assessment and ProfessionalDevelopment of Financial Advisers project. Youwill also plan and oversee the work for theimplementation of a revised training regime.

Successful candidates will need to have atleast eight years of experience in the financialplanning industry behind them, as well as pastexperience in AQT, VET and RTO framework.

This position is a Designated SecurityAssessed position and requires successfulNational Security clearance.

For more information and to apply, go tocareers.asic.gov.au/mm and search byreference number 215742.

FINANCIAL ADVISERLocation: MelbourneCompany: Helm RecruitmentDescription: One of Australia’s leading privately

owned financial advisory firms has witnesseda sustained period of growth, providing anexciting new opportunity for a financial adviserwith a business development focus.

Forming part of a highly regarded anddynamic team, you will promote a full serviceoffering to high-net-worth (HNW) clientsincluding comprehensive financial advice,retirement planning, client administration,stockbroking, lending and general and lifeinsurance.

To be successful in this role, you willpossess a track record in businessdevelopment gained within financial planningor private wealth management/bankingtogether with significant experience inproviding tailored financial advice to HNWclients. A track record in building newbusiness, a strong network and relevantfinancial services qualifications such asDFP/CFP will be assumed.

To discuss this role further, please contactBrendon Jukes at Helm Recruitment on (03)9018 8001.

RISK CONSULTANTLocation: MelbourneCompany: Doquile Perrett Meade Description: Doquile Perrett Meade is afinancial services firm that prides itself on itsvision and the client retention rate of over 95per cent.

This role will see you consult predominantly

to medical professionals, providing expertadvice and guidance around all aspects oftheir personal risk protection needs, including– life, trauma, total and permanentdisablement and income protection.

You must have a passion for life insurance,coupled with relevant experience and athorough understanding of the strategiesassociated within this specialised area offinancial planning. You have a mature attitude,an ability to work autonomously, excellentrelationship management skills, RG 146qualification and have ideally completed yourDiploma of Financial Planning.

Should you require further information,please contact Irene Pappas, Manager HR &Group Operations on (03) 9621 7000.

SENIOR PARAPLANNERLocation: MelbourneCompany: Bluefin ResourcesDescription: A highly reputable bank hascreated a new opportunity for a seniorparaplanner who has at least three years ofparaplanning experience.

The bank offers comprehensive financialadvice to a broad spectrum of clients, with amain focus on HNW clients. We are looking fora senior paraplanner with experience inmanaged funds, risk, super, SMSF, tax-effectivestrategies and estate planning.

To be considered you will have at leastthree years paraplanning experience, a

completed Diploma of Financial PlanningCertificates I-IV and the ability to workautonomously as well as in a team. COINsoftware experience will be highly regarded, aswell as your strong communication skills.

Attractive remuneration package andexcellent prospects await the successfulcandidate.

For more information, visitwww.moneymanagement.com.au/jobs

FINANCIAL PLANNERLocation: CanberraCompany: Bluefin ResourcesDescription: A national bank seeks anexperienced financial planner who has provenexperience providing face-to-face holisticadvice to clients.

Ideally, you will have completed a Diplomain Financial Planning I-VI or I-IV as an absoluteminimum.

The ideal candidate will be very sales drivenand excellent at relationship building, bringingin new business and closing deals.

Apart from providing financial advice tocustomers, your role will also involve providingbusiness superannuation advice to smallbusiness owners, liaising with underwriters, lifeinsurance administrators, adviser supportconsultants and other financial institution staffmembers.

To find out more about this opportunity,visit www.moneymanagement.com.au/jobs

K2 ASSET Management hasexpanded its business for thesecond time this year and openeda Perth-based office, appointingSteven Bell as regional manager.

The move followed the openingof the company’s Sydney branch inJanuary 2011.

Bell, who has been appointed tolead the WA business, has 15 yearsof financial services experience andwas most recently a partner in theboutique financial planning firmVantage Wealth Management.

Prior to this, he held senior busi-ness development and statemanager roles with BT FinancialGroup.

CLEARVIEWWealthhas lured a keystaffer away from CommInsure,announcing Todd Kardash as itsnew national sales manager.

Kardash was head of adviserservices distribution at CommIn-sure and his recruitment reflects thefact that Clearview managing direc-tor, Simon Swanson previouslyheaded up CommInsure.

