Money Management (September 29, 2011)

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WHEN the “best interests”duties contained in the Futureof Financial Advice (FOFA)reforms become law, the lack ofa legal precedent will see theFinancial Ombudsman Service(FOS) effectively “swimming inthe dark”, according to ArgyleLawyers principal Peter Bobbin.

In practical terms, courtcases “predict the past” becausethey are based on events thathappen three to four yearsbefore the judge makes a deci-sion, he said.

“What FOFA will do is createa skeletal frame. It’s not until theissues actually come before thecourts that we’ll get the ‘meat’.So FOS will be swimming in thedark for at least three to fouryears,” Bobbin said.

FOS will still attempt to applyFOFA in a proper legal manner,he added – it just won’t have anyguidance to do so.

Minter Ellison partner Maged

Girgis said while FOS was not acourt, and was guided by a “fair-ness” principle rather than thestrict letter of the law, it still hadto operate within the frame-work of the legal system.

“Once you narrow that

framework down – so that aplanner needs to have donecertain things – it would beeasier to find, I suspect, that ifthe person hasn’t done one ofthose things then that wouldbe sufficient [for FOS to find inthe complainant’s favour],”Girgis said.

There are two separate dutiesin the FOFA draft legislation: theduty to act in the best interestsof the client, and the duty togive priority to the interests ofthe client before those of thelicensee. On top of that, there

are 12 steps that planners musttake before giving advice.

“[FOFA will] create morehurdles that a planner has to takein defending a claim before theycan even start to argue aboutthe other concept of ‘fairness’,”Girgis said.

One big complaint fromplanners in the past has beenthat there is no avenue for themto appeal a FOS decision. ButBobbin said it was possible toappeal to the Federal Court ona “legal jurisdictional issue”.

“I would anticipate in the

early days of FOFA there mayvery well be a few appeals.Because no-one – not even FOS– knows what ‘best interests’means,” Bobbin said.

Australian Financial Serviceshead of compliance MichaelButler said the 12 stepscontained in the FOFA draftlegislation would see the indus-try going back to the days of“ticking a box” and movingaway from focusing on the indi-vidual needs of the client.

“That’s the fear of mostpeople – that it’s going to endup being totally process driven,”he said.

Association of FinancialPlanners chief executiveRichard Klipin said the FOFAregime and the best interestsduty currently in the draft legis-lation would create moreavenues for litigation.

“It will be a new world. Therewill need to be common senseprevailing and guidance fromthe regulator,” Klipin said.

By Mike Taylor

KEY differences between groupand retail risk insurance arrange-ments make it imperative thatfinancial planners sell not only thevalue of their initial advice but theimportance of their assistance atclaim time, according to expertrisk consultant, Col Fullagar.

Fullagar has driven home boththe value of advice and the valueof follow-up assistance in theevent of a claim in a column inthis week’s Money Managementin which he actively examines thecircumstances of a client whowanted advice regarding a groupinsurance product with a premiumof $400 and a retail product witha premium of $1,200.

Utilising the real life experienceof the client, Fullagar found arange of key differences betweenthe group and retail products notonly go some way to justifying thehigher retail premium but alsohighlight the need for people to

be appropriately advised.“I did not set out to determine

which product was better. What Iset out to do was determine towhat degree the client needed tobe appropriately informed,” hesaid.

Fullagar said that what became

FOS ‘swimming in the dark’

Continued on page 3

Planners must highlightclaim-time help

STRONGER SUPER: Page 7 | ESTATE PLANNING - THE NEXT GENERATION: Page 14

Vol.25 No.37 | September 29, 2011 | $6.95 INC GST

“FOFA will create more hurdles that aplanner has to take in defending a claimbefore they can even start to argue about theother concept of ‘fairness’. ” - Maged Girgis

By Chris Kennedy

A significant proportion ofadvisers are unaware of thebusiness model of theirresearch providers, a MoneyManagement survey suggests.

Almost a quarter of the nearly100 planners responding to anonline survey were unsurewhether or not their researchprovider accepted paymentsfrom fund managers, while thesurvey also showed that plan-ners overall were confident ofthe quality of investmentresearch across the industry.

Asked to select all researchproviders they used, half saidthey used van Eyk in somecapacity, a third used Lonsec,one quarter used Morningstar,one fifth used Standard & Poor’s,and one fifth used Zenith. Onein six also used internal researchand a smaller number usedMercer and other providers.

Lonsec head of researchAmanda Gillespie said it wasn’tnecessarily surprising that

many weren’t aware of theirresearch provider’s businessmodel.

“It suggests to me that they’refocusing on other aspects of theservice that their researchprovides rather than necessari-ly focusing on the businessmodel,” she said.

“To some degree the decisionabout research providers ismade at the head office level inmany instances. In that regardthe advisers are less involved inthat process,” she added.

Standard & Poor’s head ofresearch, fund services, LeanneMilton, said it may also indicatethat these decisions are takenat the dealer group level. Zenithnational sales manager JohnNicoll agreed that dealers’ lackof awareness wasn’t surprising,but added it was vital that advis-ers really query researchers ontheir payment methods.

However Mark Thomas,chief executive of van EykResearch, said the situationmay indicate a lack of disclo-

sure, because planners do nothave to disclose to clients thebusiness model of theirresearch provider.

If planners had to disclose toclients when research was paidfor by the funds that were beingresearched, the clients mayhave an issue with it, he said.van Eyk, which also derivesincome from an in-house fundsmanagement arm, has todisclose in its reports whether ithas holdings in the funds itrecommends, he added.

Morningstar co-head offunds research Tim Murphysaid he was not surprised thatone in five planners wereunaware of their researchproviders’ business model. Hesaid he would have expectedthe figure to be higher, butadded that more and morepeople are taking notice ofbusiness models as there is agrowing focus on conflicts ofinterest within the industry.

Some planners in the darkon research models

Continued on page 3

By Tim Stewart

Peter Bobbin

Col Fullagar

MySuper the lowest common denominator

Amid all the discussion aroundlast week’s release of theGovernment’s Stonger Superpackage, there existed the

strong assumption that low-cost, low-feeMySuper products would emerge todominate the superannuation landscape.

That assumption was based in large parton the same thinking which actually drovethe Cooper Review to recommend thecreation of MySuper as a form of universaldefault – that most Australians are so disen-gaged from their superannuation that theyneed to be placed into a product specifi-cally designed to protect them from theirown disinterest.

It is worth reflecting that the CooperReview’s embrace of MySuper rancompletely counter to more than a decadeof effort on the part of the Australian finan-cial services industry to encourageAustralians to actually engage with theirsuperannuation and to make appropriate-ly informed decisions.

Notwithstanding the Government’s deci-sion to embrace MySuper as the centralpillar of its Stronger Super push, the finan-cial services industry would be wrong tomeekly accept that disengagement fromsuperannuation should be accepted as anorm.

Indeed, any examination of the packagereleased by the Assistant Treasurer, BillShorten, last week should give heart to themajor financial institutions that a genuineopportunity exists to keep encouragingAustralians to become engaged in theirsuperannuation and to offer them prod-ucts which actually encourage suchengagement.

In circumstances where MySuper prod-ucts will be predicated on a “single, diver-sified investment strategy”, there exists

substantial scope for funds to attract theattention of the supposedly disengaged byrewarding members with significant out-performance. There exists abundantevidence within the financial servicesindustry, from sources as diverse as RoyMorgan Research to the SuperannuationComplaints Tribunal, that the number oneconcern of superannuation fund membersis the investment returns they ultimatelyreceive.

Of course the make-up of a “single, diver-sified investment strategy” can mean differ-ent things to different people, but thosemembers sitting within low-cost MySuperproducts may not be feeling too sanguineif their returns are persistently lower thanthe industry average.

There has been much discussion withinthe superannuation industry of the risk thatMySuper may precipitate a “race to thebottom”. The Government’s Stronger Superblueprint has not, as yet, given reason tobelieve this might not happen.

MySuper should therefore be regardedfor what it is – a lowest common denomi-nator – and the financial services industryshould get on with the job of offeringconsumers a better range of options.

- Mike TaylorABN 80 132 719 861 ACN 000 146 921

2 — Money Management September 29, 2011 www.moneymanagement.com.au

[email protected]

“MySuper shouldtherefore be regarded forwhat it is — a lowestcommon denominator —and the financial servicesindustry should get on withthe job of offeringconsumers a better range ofoptions . ”

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Average Net DistributionPeriod ending March '1110,207

By Chris Kennedy

UP to 70 per cent of planners reportapproaches by a rival dealer group toswitch licensees in the past 12 months,according to a Midwinter survey.

Although 67 per cent said they were notlooking to switch licensees there wereplenty of approaches being made. Morethan half said they had been approachedtwice or more in the past 12 months - andalmost a quarter reported three or moreapproaches, the survey of more than 450advisers from over 70 licensees found.

Less than a quarter of respondents saidthey were not comfortable with their dealergroup’s reaction to Future of FinancialAdvice reforms, while 70 per cent werecomfortable with their group’s response.

The most important dealer group quali-ties or services reported were: being easy to

do business with; planner autonomy to runtheir own business; being able to adjust tochange; compliance and support and theapproved product list.

Planners rated credit and loan services,dealer group financing and buyer of lastresort policies as relatively unimportant.

Planners identified technology and soft-ware support, technology and softwareoffering and quality of statement of adviceas areas of high importance but low satisfac-

tion in terms of dealer group delivery. Twothirds of respondents wanted to be able tochoose their own planning technologyrather than their dealer groups mandatingplanning software, the survey found.

Respondents in the survey came fromfour types of businesses: dealer group -product aligned, practice based; dealergroup - non-product aligned, practicebased; boutique/independent financial

adviser (IFA); and bank/institutionalplanner.

Dealer group satisfaction was very highamong product aligned practice-basedplanners and very low among non-productaligned practice based planners for: brandrecognition, buyer of last resort policies,credit and loan servicing, dealer groupfinancing and practice management.

The reverse was seen in stability of headoffice team and, unsurprisingly, in dealergroup independence from product.

Non-product aligned practice-basedplanners were also the most satisfied interms of dealer groups’ ability to adjust tochange and social interaction withcolleagues, both areas where bank and insti-tutional planners reported a very low levelof satisfaction, although they were the mostsatisfied in the quality of statement of adviceand technical services.

www.moneymanagement.com.au September 29, 2011 Money Management — 3

News

Dealer groups on the hunt for practices

The survey also found 60 per cent of advisers ratedinvestment research overall as either four or five out offive, and close to 90 per cent either somewhat relied on itor heavily relied on it when recommending products.

Lonsec’s Gillespie said the result was a good outcome,and suggested planners were not only finding researchrelevant but were also using it in the right way. “It’s animportant input but not the only input,” she said.

Zenith’s Nicoll said the outcome showed an element ofconfidence in the research, given there has recently beena lot of concern about the viability of strategic asset allo-cation (SAA) and the traditional way the research housesconstruct model portfolios.

In the early stages of the global financial crisis SAA didn’treally work, but in Zenith’s view it wasn’t really being usedproperly. With all the markets going up people weren’tdiversified to the degree they should have been and theyweren’t rebalancing back, he said.

“I think research houses lost a bit of the faith becauseof that. Maybe we need to get out there and make surethe model and the research we’re offering is being usedin the best possible way,” he said.

“Non-product alignedpractice-based plannerswere also the most satisfiedin terms of dealer groups’ability to adjust to change.”

clear was that cl ientsneeded to be assisted inunderstanding whateach product delivered interms of inclusions andexclus ions and whatmight be entai led inevent of making a claim.

“In the end, I believe itis the client’s ability tounderstand what they aregett ing and what i tinvolves that is moreimportant than the levelof the premium he or sheultimately pays,” he said.

“There would certainlybe instances where, as aclient, I would want theassistance and commit-ment of an experiencedplanner in dealing withthe insurance company,rather than to be relyingon a superannuat ionfund trustee,” Fullagarsaid.

“When a claim goespear-shaped, that’s whenyou need the right adviceand the r ight ass is -tance,” he said.Col Fullagar’s full analysisPage 18

Planners must highlightclaim-time help Continued from page 1

Continued from page 1

Research providers’ modelsmystify some planners


News

FPA concern onFOFA valuationsimpactBy Mike Taylor

THE Financial PlanningAssociation (FPA) haswarned that the Govern-ment’s Future of FinancialAdvice (FOFA) legislationremains problematic andhas the capacity to gener-ate unintended conse-quences around financialplanning practice valuations.

The FPA general manager,policy and government rela-tions, Dante De Gori said the‘opt-in’ arrangements had asting in the tail with respect topractice sales.

“The draft legislation hashighlighted a real dangerbecause the Governmenthas long argued that opt-inis prospective , not retro-spective,” he said. “How-ever, the current draft legis-lation is unclear on the issueof what happens in theevent of the sale of a prac-tice or a book of business.

“This may have a mas-sive impact on practice valu-ations,” De Gori said.

‘We also think that thedraft legislation needs to bechanged and the FPA wouldadvocate that financial plan-ners and their clients shoulddecide when the opt-inanniversary date is set andthe process for opting in,”he said.

“This shouldn’t be dic-tated by legislation,” De Gorisaid.

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Australian companies score well in ERM, but 50/50 for built-in risk cultureBy Angela Welsh

AUSTRALIAN organisationsbenchmark above averageagainst their global peers when itcomes to enterprise risk manage-ment (ERM) practices, yet onlyhalf have built a risk culture intotheir organisation, a survey hasrevealed.