Swanson said Kardash wouldplay a lead role in the developmentof the company’s growth in theindependent financial advisermarket.

Prior to joining CommInsure,Kardash was part of the team thatset up the NAB Insurance dealergroup.

Kardash’s departure from

CommInsure follows on from thatof Simon Harriswho was recruitedto Asteron-owned GuardianFinancial Planning as executivemanager.

FORMEROnePathbusiness devel-opment manager (BDM) andMoney Management’s 2010 BDMof the Year, Lyndall James, hasjoined van Eyk Research in thesame role.

James will be tasked with theresponsibility of growing both exist-ing and new relationships withadviser businesses and intermedi-aries across Australia for the van EykBlueprint Series.

Van Eyk chief executive officer,Mark Thomas, said recruiting“someone of the calibre of Lyndallas our national business develop-ment manager is a great additionto the team”.

Before joining van Eyk, Jamesworked as an investment and plat-form BDM for OnePath for 18months.

She has also worked for theCommonwealth Bank, Associat-ed Plannersand AXA, having spenttime at National Bank/MLC Groupas a BDM for four years.

GLOBAL funds managementgroup BlackRock InvestmentManagement has made threeappointments to its retail team,

which the company said wereaimed at building closer relation-ships with advisers and researchgatekeepers.

Dr Zaffar Subedar, previously aresearch analyst with AMP Finan-cial Planning, has joined BlackRockas a research relationship manager.Subedar will work with researchhouses, planners and dealer groupsto focus on where BlackRock bestadds value to retail client portfolios.

Matthew Young, has beenappointed vice presidentNSW/ACT and account managerwith BlackRock’s Global ClientGroup, which provides service andsupport to advisers. Previously hewas with Colonial First State fornine years in various roles, includ-ing NSW/ACT Business Develop-

ment Manager.Kanish Chugh, recently joined

BlackRock as the business develop-ment associate for the NSW retailteam. He came to BlackRock fromthe media industry, most recentlywith the Australian FinancialReview’sonline subscriptions teamand earlier at Insto’s capital andfinancial markets newswire service.

THE Self-Managed Super FundProfessionals’ Association ofAustralia (SPAA) has announced anumber of board changes, whichwill see the promotion of directorAndrew Hamilton to vice chair.

Hamilton replaces GraemeColley, who will remain as a direc-tor and chair of the regulatory

committee, according to the SPAA.Other changes include the intro-duction of technical strategistLouise Biti as a director.

SPAA board chair, Sharyn Long,said the appointments wouldimprove the association’s ability tocontribute to the policymakingprocess and promote higher self-managed super fund (SMSF)adviser standards.

Long said Hamilton and Biti’scontributions to the SPAA boardwere important as the SPAAworked towards higher standardsand broader SMSF policy objec-tives, and as it navigated legisla-tive and market-related change.Long said the board also lookedforward to Colley’s continuedinput.

Move of the weekFORMER Australian Ethical head of sales and marketing,Paul Harding-Davis, had been appointed as the generalmanager of Premium Wealth Management.

Harding-Davis takes over from Helen Bridgewood, whohas retired after 10 years with Premium.

He has nearly 30 years of business development andmarketing experience, which also includes roles at GlebeAsset Management and Absolute Capital, and a long stintat Zurich Financial Services.

His focus at Premium will include both managing theday-to-day operations of the group and the recruitment ofnew member firms. Harding-Davis also has experience inmanaging operations and compliance, providing leader-ship and strategic direction, according to Premium. Paul Harding-Davis

““AS many of you would know,Outsider is quite the dappergentleman. And being agentleman means that onemust present a certain level ofdignity on all occasions.

But it seems that this is nota sentiment held by everyonein the financial servicesindustry.

When John Brogden, chiefexecutive of the FinancialServices Council, introducedthe guest speaker for theInsurance Conference lunch-eon earlier this month,Outsider couldn’t help but feelthat he undermined hisindustry.

The guest for the day wasnone other than ex-magazineeditor for Cosmopolitan, Mia

Freedman. And as if the pres-ence of a beautiful young ladyin the room wasn’t enough tomake everyone in insurance-land feel like ugly ducklings,Brogden decided to take itone step further.

As Freedman took thestage, Brogden introduced herto his esteemed guests byquipping: “There aren’t manyentrants for the Bachelor ofthe Year Awards here today!”

While Outsider concedesthat the room was mostly fullof older gents with roundphysiques, he does thinkthere is more to being attrac-tive to the opposite sex thanthe ability to remove one’sclothes and pose in compro-mising positions.

Why, there must be some-thing to be said for cufflinks,fast cars and big bankaccounts. Or how else wouldhalf the room have attracted

their mates? Sadly for Mrs O, Outsider

being a journo means shemust settle for his dashinggood looks alone.

Outsider


“I can’t count. I just run a verybig super fund.”

Speaking at the Association of

Superannuation Funds of Australia

luncheon, chief executive of First State

Super Michael Dwyer couldn’t make

up his mind whether it was four, five

or six languages that one of his

panellists spoke.

“Yes, my name is MiaFreedman and I do not havelife insurance.”

This opening statement may not

have been the best way for Freedman

to win the hearts of insurance

company delegates, but it sure got

their attention.

“He barracks for Essendon butwe won’t hold that againsthim.”

ASFA chair of the Victorian compli-

ance discussion group Paul Curtin

introduces the senior manager of

supervision at APRA, Gordon Walker.

Out ofcontext

Collective amnesia

Crime and punishment

Ineligible bachelors

EVERY man and his dog alreadyknows that the Government’sproposed opt-in arrangements havenot received much love from thefinancial planning community. As ascribe who has been prolific on thisvery topic, Outsider had been giventhe impression from his readers’comments that planners would ratherquit the industry than become subjectto such ‘burdensome’ and ‘pointless’arrangements.

This is why Outsider was stunnedwhen he realised the opt-in proposalwas not even mentioned at the Finan-cial Planning Association’s luncheonwith the Financial Services minister

Bill Shorten last week – neither by theminister, nor by the planners whoattended the event.

When the question and answersession began, Outsider thought aperfect opportunity had presenteditself for planners to ask all thosequestions about opt-in they have indi-rectly been asking the Governmentthrough media, using yours truly assome sort of a soundboard.

However, planners seemed to havebeen so much more interested inother issues flowing from the Futureof Financial Advice package that opt-in was simply forgotten.

When a young scribe – who current-

ly enjoys the privilege of basking inOutsider’s years of experience on adaily basis – later questioned MrShorten as to whether he was expect-ing greater debate around opt-in, theminister replied that he had all hisresponses ready and was amazed thathe hadn’t needed to use them.

Perhaps if Mr Shorten realised allhe had to do to avoid discussing apotentially prickly subject was raise abigger, redder rag to the bull, he wouldhave tried that approach a long timeago. Outsider for one is curious to seehow big and red that rag can getbefore the latest round of reforms iscomplete.

OUTSIDER is such an admirer of inap-propriate humour that if it were a crime,he’d have been sentenced to prison longago. Because of it, needless to say, heoften receives murderous looks from MrsO across dinner tables at family and socialgatherings.

Which is why Outsider is comforted inthe fact that he is not alone. Anotherguilty party came to light during the ques-tion and answer session at the FinancialPlanning Association’s luncheon with theAssistant Treasurer and Minister forFinancial Services and Superannuation,Bill Shorten.

The culprit was Fiducian’s managingdirector Indy Singh who, while posing aquestion to the minister, cracked what isnow known as ‘the Bruce Lee joke’.

“Bruce Lee, the actor, once said thathis style of fighting is the art of fighting

without fighting. Is your style of consul-tation the art of consultation withoutconsultation?”

Outsider was not sure whether theaudience applauded the question itselfor Singh’s witty ways, but Mr Shorten wasnot amused.

The luncheon was quickly transformedinto a classroom full of naughty pupils(financial planners) being lectured bytheir teacher (Bill Shorten) about appro-priate behaviour and respect towardsthose with authority.

In fact, despite not having spent anafternoon in detention for severaldecades, Outsider would suggest to MrShorten that if he grows weary of thepolitical game there may be severalprivate schools across the country thatcould do with a disciplinarian of hisability.

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

Documents

Money Management (April 21, 2011)