The Institute of Actuaries ERMsurvey found that 81 per cent ofactuaries willing to compareAustralia with other countries

ranked Australian organisationsas performing “above average” or“the middle of the pack” for ERMpractices and management ofrisk culture. Only 11 per cent ofthe 250 actuaries surveyed saidthey believed Australia lagged therest of the world.

Despite this positive result,only 52 per cent of organisationsappear to have an embedded,formalised risk culture commu-nicated to staff. Only 37 per centof members surveyed said their

organisation’s approach to build-ing and fostering a risk culturewas “good” or “very good”.

Institute of Actuaries chiefexecutive officer Melinda Howessaid ERM was increasinglyimportant in the current macro-economic climate.

“Continuing global financialmarket volatility and a spate ofnatural disasters in recent timeshighlight the need for effective enter-prise risk management,” she said.

Respondents identified the top

three benefits of effective ERMimplementation as: minimisinglosses to the organisation (75 percent); maximising return onequity (64 per cent); and manag-ing expectations of customers,staff and investors (54 per cent).

While most respondents (84per cent) felt there was a commit-ment from the head of theirorganisation to effective ERM,only 20 per cent of the groupthought it was a “very high” levelof commitment. Melinda Howes


News

Omniwealth fires back at ChoiceBy Andrew Tsanadis

CHOICE’S view that the quality of financial advice in Australiais “among the worst” is not the fault of the adviser but the indus-try as a whole, according to Omniwealth.

The financial planning and wealth creation group has hitback at comments made last week in the Australian FinancialReview by Choice chief executive Nick Stace, who accusedbrokers and financial advisers of giving consumers “crap finan-cial advice”.

“While Nick Stace’s comments regarding the shortcomingsaround the level of advice provided in Australia do have somemerit, it would be foolish for Choice to believe they will be ableto provide a service which will far supersede the industry, as it’sthe industry and its structure that’s actually the problem,” saidOmniwealth chief executive and director Aaron Greaves.

“The industry has your run-of-the-mill financial planner whotypically works for a larger institution, is vanilla in their offering,and offers a basic service.

“Then there are the true financial planners who pride them-selves on advising on all their clients’ financial needs from mort-gages, super, insurances and property recommendations,” hesaid.

Greaves said the industry is still far from effective because itis controlled by a few large organisations, resulting in a “singleasset structure” being recommended to clients as a whole.

Greaves believes the Future of Financial Advice reforms areforcing advisers to show their clients the value of their advice,and this will help to change the industry’s current situation.

“Today’s average financial planner is little more than a glori-fied managed fund salesman,” Greaves said.

“There is a complete disconnect between what your averagefinancial planner can recommend and what their clients expectthem to recommend,” he said.

Choice needs to look deeper into the industry if they want toimprove it, and compare advisers who are working to do thebest for their clients in an industry increasingly controlled bybanks, said Greaves.

UBS axes INGIM jobsBy Tim Stewart

THE takeover of ING Investment Management (INGIM)Australia by UBS Global Asset Management will comeinto effect on 4 October, and will see a number ofthe INGIM staff lose their jobs.

One source has told Money Management that 36of the 120 members of the INGIM team will be maderedundant.

UBS spokeswoman Erica Borgelt conceded thatthere would be redundancies, but declined to con-firm the exact number.

“Obviously there will be duplications in terms of whatpeople will be doing. Everyone was expecting somewould go. People are still being told this week as to whowill still be remaining on 4 October. It’s still a sensitiveissue, but people will be expecting it,” she said.

UBS will issue a statement on 4 October providingmore information, Borgelt said.

By Milana Pokrajac

ACCOUNTING bodies have supported theGovernment’s proposed changes applyingto auditors of self-managed super funds(SMSFs) as part of its Stronger Superpackage.

CPA Australia and the Institute of Char-tered Accountants (ICA) have welcomedthe Government’s maintenance of a prin-

ciples-based approach to independencestandards for SMSF auditors.

CPA Australia senior policy adviser forsuperannuation Michael Davison said thedecision to maintain a principles-basedapproach to independence standards wasa win for common sense, as prescriptivestandards cannot be applied in all situationsand could lose relevance over time as serv-ices evolve.

ICA head of superannuation Liz Westoversaid the announcement reinforced that theaccounting profession’s standard on profes-sional ethics is the most appropriate plat-form for the provision of audit serviceswithin SMSFs.

The Assistant Treasurer and Minister forFinancial Services has also announced theperiod in which auditors must provide theirreport to SMSF trustees will be extended

when the audit report cannot be providedon time due to certain circumstancesbeyond the auditor’s control.

Currently, SMSF auditors are required tosubmit their report no later than the daybefore the SMSF trustees are required tolodge their annual return.

CPA also supports the registration ofSMSF auditors, and said it believed it wouldbe beneficial to the profession and the sector.

Accounting bodies support changes for SMSF auditors

Stronger Super


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THE Federal Opposition has claimed theGovernment omitted a key CooperReview recommendation from itsStronger Super package – better corpo-rate governance arrangements, includ-ing tougher rules around directors sittingon multiple superannuation boards.

The Opposition spokesman on Finan-cial Services, Senator Mathias Cormann,also made clear he believed the Govern-ment needed to address the “currentclosed shop, anti-competitive arrange-ments in the default workplace superan-nuation market”.

“We are also disappointed that [Assis-tant Treasurer] Bill Shorten has failed toact on the very sensible Cooper recom-mendations to improve corporate gover-nance arrangements in the super indus-try,” he said.

“Superannuation is big business with$1.3 trillion worth of Australians’ retire-ment savings at stake. So why is theGovernment not prepared to act on theCooper recommendation to require inde-pendent directors on superannuationboards,” Cormann said.

“Why is the Government not preparedto act on the recommendation requiringdirectors wanting to sit on multiplesuperannuation boards to declare anyforeseeable conflicts of interest to theAustralian Prudential Regulation Author-ity?” the senator asked.

“Bill Shorten has recognised the flawsin his original MySuper proposal,”Cormann said. “It is high time he did thesame in relation to his approach todefault workplace superannuationarrangements and in relation to the needfor improved corporate governancearrangements in the superannuationindustry.”

Stronger Super – both good and badBy Mike Taylor

THE Federal Government’s StrongerSuper legislation has gained a mixedresponse from the financial servicesindustry, with some elements beingwelcomed while others, particularlyelements of MySuper, being viewed asa disappointment.

While the industry superannuationfunds broadly welcome the StrongSuper package, the reactions from theretail and institutional sectors weremore diverse, with the Financial Ser-vices Council (FSC) welcoming someof the improvements from the originalproposals, the Financial Planning Asso-ciation (FPA) was less enthusiastic,particularly with its impact on advicedelivery.

FPA chief executive Mark Rantallwarned that the package might ulti-mately fall short of its original objec-t ives and questioned whether theMySuper arrangements would be suffi-ciently transparent with respect to feesapplying to the delivery of intra-fundadvice.

For its part, the Self Managed SuperFunds Professionals’ Association ofAustralia expressed disappointmentthat the changes had included a banon off-market transfers with respect to

self-managed superannuation funds(SMSFs) – something which it saidwould place the SMSF sector “at a sig-nificant disadvantage compared toother superannuation funds”.

The Federal Opposition spokesmanon Financial Services Senator MathiasCormann also said the Stronger Superpackage had fallen short because ithad failed “to address the currentclosed shop, anti-competitive arrange-ments in the default workplace super-annuation markets”.

As well, Cormann said the packagehad failed to address key corporategovernance issues, including trusteessitting on multiple industry superan-nuation fund boards.

FSC chief executive, John Brogdenwelcomed the fact the Stronger Superpackage had allowed for variable pric-ing within MySuper, tick a box accountconsolidation and appropriate risk-basked capital requirements for super-annuation funds.

Australian Institute of Superannua-tion Trustees chief executive FionaReynolds said it was impor tant tounderstand that a core element of thereforms – the launch of MySuper –was not about ‘dumbing-down’ super.

“At last we have a timetable to rid com-missions from default super funds. Formany Australians super will become morecost-effective, more comparable andeasier to understand,” she said.

Industry funds political lobby groupIndustry Super Network also refer-enced the payment of sales commis-sions to financial planners and alsosignalled it would be pressing the Gov-ernment to tighten the final policyparameters around mult i -pr ic ingarrangements to prevent “super sav-ings being flipped into more expensiveproducts”.

Key elementoverlooked inStronger Super

Mark Rantall

Govt urged to stop super tinkeringWITH the Federal Government’s Stronger Super package nowreleased, a key section of the superannuation industry hascalled for an end to tinkering around Australia’s superannua-tion laws.

Institute of Chartered Accountants in Australia head ofsuperannuation Liz Westover referenced recent changesannounced with respect to self-managed superannuationfunds (SMSFs) and said they should be completed andstabilised.

“Further tinkering with the system could be detrimental toconsumers’ confidence,” she said.

Westover said advisers were continuing to face a raft oflegislative changes which were impacting on the way clientsare being advised.

Westover’s comments flowed out of the Institute’s NationalSMSF conference which she said had driven home upcomingchanges to the laws governing the SMSF industry and howrecent changes could and should be interpreted.

“While reform to the industry is necessary and encouraging,it is time to reach conclusive, positive outcomes and thenstabilise so that SMSF trustees can be confident in savingfor their retirement,” she said.


News

FOFA failing on most counts – AFABy Mike Taylor

THE Association of Financial Advisers (AFA) hasvowed to keep fighting against key elements of theFuture of Financial Advice changes, particularlyopt-in, arguing they represent bad policy unsup-ported by independent or objective research.

In a position paper sent to its members, the AFAmade clear its continuing concerns over thecontents of the first tranche of the FOFA changes,and pointed to the likely issues for concern foradvisers in the second tranche of the legislativepackage.

The position paper said while the AFA believedthe overall intent of the FOFA package was“honourable”, the Government’s execution of theissue was not.

“The game plan has been hijacked by sectorslooking after their own political interests – groupswhich see FOFA as a way to weaken the role ofadvice and the role of financial advisers whilestrengthening their own,” it said.

The AFA paper said a slight chance might stillexist for the FOFA changes to deliver on their orig-inal objectives by better defining what constitutesfinancial advice and by better protectingconsumers.

“As drafted, however, FOFA fails all of these

strategic aims,” it said.The AFA paper said the organisation believed

the legislation had failed consumers and was util-ising a heavy-handed approach to force change“without a shred of independent research, withoutany Treasury modelling or rigour, and with no clearevidence as to the impact and consequences forconsumers, advisers or the industry”.

ISN calls for stronger consumer protectionTHE Industry Super Network (ISN) has called for“watertight” consumer protection requirementsto guard against future financial advice “scandals”.

In its official Future of Financial Advicesubmission, the ISN said a robust and watertightset of legal requirements on financial plannersis the most effective way to insure against futurefinancial scandals eroding individual and aggre-gate national retirement savings.

This will achieve the policy objective ofincreasing the professionalism of financial advicein Australia, increasing consumer confidence inadvice and facilitating better access to advice,the ISN stated.

The ISN also called for the full annual disclo-sure of all fees and payments.

“It is inconceivable that the current regulatory gap, which means clients receive noongoing disclosure of fees from financial planners, would not be rectified,” ISN managerof strategy Robbie Campo said.

The best interests obligation must “create aclear and watertight obligation that protectsAustralian consumers from the self-serving and

structurally corrupt business model, whichcurrently dominates the financial planningindustry,” she said.

The legislation should be formulated as a prin-ciples-based obligation that ensures all person-al financial advice prioritises the client’s inter-ests over the interests of the adviser, licensee orother related party, she said.

“A highly prescriptive or process-driven bestinterests obligation will be used by the financialplanning industry to create loopholes and willimpede the provision of affordable advice,” shesaid.

The reforms need to make clear that the bestinterests obligations apply to existing “passive”clients who are paying ongoing commissionsand fees, she said.

The ISN continued to oppose ongoing andasset-based fees, and supported an increase inAustralian Securities and Investments Commis-sion powers “to ensure the regulator is betterequipped to tackle bad apples and to initiatemore proactive surveillance of the financial plan-ning industry”.

AMP practice launches gearing programBy Benjamin Levy

RECENTLY formed AMP Financial Planning practice Eluvia haslaunched a debt and gearing program for their clients.

The program will help clients look for more efficient ways ofgetting rid of debt and “where appropriate” use gearing toaccumulate more assets, Eluvia director Mark O’Leary said.

The finance will be provided by mortgage aggregator Aus-tralian Finance Group, which has a three year agreement withAMPFP to provide mortgage services to its financial plannersand mortgage consultants.

The gearing options would follow AMPFP guidelines,O’Leary said.

The gearing would be used for investing in property, managedfunds and equities, either privately or through their self-managed

super fund (SMSF) where it was appropriate, he said.Eluvia would offer gearing based on the “usual disclaimers” of

risk profiling clients and their ability to repay the loans, he said.While the market was not as eager to use gearing since the

financial crisis, there was growing interest among Eluvia’s SMSFclients, O’Leary said.

“This has always been on our radar, but it’s a question oftiming or so because we’ve spent the last year or so settling thebusiness in and getting the back office in place,” he said.

The move into debt and lending was part of implementing acomprehensive offering for their investors and part of theirfinal rebranding, O’Leary said.

Melbourne planning practices KRA Financial Group, PresidentFinancial Services and Mills Nettheim joined together to formEluvia earlier this year.

Industry fund memberswant more super adviceBy Chris Kennedy

A SIGNIFICANT proportion of industryfund members would be interested infurther advice about their superannu-ation, even though less than one infive members surveyed currently useda financial adviser, according to asurvey by Energy Super.

Almost three in five members sur-veyed (57.8 per cent) said they wouldbe interested in over-the-phone single-issue advice and more than two in five(41.1 per cent) would be interested inattending face-to-face super educationseminars, the survey of more than1000 members found.

The research also found about a thirdof respondents (31.7 per cent) wereunsure of what super account they heldand features they could be using to max-imise retirement savings, while morethan one in six respondents (17.9 percent) had no idea what their current

account balance was.Only a quarter of all respondents

were confident they would haveenough savings to last their wholeretirement.

Energy Super chief executive RobynPetrou said the survey revealed a seg-ment of working Australians who werehighly engaged and wanted more educa-tion and advice, and interested in a widerange of education points includingonline, face-to-face and over the phone.

“Our goal is to try and get morepeople into this group and at a youngerage, as the benefits of understandingand engaging with your super earlier arewell known,” Petrou said.

“The challenge for funds such asEnergy Super is to better engage withmembers who are disinterested intheir superannuation and make themrealise how paying attention to theirsuper now will pay dividends in thefuture,” she said.

FPA looks to online pushTHE Financial Planning Association (FPA) will lever-age the internet over the next six months as part ofits advertising campaign extolling the virtues offinancial advice.

While the broader advertising campaign, whichkicked off in newspapers and on television onSunday, is intended to run for five weeks, the onlinesearch campaign will run for six months with theintention of driving consumers to the FPA’s newwebsite www.fpabestpratice.com.au.

Commenting on the online push, FPA generalmanager of marketing, Lindy Jones said the onlinepush, via a Google search campaign, had alreadyproved successful in driving traffic towards the FPA’snew site.

She said that the $200,000 online push wasproving highly cost-effective.

Jones said member feedback around the FPA’s newadvertising campaign had been strongly positive.

“In light of the context of industry reform, wefirmly believe that consumers first and foremostneed a way to find advice they can trust,” she said.

She said the FPA was already seeing a markedincrease in hits to its consumer website from around500 per day to over 800 per day.

Lindy Jones

News

Charity sues oversub-prime lossesBy Chris Kennedy

WEST Australian charity Senses Foundationhas filed an application against financial advicecompany Counterpoint through law firm Slater& Gordon.

According to Slater & Gordon, Senses lostmore than $1.5 million in Basis Capital Funds,which was linked to the US sub-prime marketand collapsed during the GFC, after followingthe advice of former Counterpoint directorPeter Williamson.

An application filed by Slater & Gordon inthe Federal Court alleges Counterpoint failed inits duty of care and engaged in misleading anddeceptive conduct between 2005 and 2007while advising Senses.

Slater & Gordon commercial litigation prac-tice group leader Mark Walter said Senseswould never have placed the money with Counterpoint if it had been told that itsinvestment in Basis Capital Funds was high risk and volatile.

“It wasn’t informed of that and as a result, it suffered significant losses,” he said.“Counterpoint ought to have known that this was a completely unsuitable,

high risk proposal for a charity, and that the money should have been invested ina more appropriate manner,” he said.

Although Counterpoint merged with asset manager Grove Financial Servicesin 2008, Walter told Money Management that Counterpoint is a named party, thatis still in operation, and can still be pursued from a legal perspective.

The case is being financially backed by litigation fund LCM.

Citibank managerbanned for falsetransactionsTHE Australian Securities and InvestmentsCommission (ASIC) has permanentlybanned a former Citibank relationshipmanager from providing financial servicesfor conducting transactions without clientauthorisation.

An ASIC investigation found that betweenDecember 2009 and August 2010, VictoriaCai, who worked for the bank from 2006 to2010, “conducted 31 transactions betweenclient accounts without their authorisationor knowledge and submitted transfer appli-cation forms containing falsified signatures”.

In one case Cai cancelled the client’s termdeposit to facilitate a transaction, ASICfound.

Cai also altered the frequency at whichclient account statements were received,suppressed statements so clients had noknowledge of the transactions, and manuallygenerated statements with fictitious accountbalances, ASIC stated.

In March 2010 Cai also transferredUS$527,900 to her personal accounts from aclient account, including $170,000 to pay herown mortgage, ASIC stated.

ASIC acknowledged the assistance ofCitibank, which has also reimbursed impact-ed clients.


Govt mounts superclearing house pushBy Mike Taylor

MORE than a year after it established a small businesssuperannuation clearing house within Medicare Aus-tralia, the Federal Government has initiated an adver-tising campaign aimed at having small employersutilise the facility.

The campaign is aimed at small businesses andinvolves letters attributed to both the Department ofHuman Services which is responsible for Medicareand the Australian Taxation Office (ATO).

The Small Business Superannuation ClearingHouse is available to businesses or organisationsemploying fewer than 20 employees and the promo-tional campaign launched by the Government isencouraging these employers to register their detailswith the Clearing House.

The mail-out of the letters promoting the clearinghouse comes not long after the Federal Oppositionannounced a policy to establish a similar facilityunder the auspices of the Australian Taxation Office.

The Federal Opposition has argued that smallbusiness take-up of the free clearing house facilityhas been poor and that it should more properly fallwithin the ATO.

The letters declare that the documents havebeen produced jointly by the Department of HumanServices and the ATO, and that “no personal infor-mation has been provided to the Clearing House bythe ATO”.

More focus needed on riskmanagement: MLCMULTIPLE global concerns including sover-eign risk, geopolitics and policy errors, Chi-nese growth, inflation and the next bubblesuggest a new focus on risk managementmay be required, according to MLC Invest-ment Management investment strategistBrian Parker.

Historically, we have relied on the idea thatif you are a particular type of investor – basedon what sort of person you are and your riskappetite – then you should be in a particularrisk bucket and can expect a particular level ofreturns over the long-term, Parker said at theMLC Implemented Consulting conference.

But there may be a better way to thinkabout things, and rather than being returnseeking, maybe we need to focus more onrisk management, identify potential problems,and do something today to protect membersand clients over the next three, five or sevenyears, he said.

“Can we rethink the way we do traditionalexposures and approach equity markets?”he asked. “Can we rethink the way we man-date equity managers? If we think someone’sgood can we let them loose more than wealready have? Can we do more to encourageour active managers to not hug the index fordear life? Maybe there are more efficient waysto do it,” he said.

Maybe in the short-term we need to putup with lower returns in order to really guardagainst risk longer term, he said. Parker ques-tioned whether, as a manager, you wouldrather apologise to clients during a hot marketrun for only returning 25 per cent when the

market was up 30 per cent, or whether youwould rather be apologising to a client whenthe market was down 30 per cent for havinglost 40 per cent.

Parker said he was worried about sover-eign risk, and that even governments that willpay us back – including the US, UK and Japan– are only offering returns of one or two percent. He was also worried about the nextbubble, potentially gold, which he said coulddrop by more than half in the next three to fiveyears, as well as emerging markets and com-modities.

There is also a worry about policy errorsand the chance we could end up with anotherglobal recession by policy accident; geopoliti-cal issues will also rear their head from time-to-time, and maybe the only defence is tohave a well diversified investments strategyand avoid as many of the bullets as possi-ble, he said.

Brian Parker

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News

Accountant exemption removal could lower advice accessBy Chris Kennedy

THE Institute of Public Accountants (IPA)has responded to suggestions from SMSFPartners that the removal of the accountants’exemption for advising on self-managedsuper funds (SMSFs) will be good for clients,saying it could reduce access to advice.

It will depend on the form the next trancheof Future of Financial Advice (FOFA) legisla-tion takes, but there is concern that account-

ants will need to go through a complicatedand expensive process in order to be able tocontinue to advise on SMSFs, according to IPAmember integrity manager Reece Agland.

If this happens it’s possible that manyaccountants won’t take it up, reducing theability of clients to get cost effective infor-mation regarding SMSFs, he said.

“We’re not against removal of the exemp-tion but we want to make sure that whateverwe get is something that works and we’re not

too sure that we’re going to get there,” he said.Agland also expressed concern over a

potentially cumbersome licensing systemand said he hoped that where AccountingProfessional and Ethical Standards Board(APESB) requirements are in line withAustralian Securities and InvestmentsCommission (ASIC) requirements then ASICwould not consider it necessary to replicateanything.

Another issue is the implementation time-

frame, and Agland said he hoped there wouldbe at least a two-year period for accountantsto do what is necessary to become licensed.

“Doing the RG 146 course will be expen-sive, but it’s something we have to do. It’sall the other processes of actually puttingin an application that’s a concern,” he said.

“Our optimal outcome would be at least atwo-year transition, a simplified licensingsystem that’s low cost and one that recognis-es the experience that accountants have.”

netwealth’s new online service to help with FOFABy Milana Pokrajac

PLATFORM provider net-wealth has launched anew online service whichthe company said wouldhelp financial advisers pre-pare for the upcomingFuture of Financial Advicechanges and provide themwith back office efficiency.

Executive director MattHeine said the new site wasdeveloped in response to

adviser feedback, as theyprepare for the regulatorychanges and increasedadministrative burden.

Licensees and plannersusing the platform will beable to white label the newsite and reports to pro-mote their own brand,Heine said.

“They will also havethe ability to access newfeatures including onlinecorporate actions, auto

sell down profiles and theability to update clientaccount details via web,”he added.

Over the past 12months, netwealth hasbeen conducting a marketreview, after which thecompany had imple-mented a range ofchanges, including theoverhaul of its investmentmenu, and has made newhires for business growth.

Newstart indexinginadequate, says ACOSSBy Tim Stewart

THE gap between the New-start allowance and the agepension is rapidly increasing,placing Australians who are atthe bottom of the ladder inserious financial stress, accord-ing to the Australian Council ofSocial Service (ACOSS).

The unemployment benefitfor a single person in Australia is$474.90 per fortnight, or $34 perday – compared with the agepension fortnightly payment of$729.30 per fortnight.

The gap is likely to increasein the future, because the agepension is indexed to theaverage male wage – whereasthe Newstart allowance islinked to the lower consumerprice index.

The Government shouldheed the advice of both theHenry Review and the OECDand increase the Newstartallowance and the singleparenting payments, accordingto ACOSS chief executive DrCassandra Goldie.

“Unless the base rate of

allowances is increased andindexed at the same level [asthe age pension] to meetgrowing costs of essentials likerent, utilities and food, theaccelerating difference inpayment levels will lead togreater hardship and morepeople falling into poverty,”Goldie said.

She added that at the currentrate, the OECD has predictedthe Newstart allowance will beworth just half the age pensionin 2040.

“Whilst ACOSS obviouslywelcomes the indexationincreases as crucial in helpingAustralia’s 3.4 million people onpensions meet cost of livingincreases, it is distressing thatpeople on Newstart and soleparenting payments have beenleft behind,” Goldie said.

The latest AustralianBureau of Statistics House-hold Expenditure Surveyfound that 79 per cent ofpeople on the Newstartallowance reported three ormore indicators of financialstress, said Goldie.


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Five clear reasons to investinternationally with Five Oceans

Matt Heine

Australian CFOs optimistic on global growthMORE than 95 per cent ofAustralian mid-sized companiesare confident in their global expan-sion plans, with key executivesexpecting more than half of theirrevenue to come from abroad inthree years, a survey has found.

The BDO Global AmbitionSurvey, which interviewed 750chief financial officers (CFOs)from Australia and 13 other coun-tries, found Aussie CFOs feelingver y optimistic about cross-border growth of their companies,with China being seen as offering

the best opportunity.This comes despite many

feeling that conducting businessglobally is slightly more difficultnow than three years ago.

Another interesting finding isthat most CFOs find it significant-ly more challenging to find the rightpeople with the right skills thanfinding the money to expandabroad.

Optimism of Aussie CFOs ismatched by overall positive outlookof global chief financial officers, butBDO Australia’s national chairman

Tony Schiffmann said Aussies areamong the most optimistic aboutinternational growth.

“I believe this optimism ispartly due to Australia’s enviablelocation as a springboard into thePacific, South Asia and Asia, aswell as our well-educated andskilled workforce and the strengthof the broader economy,” Schiff-mann said.

Global CFOs, however, find itrather diff icult to expand inAustralia, mostly due to in-marketcompetition.


SMSF WeeklyAccountants assertSMSF specialisationBy Mike Taylor

THE Institute of Chartered Accountants in Australiahas moved to give members the ability to specialisein self managed superannuation funds (SMSFs).

The move, announced by the institute’s head ofsuperannuation, Liz Westover, said it would make iteasier for trustees to access highly skilled, expertadvisers.

She said the 2010 Cooper review had acknowledgedthat professional accounting bodies were best placedto be tasked with ensuring high levels of competen-cy existed with respect to the provision of SMSFadvice.

“With chartered accountants making up one of thelargest number of service providers in the SMSFindustry, the institute is a natural choice to providea specialist program,” Westover said.

She said the SMSF specialisation would be run inconjunction with the University of NSW and wouldgive chartered accountants the opportunity todemonstrate their skills.

“More and more Australians are opting for SMSFsas their retirement savings vehicle of choice and it isimportant they have access to quality, accurate advicewhen they require it,” Westover said.

ATO SMSF data skewed by retireesBy Damon Taylor

ONE of the more interesting fig-ures to come out of the AustralianTaxation Office’s (ATO’s) June SelfManaged Super Fund (SMSF) Sta-tistical Report was the proportionof members with incomes lessthan $40,000 per annum. Suchnumbers, according to MatthewWalker, director of WLM Financial,are likely to have come about for avariety of dif ferent but equallyvalid reasons.

“Our anecdotal evidence sug-gests that people on $40,000 ayear income rarely, if ever, set up aself managed super fund unlessthey’re looking at doing somethingthat ’s e i ther ver y unusual orthey’re getting some poor advice,”he said. “So I’d suggest these sta-tistics are probably skewed bymembers in draw-down phase, i.e.they’re retired.”

Walker was quick to point out

that income coming out of a superfund was all tax free so that evenif someone had $50 million, itwouldn’t be assessed.

“But that doesn’t mean they’renot wealthy,” he said. “It’s also notunusual for self managed superfunds to incorporate other familymembers, as in Mum, Dad and thetwo kids.

“Those children may not be highearners,” added Walker. “Soagain, I’d suggest that statisticallythe numbers are probably skewedthrough the inclusion of all mem-bers of all types, not necessarilythe primary income earners andcontributors.”

The reality, according to Walker,was that sel f managed superfunds gave their members a greatdeal of flexibility and that that flex-ibility would always be attractiveto a variety of different people in avariety of different circumstances.

“Setting up your self managedsuper fund gives you a lot of flexi-bility and a lot of options,” he said.“If you can use that for the benefitof the family, that’s great.

“This is about taking advantage ofthe options available to you,” Walkercontinued. “You might not set it upfor those secondary members, so tospeak, but if it’s in existence there’sno harm in looking at it.”

ATO draft ruling welcomed, with caveatsA NUMBER of specialist laws firmshave endorsed the Australian Taxa-tion Office (ATO) draft ruling as gen-erally good news for self managedsuperannuat ion funds (SMSF)trustees.

Both Hal l and Wi lcox andTownsends Business and CorporateLawyers welcomed the ATO draftruling, but both applied caveats totheir welcome.

The Hall and Wilcox analysis saidthe changes represented “goodnews for those SMSF investorstrying to decide whether that newkitchen is a repair or an improve-ment, but not much comfor t forthose SMSF investors looking todevelop property in a SMSF thathas been acquired under a borrow-ing arrangement”.

“In fact based on the draft rulingSMSF investors should take carewith any subdiv is ion of land orrezoning of residential to commer-cial premises,” it said.

The Townsends analysis said thedraft ruling primarily dealt with twosimple questions - what is a singleasset? And when is an asset trans-formed into another asset?

“These simple questions arisebecause the limited recourse bor-rowing rules revolve around the con-cepts of a ‘s ingle asset ’ and‘replacement asset’,” it said.

The Townsend analysis said thatwhile the ruling remained in its draftform, SMSF Trustees and advisersshould exercise caution in relying onthe ruling or the reasoning underly-ing the ruling.

SISFA welcomes ATO property rulingTHE Small Independent SuperannuationFunds Association (SISFA) has welcomedthe Australian Taxation Office’s (ATO)recently released draft ruling which willallow self managed super funds (SMSFs)to make improvements to propertiespurchased through limited recourseborrowing.

Commenting on the ATO’s clarifica-tion of SMSF borrowing rules, MichaelLorimer, chair of SISFA, said it was apract ical outcome for tr ustees thatal lowed for greater f lexibi l i ty whenpurchasing property.

“It is a practical outcome for trusteesand allows for greater flexibility in buyingproperty where the opportunity to addvalue can enhance the retirementoutcome for fund members,” he said. “Ihave found that many trustees wanting aresidential investment have had to prima-rily consider new, ‘off the plan’ residential

developments where the need forimprovements was not an issue.

“This practical change will allow forconsideration of older properties that canbe sensibly upgraded.”

Lorimer added that he did not harbourconcerns that SMSF trustees would over-capitalise properties as a consequence ofthe new ruling.

“ When SMSFs star ted to grow innumbers and the first round of SMSFlending was allowed, we heard howls thattrustees would go broke and lose moneybecause they weren’t in proper managedfunds,” he said. “That has simply not beenthe case and we have seen in ATO figuresthat SMSF portfolios are similar to stan-dard balanced portfolios.

“They have not become over gearedproperty portfolios and we can’t see thatthis practical change in treating propertyinvestments will cause any mayhem.”

Matthew Walker

While much attention was directedtowards the final release of theGovernment’s Stronger Superpackage last week, a single

message from the superannuation specialist atthe Institute of Chartered Accountants inAustralia, Liz Westover, appeared to resonatemost clearly with the broader financial servicesindustry.

The message was that having delivered onits Stronger Super changes, the Governmentshould simply “stop tinkering” with the super-annuation rules and allow Australians somecertainty about what for many of them will betheir largest single investment after thepurchase of a family home.

Of course, the likelihood that the Govern-ment will heed Westover’s plea is remote. Ineach of the four budgets delivered by Treasur-er Wayne Swan, under both the Rudd andGillard Labor administrations the Govern-ment has seen fit to tweak the super system –sometimes dramatically, such as reducingconcessional contribution caps.

And as the Opposition spokesman on Finan-cial Services, Senator Mathias Cormann, lastweek made clear, the Stronger Super packagewas significant as much for what it excluded aswhat it ultimately contained.

The elephant in the room according toCormann is the treatment of default funds undermodern awards and the manner in which thisdelivers a monopoly to industry superannua-tion funds.

Cormann is also concerned that the Govern-ment appeared to astutely side-step some keyCooper Review recommendations on imposingbetter corporate governance by requiring inde-pendent directors on superannuation boards,and closer APRA oversight with respect to thoseholding directorships of multiple boards.

Anyone who has been closely watching thesuperannuation industry knows that Cormannis making a none-too-oblique reference to anumber of well-known personalities who, at the

same time as holding multiple directorships onthe boards of industry superannuation funds,also wield considerable power within thebroader Labor movement.

Nor was it lost on many of those readingCormann’s comments on the need for improvedcorporate governance that they were beingmade in the wake of the controversy whichswirled around MTAA Super and at the sametime as media attention was being directed atthe leadership of the Health Services Union.

While it may not have been deliberate, therelease of the Stronger Super package last weekserved to indicate to many of the Government’scritics that it was not as much a captive of theindustry superannuation funds as many mighthave claimed.

The fact that the package imposed a $1,000figure with respect to auto-consolidation at thesame time as allowing some flexibility aroundfees for funds servicing larger employers clearlyran counter to some of the arguments whichhad been pursued by the industry superannu-ation funds.

This probably explained the relatively posi-tive welcome delivered by the Financial ServicesCouncil (FSC) and some of the larger institu-tions who had clearly been working hard behindthe scenes.

In his response to the release of the package,FSC chief executive John Brogden suggested theGovernment had “landed on a balanced andmeasured package”, and then cited the improve-ments to MySuper as:

• Allowing super funds variable pricing (vari-able investment fees and variable administra-tion fees);

• Tailored investment strategies for workplacesof more than 500 employees to reflect workplaceprofiles and demographics;

• Allowing limited flexibility for workplaces ofless than 500 employees through flexible admin-istration pricing;

• Allowing flexibility and workplace tailoringfor insurance;

• Stripping out the red tape and cost by notrequiring a separate licence or fund for MySuper;

• Tick-a-box account consolidation for super-annuation balances greater than $1000;

• Appropriate risk-based capital requirementsfor super funds.

It was perhaps a measure of the degree towhich the FSC and others had been successfulthat the industry fund’s political lobbying arm,the Industry Super Network (ISN) indicated itwould continue its lobbying of the Governmentto extract the sort of framework it wanted.

“ISN will be encouraging government andregulators to remove the proposed $10,000threshold for the consolidation of accountbalances when it is due to increase in 2014,” theISN release said.

“The Government needs to determine thefinal policy parameters for the multi-pricingarrangements and address employees’ supersavings being flipped into more expensive prod-ucts. This is why the 2014 account consolida-tion process is central to the integrity of thereforms,” it said. “Further, super funds shouldneed to demonstrate to APRA that any discountsto employers are the result of genuine scaleadvantages, as argued by retail super funds, andnot cross subsidized by other fund members.”

So the message for superannuation fundmembers is that while the Government hasdelivered on its Stronger Super package it hasnot delivered on the certainty being craved bythe ICAA.

The timetable for the delivery of the StrongerSuper changes combined with the continuedlobbying by groups such as the ISN and the refer-ence of the default funds under modern awardsissue to the Productivity Commission meansthat much will remain up in the air for at least thenext 18 months.

Then too, there is the reality that within thesame timeframe Australians will be asked to goto another Federal Election. The only certaintywith respect to superannuation appears to becontinued uncertainty.

InFocus


The Government has finally delivered the details of its Stronger Super packagebut, as Mike Taylor writes, those hoping for certainty may be waiting a verylong time.

Shape of Stronger Superremains uncertain

Hedge Fund strategies performance - August 2011

ASFA National Conference &Super Expo9-11 November 2011 Brisbane Convention & Exhibition Centrewww.superannuation.asn.au/conference-2011/default.aspx

AFA National Conference23-25 October 2011 RACV Royal Pines Resort,Gold Coast www.afa.asn.au/profession_events.php

Finsia Event - SuperannuationReform: What Will Super LookLike In 2015?4 October 2011Sofitel Melbourne on Collins www.finsia.com/events

FSC Deloitte LeadershipSeries Lunch28 October 2011 Four Seasons Hotel, Sydneywww.fsc.org.au/events/events-overview.aspx

Property Investment Research(PIR) Property Industry FundsForum 16 October 2011Hyatt Regency Coolum, Sun-shine Coast, Queensland www.pir.com.au/Public/PIR/Events/Forum2011/

Source:: EDHEC - Risk Institute

+6.97%Short selling

What’s on

HEDGEFUNDSSNAPSHOT

CTA global

Funds of funds

Emerging Markets

Long/Short equity

Distressed securities

-2.57%

+0.27%

-3.90%

-4.07%

-4.08%


Estate Planning

But he argues that this concept willsuit al l those advisers who alwaysthought there was something wrongwith the financial planning process -himself included.

Bishop agrees that estate planning isan area of advice ver y much in i tsinfancy, and is still being driven byadvisers simply asking their clients ifthey have a will and then referring themon. However, he envisions that thethree disciplines of law, financial plan-ning and accountancy will be wrappedin one package.

“But not every financial planner, solic-itor or accountant is licensed to do that,and may not have the resources andinfrastructure,” he says.

Referral relationships could work well,yet there may be fear among advisers thatit would be difficult to maintain their leadadviser status. There is always concernthat they will lose their clients to otherprofessionals altogether, Bishop says.

“That’s a fact of life. The whole idea forany business is to retain your clients, butonly with the services you can offer anddo well. There’s no point in trying to retaina client for the services that you do half-well,” he says, adding that will only leadto trouble.

Sanders says the concept of a profes-sional relational practice will evolve intime, where a professional community oflawyers, accountants, auditors and finan-cial planners comes together and fromwhich networks grow.

For now there are a number of placesadvisers can look for specialists. Sanderssuggested the Law Council of Australiawebsite identify estate and trust special-ists, with advisers also tapping into theSTEP community. Perkins suggests lawsocieties as a source of professionals thatmay have Wills and Estate SpecialistAccreditation. Tax Institute members andCertified Practising Accountants are also agood port of call, he adds.

Galagher maintains that unless advis-ers have an aptitude for the law, thenestate planning is an area they shouldperhaps not delve in.

“It is clearly an attractive area of busi-ness, which f i ts nicely with theirbroader service offering. But it’s not assimple as hanging up a plaque outsideyour door – it needs a lot more thanthat,” he says. “People may feel thatthey can reduce liability with theirprofessional indemnity insurance, buttheir professional , indemnity (PI)insurer may to date not have contem-plated estate planning advice.”

Perkins says that when PI insurersreview business models, the view hasalways been expressed that dealing withestate planning actually reduces advicerisk. He does not believe that taking onestate planning will create greater liabil-ity. Rather he asserts that by simplyreferring clients elsewhere, advisers maynot only go against the reasonable basisfor advice requirement, but may facegreater reputational, relationship andbusiness risk.

“The reality is that financial plannersare well placed to take a lead adviserrole. Estate planning is complementaryto their financial planning knowledgeand advisers take to the learning quiteeasily. The value they add to the clientwell exceeds any additional risk, provid-ed that they are trained correctly in thefirst place.

“Telling clients to go to a lawyer andsort out their will is a far more danger-ous statement,” Perkins adds.

Borner says advisers need to becareful with any advice they give.

“Because of the nature of this type ofadvice and the family disputes thatarise, it is an area that advisers havetended to s tay away f rom purelybecause they are worried about theconsequences of getting it wrong,” hesays. “But we would rather be active inthis area and have our advisers at ahigher educational level than simplyignore it.”

The missing pieceTechnology and software seem to bemissing in estate planning discussions,although some of the bigger software

providers have included an estate plan-ning component in their offerings.XPL AN , for example, promotes i tscustomer relationship manager systemas easily adaptable to collecting thelevel of information needed for estateplanning, while Midwinter’s Advis-erTech also has an estate planningcomponent. However, it seems thatthere are few if any solutions specificto estate planning within the financialplanning arena.

Estate planning capabilities are lookedat as part of Investment Trends’ annualPlanner Technology Report.

“Planning software generally haslimited support for estate planning as itmainly deals with clients’ investible assets,though they do cover some parts of thebroader legal and tax related issues ofestate planning,” says lead analyst RecepPeker. “Clients with substantial assets typi-cally use the services of tax specialists oraccountants alongside their planner tomanage their assets.”

Perkins says a barrier for advisers isthe absence of reliable tools for profil-ing the situation of the client.

“For dealer groups especially, themain put-off is how do they scale thepersonalisation of advice – where are thetools and where is the knowledge? It’sstill a work in progress.”

However, he notes the developmentof product-less wrap accounts are ahuge advantage in estate planning.

OneVue has developed a unifiedmanaged account, which enables advis-ers to view their clients’ total net finan-cial position, with all assets and liabili-t ies managed in one place. Lockacknowledges this won’t be a competi-tive advantage forever, but the real focusis not necessarily technology, he says.For him, the key difference has beenchanging his questioning technique,enabling him to delve deeper into hisclients’ particular circumstances.

Borner believes that there will be inno-vation in niche areas like superannuationand insurance, but he agrees that askingthe right questions is paramount. MM

“The whole idea for anybusiness is to retain yourclients, but only with theservices you can offer anddo well. There’s no point intrying to retain a client forthe services that you dohalf-well.” - Colin Bishop

Peter Burgess

In seeking to make an income protec-tion insurance recommendation toher client, an adviser was recentlyconfronted with the following options.

Should she:• Recommend the client retain cover

within an industry fund for which thepremium was $400, or

• Recommend the client move to a retailproduct for which the premium was $1,200.

The problem of course centred on thecost-benefit analysis. What was driving sucha dramatic premium difference, and was itpossible the retail product was so muchmore appropriate that the difference couldbe justified?

Irrespective of the answer, the adviserneeded to be able to provide a response forthe client, so she arranged for an analysis tobe undertaken.

To ensure apples were being compared itwas confirmed that both contracts were forthe same benefit amount, benefit andwaiting period and both premium quoteswere on a no-commission basis.

The analysis was undertaken at fourdifferent levels:

1. PremiumWhen making a premium comparison, it isoften necessary to go further than compar-ing the current year’s premium. Future premi-ums may also reveal material differences:

• For stepped premiums, are both premi-ums stepped in the same way?

• For level premiums, how are indexationincreases treated, at original rate or currentrate?

• Is one set of premiums calculated in agebands such that large increases occur whena previous band ends and a new one starts?

• Is one set of premiums calculated on aflat basis ie the same for all ages, such thatthe younger lives are heavily subsidising theolder lives?

This information alone may account for alarge component of any premium difference.

2. ContractualThe first level was on a traditional basis:contractual differences were identified andan estimate was made of the approximatevalue of each of the featured differences. Toensure “reasonableness”, an actuary was

asked to check and confirm. Set out beloware the findings:

(i) Indemnity versus agreed valueThe industry fund was insured through agroup insurance contract. As a result, eachyear the client needed to advise their thencurrent level of earnings, and cover for thecoming year would be based on that figure.

Further, the policy stated “if actual earn-ings at time of claim are less than nominat-ed earnings, the benefit will be based onactual earnings.”

In other words, cover was issued on anindemnity basis both from year to year andalso within each year.

The retail product was agreed value.The agreed value facility within a retail

income protection insurance policy is wortharound 15 per cent of premium.

(ii) Ancillary benefitsIn addition to the core benefits of total andpartial disability, the industry fund onlyincluded the following ancillary benefits:

• Death benefit, twice times the lastmonthly benefit paid;

• Rehabilitation expenses reimbursement– at the total discretion of the insurer, and

• Waiver of premium, only whilst on claim.The inclusion of a full, comprehensive

range of ancillary benefits within a retailincome protection insurance policy is alsoworth around 15 per cent of premium.

(iii) ExclusionsThe industry fund contained several exclu-sions that were not present in the retailproduct:

• Engaging in professional sportingactivity;

• Flying except as paying passenger or asa passenger in a chartered plane for thepurposes of carrying out the duties of themember’s occupation, and

• The member’s involvement in, or perpe-tration of, a criminal act, with discretion toreduce or refuse benefit payment if themember is imprisoned.

There was also a pre-existing conditionsexclusion. The precise conditions of thiswere relatively complex. However, in brief itexcluded any claim that arose as a result ofan injury where the injury originally

occurred in the 12 months prior to coverstarting and an illness that occurred in the sixmonths prior to cover starting.

In the event of “war”, the insurer reservedthe right to increase premiums or excludebenefit payments if the claim was causeddirectly or indirectly as a result of war.

“War” was defined as declared war, armedaggression by one or more countries resistedby any country, combination of countriesor international organisations, participationin an action to defend a country or regionfrom civil disturbance or insurrection, or inan effort to maintain peace.

Thus not only were significant addition-al exclusions introduced, but the presence ofthe war provision had the effect of adding acancellable element to the industry fundproduct.

None of the above conditions werepresent in the retail policy.

The absence of the above exclusions witha retail income protection insurance policyis worth around 10 per cent of premium.

(iv) OffsetsBenefit offsets within the industry fundproduct included payments received fromany of the following:

• Workers’ compensation;• Social security or other statutory or

government payment;• Any payment in respect of loss of income

(whether under legislation or otherwise);• Statutory accident compensation and• Other disability insurance except term

and permanent disability (TPD).There were no offsets in the retail product.The absence of the above offsets with a

retail income protection insurance policy isworth around 5 per cent of premium.

(v) ClaimsThere were several unique claim conditionswithin the industry fund.

One stated that the insurer couldrequire the insured to be examined by amedical practitioner of the insurer’schoosing who “must confirm the condi-tion.” This might be problematic if thenature of the condition was unknown: forexample, a mental or nervous disorder forwhich the specific diagnosis was open todebate.

The insurer could require the insured toundergo rehabilitation. This provisionappeared to contradict the definition of totaldisability to the extent that it purported todeem total disability if one duty could notbe performed, the insured was followingmedical advice and was not working.

If the insured refused or felt it inappropri-ate to undergo rehabilitation, it was contrac-tually possible for benefits to be withheld.

Finally, if there was a dispute concerningclaim admission, the policy indicated thatthe matter would be referred to the “claimsreview committee” and “the parties agreethat any determination of the claims reviewcommittee is final and binding”.

This could be perceived as an attempt tonegate any appeal to the Financial Ombuds-man Service or the legal process.

The absence of the above issues within aretail income protection insurance policy isworth around 2 per cent of premium,although the actual impact at the time ofclaim might be much greater.

(vi) Cover end dateCover under the industry fund policyended if:

• The member commenced active dutywith the armed forces of any country;

• The member permanently retired fromemployment (clarification of when thisassessment would be made, by whom andon what basis, was not provided);

• The member was on unpaid leave forlonger than 12 months;

• The member worked overseas for longerthan three months (notwithstanding the


OpinionInsurance

Industry versus retail: A tale of two policies

Col Fullagar takes a look at two income protection policies –one is offered by an industry super fund, while the other comesfrom a retail fund. While the premiums may vary significantly, itis important to conduct a proper cost-benefit analysis, so that aclient is better able to make an informed choice.

policy spruiked that it provided 24-hour,world-wide cover;

• The member ceased to be a member ofthe plan (it then became clear that the policydid not provide for a continuation option);

• The member, who is not an Australianresident, was no longer permanently inAustralia or not eligible to work in Australia.

Again, the absence of the above cancella-tion provisions within a retail incomeprotection insurance policy is worth around2 per cent of premium.

(vii) Miscellaneous areas of differenceNot unexpectedly, there were also numer-ous subtle but potentially important areas ofdifference, for example:

• The waiting period requiring theinsured to attend a doctor rather thansimply stop work;

• Pre-disability earnings not beingindexed whilst on claim;

• The absence of a guarantee of upgrade,and so on.

When the impact of the above contrac-tual differences was taken into account,the premium comparison became some-what different:

Retail product $1,200Less reduction for:• Indemnity (15 per cent)• Ancillary benefit (15 per cent)• Exclusions discount (10 per cent)• Offsets (5 per cent)• Claims (2 per cent)• Cover end date (2 per cent)Net premium = $700While this brought the premiums much

closer, there was still a considerable differ-ence: $700 compared to $400.

3. ProceduralHaving considered the contractual differ-ences and the monetary value of these, theprocedural differences were considerednext.

The main area of difference was theadministration efficiencies associated withgroup insurance:

• Group automatic acceptance avoidsindividual new business administration andunderwriting costs; and

• The dynamics of group insurance drivelower lapse rates.

Irrespective of whether or not group coveris provided at an employer or a fund level,the above factors will deliver economies ofscale that will be reflected in the premium.

The positive impact for the client of auto-matic acceptance levels would be the speed-ing up of cover commencement. Lowerlapse rates, on the other hand, would have

little or no procedural impact. However, theywould impact on premium cost.

4. RepresentationAn important area of difference and thus amaterial matter in the product analysis wasthat of client representation.

Under group insurance arrangements, itis generally necessary for the client to dealwith a middle-person: ie the trustee,employer or administrator.

While this may generate a cost reductionfor the insurer, the arrangement may be tothe detriment of the client, as many whohave had to deal through a middle-personwill attest.

If the client does not have a personalsupport base, they will be on their own whenit comes to advice and assistance. Shouldthey need either, it may well be necessaryto pay a fee either to an accountant, a solic-itor or a financial adviser.

Depending on the amount of assistancerequired, it may well be that any premium

difference would be very quickly negated ifthe contractual differences within the indus-try fund product manifested as a greater like-lihood of misunderstandings and disputes,particularly at the time of claim.

The premium, contractual, proceduraland representative differences between thetwo policies and the potential direct andindirect costs associated with them meanthat a cost-benefit analysis is not necessar-ily straightforward.

For some clients, the cost will be moreimportant than the benefits foregone, whilefor others it will not.

Naturally, the question of what is appro-priate for a particular client is not for deter-mination within this article. Rather theintent of the article has been to considervarious ways in which differences may bepresented to a particular client such that theclient is better able to make an informedchoice.

Depending on the circumstances, asimple premium or contractual compari-son may suffice. Sometimes it may be neces-sary to go further and consider the monetaryvalue of these differences. It may even benecessary to consider non-contractualfactors such as the value-add of adviserinvolvement.

The challenge for the adviser is to knowwhen one basis of analysis is appropriate overanother and then to have the tools at theirdisposal such that they can assist the client tomake the all-important informed choice.

Col Fullagar is the national manager of riskinsurance at RI Advice Group.


“The premium, contractual, procedural andrepresentative differences between the two policies and thepotential direct and indirect costs associated with themmean that a cost-benefits analysis is not necessarilystraightforward.”

Up until recently, there hasn’treally been a need to adoptmanaged accounts. Financialmarkets were ticking along

nicely, investors were happy and planningpractices were making money. Againstthis backdrop, why would an adviserchange a business model that wasn’tbroken?

Managed accounts were also in theirinfancy. Generally speaking, they wereoffered for large-cap Australian equities onlyand product choice was limited, due to thereticence of fund managers about ‘sharingtheir IP’. There was only a small number ofmanaged account providers – and an over-arching sense that the sector needed todevelop further.

Other obstacles included a lack of knowl-edge amongst clients as to the benefits ofmanaged accounts and the difficulties,perceived or real, of transferring clients toa new investment model.

Fast forward a few years and the worldis a very different place. During the past 12to 18 months, we have witnessed increas-ing activity in the managed account sector.

The main impetus has been the fallout ofthe GFC. This has prompted investors,advisers and regulators to examine theexisting financial services model and askwhether there is a better way.

For investors, key concerns have centredon fees, performance and control.Connected to this are questions about thefairness of capital gains tax outcomes formanaged funds. Frankly, I don’t envy theadviser who has to front up to a client andexplain why they need to pay capital gainstax on an investment that has lost money.

As a result, investors have begundemanding “simpler" investments likedirect equities and exchange trading funds(ETFs). According to Investment Trends,

new investment in direct shares is expect-ed to rise to 26 per cent in 2013 – anincrease of more than 10 per cent from twoyears ago. As these pressures mount anddemand for direct shares increases, struc-tures like managed accounts come intotheir own.

With managed accounts, the beneficialownership of the shares sits with theinvestor. This entitles them to companydividends and franking credits and facili-tates personalised capital gains taxoutcomes. At the same time, clients contin-ue to benefit from the oversight and inputof professional investment managers.

Managed accounts also providecomplete transparency so the investor hasfull knowledge of what they are invested in,how their portfolio is performing and howmuch they are paying. It provides theinvestor with a sense of control over theirfinancial outcomes.

It is for similar reasons that managedaccounts have experienced significantgrowth in the US market, particularlyamongst high net worth clients and theiradvisers. Recent figures I’ve seen out of theUS indicate that their managed accountmarket is worth about US$2.1 trillion, andis growing by about 14 per cent per year.

Legislation and regulatory reform arealso helping support the growth ofmanaged accounts. The Future of Finan-cial Advice (FOFA) reforms echo theconcerns of investors with an emphasis onfairer fee models, greater transparency anda requirement to place the investor firmlyin the centre of the equation. The high-touch approach of managed accounts is anatural fit with the high-touch approach ofFOFA’s opt-in provisions and fiduciary dutyrequirements.

The outcome of all this for advisers issignificant. Under FOFA, advisers will be

meeting with their clients in the comingmonths to sign new service propositions. Iexpect clients will begin to ask questionsabout fees and value creation and willdemand greater accountability.

To keep clients engaged and preservepractice value, many advisers are going tohave to reassess their business models.There is a pressing need to redefine valuepropositions for the post-regulatory envi-ronment – to show their clients that theyhave addressed the problems of the (GFC)and found a better solution.

It is the transparency of managedaccounts that provides a key advantage.When a client engages an adviser, theyexpect the adviser to know the intricacies oftheir portfolio. This could be difficult if theadviser is using managed funds whichprovide monthly or quarterly updates onperformance and the ‘top 10 stocks’.

With managed accounts, advisers havecomplete visibility of client portfoliooutcomes and can be more involved ininvestment decisions. This enables theadviser to cement their role and forcescloser relationships between adviser andclient. In addition, managed accounts easethe transition to fee-for-service, as theplanner has greater visibility of fees,enabling them to better calculate andjustify the value they add.

Managed accounts can also provideadvisers with the benefits of a manageddiscretionary account (MDA), thusenabling them to be proactive whenmarkets demand it. Without an MDA,advisers have to move clients individually– and by the time they get through theapproval and administration process, theopportunity has often been lost.

Yet despite their benefits and relevancein a post-GFC world, we continue toencounter some resistance when it comes

to actually making the decision to imple-ment managed accounts. The reasons arevaried, but typically include a lack of invest-ment choice, concerns about technologyand the process of transition. Fortunately,the managed account industry has used itstime on the sidelines to mature and addressmany of these concerns.

Firstly, with more providers now in themarket, managed account technology andadministration systems have advancedconsiderably, leading to improved efficien-cy and reliability. Most managed accountproviders have also integrated their systemswith key software programs such as Xplanand Coin.

Secondly, investors are no longer restrict-ed to Australian shares. There is now abroader range of asset classes availablesuch as international equities, fixed inter-est, ETFs, cash and derivatives. This hasbeen facilitated by improved technologyand also a growing awareness and accept-ance of managed accounts amongst fundmanagers. It also allows the adviser to prop-erly diversify a portfolio.

Managed account providers are alsoplacing greater emphasis on transitionsupport, which is critical if the sector isto prosper. Providers are more adept athelping planners structure managedaccounts to complement their existingplatforms.

At the end of the day, managed accountsare starting to shine because they enableadvisers to rebuild their value propositionsand deliver what clients and regulatorswant – a high-touch, transparent and fairapproach to investment management thatplaces the client firmly at the centre of theequation.

Thomas Bignill is the managing directorof Mason Stevens.


OpinionAccounts

Coming of ageSince their arrival on our shores about adecade ago, managed accounts haveremained largely dormant in Australia. But with continuing market volatility and the imminent FOFA fallout, the market seemsto be paying them more attention. ThomasBignill explores why the day of managedaccounts is dawning.

The details of the forthcoming TaxSummit are gradually emerging,and the essential question for thelife insurance industry is whether

or not we will be ignored again. The HenryReview, the so-called root and branchreview of the taxation system, largelyignored our industry. This was expected,as the special needs of the life insuranceindustry have been consistently ignoredin the noise and conflict surrounding taxreform.

Even worse than being ignored is ourpotential to be a victim of collateraldamage in a conflict over issues which arenot related to our industry. As an industry,we need to avoid this unsatisfactory guiltby association.

What should the life insurance industrybe bringing to the attention of the illustri-ous minds at the Tax Summit?

We need acknowledgement and accept-ance of the fundamental fact that there isan enormous underinsurance gap inAustralia, and steps should be taken toencourage the closing of this gap. The taxsystem should play a role in closing this.

This means the introduction of taxationmeasures which encourage life insurance.Australians carry high levels of debt, andmany do not have the ability to maintaineven a modest lifestyle in the event ofdeath or disability. To date, we have prob-ably had insufficient acknowledgement bythe policy makers of the existence of theunderinsurance gap, and the need formeasures which would encourage itsclosing. We need legislative interventionin four key areas outlined below.

Tax incentives for life insuranceoutside superannuationWe should be encouraging Australians totake out life insurance protection. In itspresent form, the Australian taxationsystem does not contain any incentives fortaxpayers to take life insurance outsidesuperannuation. The cost of life insurancepremiums outside superannuation shouldbe deductible to individual taxpayers. Thededuction should be capped to ensure thatcover is kept at a level sufficient to maintaina reasonable lifestyle in the event of claim.

The existing taxation system offersincentives to taxpayers to have insurance

via superannuation. This is a positive step,as most Australians have life insurancethrough superannuation as their onlysource of insurance cover. Some puristsmay argue that superannuation is forretirement savings, and not for protectionfrom death or disability. The reality is thatthe present system of life insurance viasuperannuation should be maintainedwith the existing tax incentives in place.This will ensure continued protection forthose Australians with life insurance coverthrough superannuation.

Consistent treatment of life insuranceinside and outside superannuationWe should be encouraging consistenttreatment of life insurance inside andoutside superannuation. This can beachieved by offering tax deductibility forlife insurance premiums outside superan-nuation as discussed above.

This consistency should also flowthrough to the treatment of claimproceeds. The tax-free status of the claimproceeds outside superannuation for taxdependants, such as surviving spouses andeconomically dependent children, shouldcontinue. However, we have to accept thatthe proceeds of life insurance claims paidoutside superannuation to non-depen-dants should be assessable on a basisconsistent with the taxation of these bene-fits within superannuation.

This consistency would eliminate thetax-driven choices of insurance inside oroutside superannuation. The tax outcomesshould be the same under both choices.

Abolition of stamp duties on lifeinsurance productsThe third issue for the life insurance indus-try is the elimination of stamp dutiespayable on life insurance products. Lifeinsurance stamp duty was considered bythe Henry tax review, but disappointingly,the Government responded that this is astate tax issue and out of its hands. Thereality is that this issue can only be resolvedat federal level. The states will need substi-tute sources of revenue if life insurancestamp duties are abolished.

Few consumers of life insurance prod-ucts realise that the state governments takethe biggest clip of the ticket in the life insur-

ance supply chain. For example, traumainsurance in South Australia carries an 11per cent impost on the premiums paidwithout the State Government taking anyeconomic risk. Few product providers havemargins of this magnitude. Ultimately, itis the consumer who carries this cost viahigher premium charges.

At the very least, we should have consis-tency of duties across the states and notvary levels in each state.

Longevity issuesLongevity will emerge as one of the majorchallenges of the future. We are likely tooutlive our retirement savings. We are facedwith the prospect of a large cohort of indi-gent octogenarians and nonagenarianswho will place a heavy burden on the socialsecurity system.

The life insurance and broader financialservices industries are ideally positionedto offer investment options and risk insur-ance products which can provide funds tothe elderly investor for use when otherretirement savings have been depleted.The tax and regulatory systems need tosupport the introduction of products ofthis type. Ultimately, the marketplace willbe the judge of the merits or otherwise ofthese products. However, there needs tobe a friendly tax and regulatory system.

At present, the tax system does notallow the tax-free treatment of investmentreturns while a product of this type is inaccumulation phase. The system alsopermits those over 60 years of age to have

unlimited withdrawals of savings from thesuperannuation system.

Capital maintenance and other regu-latory rules applicable to productproviders need to be examined carefullyto ensure the correct balance between theprotection of the consumer on the onehand and the viability of the product onthe other hand.

The great unanswered question iswhether or not the Australian consumerwould be prepared to undergo the short-term pain and inconvenience of usingtoday’s economic resources for the long-term security of having a source ofincome in their twilight years. It is likelythat considerable education is requiredto get the average Australian to engagein the requisite long-term thinking andplanning.

A question mark hangs over this TaxSummit. Will it be another talkfest withthe Government going through themotions? The cynic may take the positionthat this is some fluff imposed on theGovernment by a crucial independentmember of the House for ongoingsupport. History may well judge thissummit in that light, but it does representan opportunity for the life insuranceindustry to educate and enlighten every-one on the benefits it can offer to allAustralians. Our industry needs to rise tothis challenge via active participation andengagement.

David Glen is the taxation counsel at TAL.

Tax Summit:gabfest or bravestep forward?

OpinionTax


David Glen proposes a number of points that thelife insurance industry can address during theupcoming Tax Summit — including tax incentivesfor life policies outside of superannuation andways to approach longevity issues.

It’s hard to believe, but I have just cele-brated my 49th birthday. That meansI only have another 132 monthly paycheques left to fund my retirement at

60, placing me at the back of the babyboomer demographic.

While it’s still some time before I takemy bat and ball and head off to the finan-cial services pavilion for the last time, mythoughts are already turning to ensuring Ihave sufficient funds to enjoy a retirementthat promises to be long and active.

As the first baby boomers approach retire-ment, many of them will also be starting tothink about how long their nest eggs will last.A growing number of people are movingfrom accumulating assets to unlockingcapital that will fund their lifestyles.

The baby boomers’ march towardsretirement represents a huge opportunityand challenge for financial planners, advis-ers and product providers to effectivelyengage this segment of clients.

Baby boomers – the architects ofadviceBaby boomers have played a major role inshaping advice strategies and productdevelopment over the past three decades.

It’s no coincidence that trauma insur-ance first appeared about 20 years ago,when boomers started to take on the finan-cial liabilities that come with house owner-ship and raising families, as a larger poten-tial market prompted huge innovation ininsurance product design to meet theirprotection needs.

Later, one of the best strategies for accel-erating accumulation – transition to retire-ment – happened to appear shortly afterthe first boomers hit 55.

The influence of baby boomers onfinancial infrastructure continues: theunstoppable rise of self managed super-annuation funds has coincided withcashed-up baby boomers looking forgreater control, choice and flexibility.

Don’t rely on averagesWhile averages are useful, they can bemisleading. Retirement planning software

tends to deal in averages – whether it’s lifeexpectancy, future returns or incomegenerated. But we all know life isn’t aspredictable as that.

While the average life expectancy of anAustralian male is 83, only 4 per cent ofAustralian men die at this age and morethan half of them live longer. For exampleif you are 60 and retiring today, there is aone-in-two chance that you or your spousewill still be alive after the age of 90*.

However, if you are from a mid-to-highsocio-economic background, enjoy acomfortable lifestyle and are generally ingood health, there’s every chance you willlive longer.

Combined with increasing life expectan-cy, I estimate there’s a 50/50 chance thatmy wife or I will live to the age of 95: thatmeans we need a 35-year retirement plan.

When it comes to predicting futureretirement income needs, basing assump-tions on previous average market returnscan be equally as dangerous.

Let’s look at Australian share prices overthe last century or so. Since 1900, theaverage annual return on the All Ordinar-ies Index was 13.6 per cent. But on onlyone occasion over the past 110 years haveinvestors actually received a returnbetween 13 and 13.9 per cent. And in onlythree years has the return been within 100basis points of 13.6 per cent.

The range of returns has fluctuated –from a 40.4 per cent fall during the recentglobal financial crisis (GFC) to a 62.9 percent rise in 1975 as the world’s stockmarkets rebounded from the oil crisis.When it comes to predicting future returns,averages are a poor yardstick.

The risk of retiring in the wrong yearAs Australians live longer and enjoy moreactive retirements, we’re rightly hearing alot about longevity risk. But the sequenceof investment returns, which isn’t asimportant when accumulating, canbecome critical in retirement.

If you happen to retire in a year whenthe market loses 10 per cent, then the riskthat your savings will run out within 30

years increases from 1-in-3 to 2-in-3**.Sequencing risk isn’t a major feature of

our advice terminology now, but in fiveyears time I believe we’ll all be using thislanguage when talking about retirementincome.

Climbing down the mountainYou might be surprised to learn that morepeople die coming down a mountain thanclimbing up – so much focus and planninggoes into the ascent that the descentremains neglected.

It’s too easy to relax after reaching yoursummit and lose concentration on theroad down. Having the right support is crit-ical and anyone going it alone is taking abig risk.

As an industry, our focus has been onhelping individuals build wealth. Finan-cial advice businesses have evolved to caterfor the needs of baby boomers at every lifestage. With the majority of these clients stillin their 50s and with high asset levels, fewliabilities and surplus income, many advis-ers remain understandably focussed onpre-retirement planning.

As an industry, our next challenge is tohelp the boomers climb down the moun-tain by providing quality financial advicegeared towards retirement income.

Onwards and downwardsThe very nature of retirement is changing.It used to be a short rest before death butnow it’s a reward for hard work – a chanceto hitch our wagon to the grey nomad trailaround Australia or travel the world.

The biggest fear for many retirees islosing their regular monthly pay cheque.On approaching retirement, many people’smindset changes from wealth creation towealth protection.

They don’t want to be sweating over thesmall stuff and poring over the sharemarket’sdaily movements. Instead, they’re lookingfor the peace of mind of a regular income toreplace that monthly pay cheque.

The catchcry of many retirees is: “I don’twant you to make me rich, I just want youto ensure I am never poor.”

Meeting the need – income andprotectionThe move from accumulation to retire-ment income will entail a complete shiftin thinking about investment portfolioplanning for retirees.

We have to think about buildingpurpose-based asset allocation strategiesthat deliver regular income.

In addition, the GFC has left a deepscar and clients expect their advisers tobe more proactive in managing thepossibility of another downturn. Afterall, in a 35-year retirement there are likelyto be seven years when the market will fall.

Over the next 10 years, I think it willbecome the norm for retirees to have aguarantee over a significant portion oftheir retirement funds. Once again, theboomers will be shaping advice strategiesand product development as they havedone so often in the past.

Seize the dayThe successful financial advice business-es of the past needed a deep understand-ing of financial protection and wealthaccumulation.

As the generation of baby boomerscontinues to profoundly influence ourindustry, the successful financial advicebusinesses of the future need to add totheir mix a deep understanding of post-retirement strategies.

We are standing at a pivotal momentfor our industry. The future of providingquality financial advice lies in these keyareas:

• Managing assets in retirement• Creating and maintaining a regular,

sustainable income stream• Making sure clients’ incomes last

the distance

Barry Wyatt is the director of sales at AMP.

*Australian Bureau of Statistics Life Tables, 2006-2008

** Risk and retirement: Impact of the market downturn,

Milliman, 2008.


OpinionLongevity

Can babyboomers

afford to grow old?As they prepare for retirement, the baby boomer generation continues to shape advice strategiesand product development, writes Barry Wyatt.

Following the extended residentialproperty boom that lasted until2007-8, many of the world’s housingmarkets have since undergone a

synchronised downturn.The size of the correction has varied from

country to country, with significant housingrecessions in some countries and strength inothers – as shown below. What’s next forthese markets?

First, it is less appropriate to talk of the‘global housing market’ in a collective way.Housing markets have become increasing-ly local, with correlations dropping sharply.

House prices in Hong Kong (the top-performing country) were 24.2 per centhigher than a year earlier in the first quarterof 2011. In contrast, prices in Ireland –among the worst performers – were 11.9 percent lower in the same period.

Housing markets matter to all investorsWhere there is a culture of home owner-

ship, residential property tends to accountfor a relatively large share of national wealth.The US and UK are good examples of this.Higher property prices (even if they are unre-alised through sales) tend to make peoplefeel wealthier, causing them to spend more.

Secondly, higher property prices can boostconsumer spending more directly becausethey allow people to borrow money againstthe increase in the value of their homes.

Property markets can also affect fixedinvestment spending because higher pricestend to encourage greater constructionactivity. When house prices fall, as they didduring the crisis, then the effects on bothprivate consumption and fixed investmentwill be negative.

What’s happening in the US housingmarket today? The significance of the US housing marketis underscored by the fact that it effectivelyoriginated the global financial crisis via itssub-prime sector – aided, of course, by veryloose credit and exacerbated by financialengineering. Given this history, it is reason-able to think that a clear recovery in the UShousing market could have a significantpositive bearing not only on the USeconomy, but also the global economy.

The US housing market has experienceda continued recession. According to theCase-Shiller 20-city home price index, as ofApril 2011 prices were almost a third lower(32.8 per cent) than the July 2006 peak;moreover, the latest reading is less than apercentage point away from the April 2009low-point, suggesting the risk of a possibledouble-dip in prices.

While US gross domestic point (GDP)growth has bounced back, unemploymenthas remained elevated, so the cyclical back-drop is neutral at best. In addition, the supplysituation is particularly unfavourable owingto the large number of foreclosed properties.

However, the negatives in the US housingmarket today are counterbalanced by two

key positives. From a valuation perspective,the sharp correction in prices has madehousing much more affordable. In addition,since most US mortgage loans are linked tothe 10-year US Treasury yield – which is nearrecord low levels – mortgage/income ratiosare also very favourable at present. Onbalance, while it is possible that US houseprices may have a little further to fall, thechances of further big declines from currentlevels are fairly limited.

The economic importance of the UShousing market means that serious down-side risk would be mitigated by additionalpolicy stimulus. On the other hand, if thecyclical position of the US economyimproves and unemployment comes downfurther, then conditions could become ripefor a recovery in the US housing market. Thiswould have positive second-order effects onconsumer confidence and provide a moresupportive environment for equities.

Where’s China’s housing marketheading?Apart from the US, the only other countryin which the residential housing market can

be seen as having a high degree of globalsignificance is China. Indicative of the rapidchanges taking place in China, it was notuntil 1998, when the Chinese Governmentdecided to privatise the country’s urbanresidential housing stock, that most ordi-nary people were able to acquire their ownhomes for the first time.

Today, official figures (which need to betreated with caution) claim that homeownership in the country is as high as 89per cent. Irrespective of the precisenumbers, it is clear that China’s residentialsector has seen a remarkable boom interms of ownership, investment and prices.Partly the property boom there has reflect-ed the fact there are relatively few otherviable investment alternatives for mostordinary Chinese.

Less well appreciated, though, may be thelinkage between commodity prices andChina’s housing sector. For example,construction directly accounts for about 40per cent of all Chinese steel usage, but whenhome appliances, property-related infra-structure and other property-dependentsectors are included, this figure jumps

further to a remarkable two thirds.Massive investment in construction and

a relentless rise in property prices haveraised concerns that the sector may be atrisk of overheating, with ultimately nega-tive effects for China and the globaleconomy. In response, the Chinese govern-ment has introduced a range of measuresaimed at slowing speculative demand(especially in the luxury segment) and stim-ulating overall supply (especially in afford-able segments). Affordability is now clearlystretched by most measures.

Fortunately, policy measures aimed atcooling the property market, and inflationgenerally, appear to be having someimpact. The concern, however, is thatinstead of slowing, prices may begin tocollapse.

However, a number of factors shouldhelp to mitigate the risk of a severe collapse.Firstly, if the risk of collapse became morereal, the authorities would likely take coun-tervailing measures. Secondly, while pricesappear somewhat elevated at the presenttime, it is worth remembering that urban-isation is increasing rapidly in China,coupled with continued strong incomegrowth, risks over the medium to longerterm should be lower on account of this.Finally, a critical factor is that unlike in moreadvanced countries, the use of mortgagefinancing in Chinese property transactionsis minimal. The lack of leverage means that,even in the event of a property marketcollapse, there would be fewer of thecascading negative effects we would expectto see in more highly-leveraged westernmarkets, in terms, for example, of foreclo-sures, bank write-downs and associatedcredit tightening.

When looking at today’s housingmarkets, we suggest investors consider fivekey factors:

1. Cyclical position – as measured by realGDP growth and especially labour marketconditions (ie, real income growth andunemployment).

2. Valuation – as measured by affordabil-ity ratios such as average price-to-averageincome and return measures such asannual rental income-to-price (ie, yield).

3. Mortgage/income ratio – the relativecostliness of mortgages. Mortgage costsdepend largely on the level of interest rateswhich makes this factor particularly crucial,especially in high-leverage markets.

4. Excess supply risk – as measured bythe supply of new homes being construct-ed and property becoming availablethrough foreclosures.

5. Country specific factors – many coun-tries are subject to more individual char-acteristics.

Investors have to be far more selectivein their analysis and investment in markets.

Tom Stevenson is the investment directorat Fidelity.

Housing markets: what you should know

OpinionHousing


Tom Stevenson looks at current events in major housing markets around the world and suggestsinvestors consider five key factors.

Rank/50 Country 12-mth % change 6-mth % change 3 mth % change1 Hong Kong 24.2 14.1 9.32 India 21.9 14.1 6.83 Taiwan 14.3 6.9 0.85 Singapore 10.5 3.5 1.78 China 8.4 6.8 0.426 Sweden 2.1 -0.7 -1.127 Germany 1.3 -0.1 -0.328 Australia -0.2 -0.9 -1.729 UK -0.2 -0.5 130 South Africa -1.3 1.9 1.542 Spain -4.6 -2.8 -2.543 US -4.9 -3.7 -1.945 Greece -5.7 -0.4 0.348 Ireland -11.9 -6.9 -4.549 Russia -13.9 -13.6 -13.7

Table: Variation in market performance

Source: Knight Frank Residential Research, 17 June 2011

The Future of Financial AdviceReforms (FOFA) will change,to some extent, the way youmanage conflicts of interest in

your business. But this is not that revo-lutionary. Licensees are already subjectto requirements which govern the waythey manage conflicts of interest. If youare up to speed on your existing obliga-tions, it will be an easier step across tothe new regime, if and when it comesinto play.

Conflicts of interests – AFSLs andACLsIf you have both an Australian Finan-cial Services Licence (AFSL) and an

Australian credit licence (ACL), youmay have noticed that a number ofyour general obligations under eachlicence are identical but that yourconflicts of interest obligations varyslightly from licence to licence.

Under your AFSL, you must:Have in place adequate arrangementsfor the management of conflicts ofi n t e re s t that may ar ise wholly, orpartially, in relation to activities under-taken by the licensee or a representa-tive of the licensee in the provision offinancial services as part of the finan-cial services business of the licensee orthe representative.

This is from section 912(1)(aa) of theCorporations Act 2001.

Under your ACL, you must:Have in place adequate arrangements toensure that clients of the licensee arenot disadvantaged by a conflict of inter-est that may arise wholly or partly in rela-tion to credit activities engaged in by thelicensee or its representatives.

This is from section 47(1)(b) of theNational Consumer Credit Protection Act2009.

The critical differences are those inbold type above.

In Regulatory Guide (RG) 181 Licens-ing: Managing conflicts of interest, the

Australian Securities and InvestmentsCommission (ASIC) defines conflicts ofinterest as “circumstances where someor all of the interests of people (clients)to whom a licensee (or its representa-tive) provides financial services areinconsistent with, or diverge from,some or all of the interests of the licens-ee or its representatives. This includesactual, apparent and potential conflictsof interest.”

In RG 205 Credit Licensing: Generalconduct obligations’ ASIC states that theobligation regarding conflicts of inter-est arises.“where an interest of thelicensee…conflicts with a legal obliga-tion that the licensee…owes to the


OpinionPost-FOFA

Samantha Hills provides tips for financial planners on how to manage and avoidconflicts of interest when dealing with clients, ahead of the proposed FOFA changes.

Avoiding conflict of interest

client, including one that arises underthe credit legislation, National CreditRegulations, or at law (whether throughstatute, common law or contractualarrangements between the licensee andthe client.”

This description, which is the closestthing to a definition of “conflicts of inter-est” offered in RG 205, seems narrowerthan the definition offered in RG 181.However, in RG 205, ASIC states that, inrelation to conflicts management obliga-tions under the AFSL and ACL regimes,“the conflicts obligation for creditlicensees is more explicit about therequired outcomes for the consumer”.

It appears that the current AFSLregime tolerates conflicts of interest thatdisadvantage the client as long as theseare in some way “managed”. In RG 181,ASIC states that conflicts of interest aremanaged by controlling, disclosing oravoiding them. This suggests that thecurrent AFSL regime might tolerate aconflict of interest which disadvantagesthe client – provided the conflict hasbeen disclosed to the client.

The danger is that ASIC might take theview that this does not amount to

“adequate” arrangements for managingconflicts of interest. In the advicecontext, if the FOFA reforms come intoplay, this issue will at least becomeclearer.

In the meantime, we believe that themost prudent and efficient course ofaction if you hold both an AFSL and anACL is to apply both standards acrossboth licenses – using the methods ofcontrolling, disclosing or avoidingconflicts of interests so that they aremanaged in such a way that no conflictof interest occurs which disadvantages aclient.

Conflicts of interest requirementsin actionNo matter what the fate of the FOFAreforms, conflicts of interest will remainan issue dear to ASIC’s heart. Recently,the regulator conducted a surveillanceexercise into a financial planning busi-ness and, as a result, imposed addition-al conditions on its AFSL. This is oneform of action ASIC can take if it identi-fies issues or concerns with the way alicensee is operating.

It was concerned that the licensee hadentered into an agreement with aninvestment platform which gave rise toa conflict of interest. ASIC said that, inproviding advice to clients to move fromexisting products to the platform, thelicensee made insufficient disclosuresregarding its conflict of interest. ASIC’scomment suggests that, in this case,disclosing the conflict would have beenan appropriate way of managing it. RG181 suggests that there will be timeswhen a conflict is so great that the onlyappropriate way of managing it in accor-dance with section 912A(1)(aa) is toavoid it altogether.

ASIC had other concerns about thelicensee on this occasion as well. WhereASIC raises concerns about AFSLholder’s arrangements for managingconflicts of interest in the adviceprocess, it will often have other concernsabout the advice process as well. This isbecause many of the requirementsapplicable to the advice process them-selves act to manage conflicts of interest– for example, the disclosure of commis-sions or demonstrating a reasonablebasis for the advice.

Your AFSL and ACL are not the end ofthe story, even putting FOFA to one sidefor the moment.

Fiduciary duty and conflicts ofinterestIt is possible that, at times, you have afiduciary duty to your client. Fiduciaryduty is a concept which derives not fromthe law made by the Parliament but fromthat which has developed through thecourts – initially in England and thenlater in our own courts here in Australia.A fiduciary duty imposes particular obli-gations on one party towards anotherparty – for example, an obligation not toput your own interests ahead of those ofthe other party.

Particular categories of relationshipautomatically give rise to a fiduciaryduty – for example, the relationshipbetween solicitor and client, or the rela-tionship between agent and principal.By contrast, we recently considered, inthe context of advising a client, whetherthe relationship between broker andclient automatically entails a fiduciaryduty and found that it does not.

Where the particular relationshipdoes not automatically give rise to afiduciary duty, other characteristics of arelationship might make it (or parts ofit) fiduciary in nature. One characteris-tic is one party placing its trust in theother party – as a client might do in theiradviser. There is ongoing debate as towhether financial planners generallyowe fiduciary duties to their clients.Such debate takes into consideration thekinds of characteristics present in therelationship typically in place betweenadviser and client. The reality is thatwhether or not a particular relationshipis fiduciary will vary depending on theadviser and the particular clientinvolved.

In our view, if you carefully abide bythe requirements imposed on you bylegislation relating to your ACL and/orAFSL, you have a good chance of avoid-ing being accused of breaching a fidu-ciary duty, should one exist.

In comes FOFAFOFA introduces a number of require-ments, such as the “best interests” duty,which, if they come into play and youmeet them, will help you steer clear ofconflicts of interest. FOFA also propos-es to introduce two new specific obliga-tions relating to conflicts of interest inthe advice process.These are:

961K — Conflict between the client’sinterests and those of provider.

If there is a conflict between the inter-ests of the client and the provider’s inter-ests, the provider must give priority tothe client’s interests when giving theadvice; and

961L — Conflict between the client’sinterests and those of licensee or autho-rised representative:

If the provider knows, or reasonablyought to know, that there is a conflictbetween the interests of the client andthe interests of:

(a) A financial services licensee of

whom the provider is a representative, or(b) An authorised representative of

whom the provider is an employee, thenthe provider must give priority to theclient’s interests when giving the advice.

According to the proposed section961, the “provider” will be the individ-ual who provides the advice. “Conflict”is not defined in the proposed amendinglegislation. It is hard to predict precise-ly how ASIC will interpret these provi-sions if they come into play.

Nevertheless, it is clear that theseproposed sections would make theadviser responsible for prioritising theclient’s interests, in the course of givingthe advice, over those of the adviser, theadviser’s employer (if they are employedby an authorised representative) and theadviser’s licensee.

In our view, these sections will makeit very difficult, for example, for anadviser to recommend that a clientchanges from an existing to a new lifeinsurance policy if the existing one doesnot offer a commission to the adviserbut the new one does – unless it isclearly in the client’s interests to moveto the new policy.

This is the same outcome as we wouldexpect under the existing section 945Aof the Corporations Act 2001, whichrequires you to have a reasonable basisfor your advice. Under the proposedlegislation, section 945A would berepealed.

The Government explains theseproposed new sections in its explanato-ry memorandum as follows:

Consistent with the best interest obli-gations, a provider does not breach theobligation to give priority merely byaccepting remuneration from a sourceother than the client (for example, acommission paid by an insuranceprovider). However, if the provider givespriority to maximising a non-clientsource of remuneration over the inter-ests of the client, the provider will beheld in breach of their obligations.

The bottom lineConflicts of interest should be careful-ly managed by both holders of AFSLsand holders of ACLs. Where one entityholds both an ACL and an AFSL, thes a m e m e a s u re s c a n b e e m p l oye dacross conflicts that appear in both thef i n a n c i a l s e r v i c e s a n d t h e c re d i tspheres – provided that the measuresmeet the requirements under bothregimes. Be mindful of the possibilityt h a t , a t t i m e s, w i t h s o m e o f yo u rclients, a fiduciary duty may exist. Thisw i l l a l s o re q u i re yo u t o c a re f u l l ymanage, or steer clear of, conflictsbetween your interests and those ofthe client.

In due course, new legislative require-ments wil l t ighten up the way youmanage (and sometimes avoid) conflictsof interest. But if you are on top of yourcurrent obligations, it shouldn’t be toobig a step across to the brave new worldof FOFA.

Samantha Hills is a lawyer at HolleyNethercote.


“But if you are on top ofyour current oblications, itshouldn’t be too big a stepacross to the brave newworld of FOFA. ”

On 25 August 2011 a social secu-rity specification came intoeffect which will permanentlywaive the Centrelink five-year

clawback for self-managed superannua-tion funds (SMSFs) and small APRA funds(SAFs) that restructure asset test exemptcomplying pensions to a term allocatedpension.

The arrangements apply to both 100 percent and 50 per cent asset test exempt life-time and life expectancy pensions inSMSFs and SAFs. The exemption does notapply to retail income stream products.

This news will be welcomed by manyclients whose account balances havereduced to the point where the balanceno longer effects their Centrelink entitle-ments under the assets test. This may alsoprovide relief for aging clients in SMSFswho no longer want the burden of runningtheir own fund.

Centrelink five-year clawback If a lifetime or life expectancy pension isconverted to a term allocated pensionthen the assets test exemption that appliedto the pension is lost. In addition, Centre-link will generally assess the pensionagainst the assets test for the previous fiveyears. If including the pension accountwould have resulted in a lower amount ofpension being paid, then Centrelink willraise a debt. The debt cannot be paid fromthe pension – it must be paid by thepensioner from personal sources.

Many clients have experienced adecline in the value of their complyingpension, either as a result of continued

drawdowns and/or the effects of recentpoor investment returns. As a result, manyclients’ Centrelink benefits will not beaffected by the current pension accountbeing included in their assets test.However, the five-year clawback debtcould still be a significant deterrent.

Previous reliefIn response to the global financial crisis,the Government announced temporaryrelief for the 2009/10 year. The relief wasoffered to clients whose complyingpensions had failed to meet the high prob-ability test. This test requires an actuarialcertification that the fund has a high prob-ability (typically a 70 per cent probabili-ty) of meeting its future liabilities. Anyassets test exemption was lost goingforward, but the five-year clawback didnot apply.

Despite much lobbying from the indus-try, no relief was extended for the 2010/11year.

Importantly, the current relief does notrequire that pensions have failed the highprobability test – the relief will be avail-able to all lifetime and life expectancypensions.

Options for clients The new regime will provide three avenuesfor clients with asset test exempt comply-ing pension in SMSFs and SAFs to restruc-ture their pensions:

Pre-20 September 2004 pensions1. Restructure to a term allocated

pension within the SMSF or SAF. The

pension will lose its 100 per cent assetstest exemption but no five-year clawbackwill apply.

2. Restructure to a term allocatedpension with a retail provider. The pensionwill lose its 100 per cent assets test exemp-tion but no five-year clawback will apply.

3. Restructure to a life office complyingannuity. The pension will retain its 100 percent assets test exemption and no five-year clawback will apply.

Pensions commenced between 20 September, 2004 and 31 December, 2005

1. Restructure to a term allocatedpension within the SMSF or SAF. Thepension will lose its 50 per cent assets testexemption but no five-year clawback willapply.

2. Restructure to a term allocatedpension with a retail provider. The pensionwill lose its 50 per cent assets test exemp-tion but no five-year clawback will apply.

3. Restructure to a life office complyingannuity. The pension will retain its 50 percent assets test exemption and no five-year clawback will apply.

Term allocated pension optionsThe SMSF or SAF may be able tocommence a term allocated pension intheir existing fund. The trust deed willneed to be reviewed to ensure thatmembers are able to commence this typeof income stream.

Clients may also look to transfer to aretail offering. Term allocated pensionsmay also be known as market linkedincome streams or non-commutable

income streams.Many product providers closed their

ter m al located pension productsaround September 2007 when the 50per cent assets test exemption wasreduced to nil.

Review of the workings of a termallocated pensionAdvisers may wish to brush up on theworkings of a term allocated pensionas we do not usually recommend themto clients since the 50 per cent assettest exemption ceased at 19 Septem-ber 2007. The purpose of a term allo-cated pension is to provide a pension,paid at least annually for the requiredpayment term. This type of pension isdesigned to last for a specific term,based on a client’s life expectancy, andto have a zero capital balance at theend of the term.

A term allocated pension may becommenced with either a rollover froma lifetime or life expectancy complyingpension account or a rollover fromanother term allocated pension account.

Conclusion This relief provides an opportunity foradvisers to assess the value of the currentCentrelink asset test exempt status of anycomplying pensions held by their clientsin SMSFs and SAFs and to restructure to aterm allocated pension if this meets theclient’s needs.

Julie Steed is the technical servicesmanager at IOOF.


Clawback waive

Toolbox

Julie Steed looks at the complexitiesaround the waiving of the five-yearclaw-back for SMSFs.

This is general information only and does not take into account any individual objectives, financial situation or needs. Investors should consider the relevant PDS available from us before making an investment decision. Colonial First State Investment Limited ABN 98 002 348 352 is the issuer of the FirstChoice range of super and pension products from the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557. Colonial First State also issues interests in investment products made available under FirstChoice Investments and FirstChoice Wholesale Investments. Avanteos Investments Limited ABN 20 096 259 979 AFSL 245531 is the issuer of the FirstWrap super and pension products from the Avanteos Superannuation Trust ABN 38 876 896 681. Avanteos operates the FirstWrap service. CFS2042/MM/AS/T

Get the satisfaction you’ve been looking for with FirstWrap & FirstChoice. Contact your Business Development

Manager for transition services, call 13 18 36 or visit colonialfirststate.com.au/satisfaction

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

FINANCIAL ADVISER – RISKLocation: AdelaideCompany: Terrington ConsultingDescription: An international stockbrokingfirm based in the Adelaide CBD is seekinga financial planner to specialise in theprovision of risk strategy to an existingbase of high-net-worth clients.

In this role, you will manage a book ofexisting clients in a proactive manner,ensuring that maximum revenue andreferral outcomes are achieved.

Tertiary educated investments-focussedindividuals are encouraged to apply.Completion of DFP 1-4 is essential, whileDFP 1-8 and the CFP accreditation arehighly sought after.

For more information and to apply,please visit www.moneymanagement.com.au/jobs or contactEmily at Terrington Consulting – 0422918 177 / (08) 8423 4444 [email protected].

FINANCIAL PLANNER – ASSOCIATELocation: Sunshine CoastCompany: ANZ Financial PlanningDescription: ANZ Financial Planning isseeking an associate financial planner toidentify and act on business opportunities,

and build relationships to promoteservices.

You will work with an experiencedfinancial planner as your dedicated mentorto help you in this role.

A DFS 1-4 is required, along with asolid understanding of the financialplanning industry. You should also beprogressing towards your ADFSqualification.

For more information and to apply visitwww.moneymanagement.com.au/jobs andwww.anz.com.au/careers.

FINANCIAL PLANNERLocation: BrisbaneCompany: Zanetti RecruitmentDescription: One of Australia’s largestfinancial planning institutions is nowlooking for a financial planner to join itswealth management team.

Reporting to the financial planningmanager, your role will be to provideadvice to new and existing clients in theareas of superannuation, risk andinvestment. Your key responsibilities willinclude assisting customer needs andproviding holistic and tailored solutions,coaching and mentoring team members tohelp generate referrals, and ensuring

adherence to the relevant complianceframeworks.

You must work well in a teamenvironment, and possess an ADFS 1-8qualification, a minimum of two yearsexperience in financial planning,exceptional communication skills, soundanalytical and problem-solving skills, andattention to detail.

To find out more, and to apply, visitwww.moneymanagement.com.au/jobs orcontact Ric Zanetti on 0413 020 864.

FINANCIAL ADVISORLocation: AdelaideCompany: Terrington ConsultingDescription: An opportunity is nowavailable for an experienced financialadviser to join one of Australia’s largestnational dealer groups.

You will have a proven track recordworking as a financial adviser within the‘mums and dads’ market, and providingethical solutions on a fee-for-servicebasis. In addition, you must becomfortable specialising in risk, transitionto retirement and investment strategies.

The successful applicant will have theopportunity to either purchase an existingclient book or service the book with a view

to building equity over time.For more information and to apply, visit

www.moneymanagement.com.au/jobs orcontact Emily on 0422 918 177 / (08)8423 4444, [email protected].

SENIOR PARAPLANNERLocation: BrisbaneCompany: Zanetti RecruitmentDescription: A financial planningorganisation on Brisbane’s Southside isnow seeking a financial planner to join itsteam. The firm specialises in taxation,salary packaging arrangement, investmentadvice and lending solutions.

In this role you will be supporting acouple of financial planners who willassist in the construction and preparationof SOAs that meet relevant legislative,compliance and company standards.

Responsibilities include attending clientmeetings, filling in the “fact find” forclients and preparing SOAs for retireesand pre-retirees.

You will require a minimum of threeyears experience as a paraplanner, and aDFS 1-4, or preferably an ADFS.

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

ANZ Wealth has appointed a newhead of sales, former BT execu-tive Don Sillar.

The appointment wasannounced by ANZ Wealth headPaul Barrett, who said Sillarwould lead ANZ Wealth's distri-bution team and be responsiblefor promoting the group's prod-ucts through independent,aligned and salaried financialplanners.

He said the role was key todeveloping the group's approachto distribution and realising thecross-sell opportunities arisingfrom the creation of the ANZWealth Business Unit.

Sillar, who most recently washead of broking services atE*Trade, will take up his new roleon 24 October.

MATTHEWS Steer CharteredAccountants has made twosenior appointments in what thefirm sees as a boost to itsaccounting and financial plan-ning teams. Harry Chemay hasbeen appointed financial plan-ning manager, with Mark Laneas the new team manager andclient manager.

Chemay has over 16 yearsexperience in finance and invest-ment. In his new role with theMelbourne-based accountingfirm, he will advise clients on arange of planning issues includ-ing self-managed superannua-tion funds.

Chemay had previouslyworked as an investment consult-ant at Mercer, and before that asa financial planner at WHK SmithRead Prescott, specialising in self-managed super.

Lane is a qualified charteredaccountant with over 20 yearsexperience in the accountingprofession. In his new position,he will help clients with theiraccounting matters, such astaxation, business services, plan-ning and advisory needs, whilealso managing one of thecompany's accounting teams.

Lane's previous experience asan accountant includesconsulting to business in agri-culture, retail, transport andmanufacturing, as well as

consulting to high net worthindividuals and investors.

AUSTRALIAN Unity Investments(AUI) has made several seniorappointments as part of a restruc-ture of its business operations.

Stephen Alcorn has joined AUIas head of institutional, based inSydney. He was most recentlydeputy managing director at BNYMellon Asset Management, andalso held the roles of director, insti-tutional business and head ofconsultant relations during histime with the firm.

Kara Gilmartin, an internal hirefor AUI, has moved to the role ofhead of joint venues. She previous-ly worked as AUI’s executive

manager supporting the chiefexecutive officer, David Bryant, inbusiness-wide and joint ventureinitiatives.

Peter Loosmore has joined asthe new chief operating officer(COO), having previously heldCOO roles at Suncorp Group, StGeorge Bank, Asgard Wealth Solu-tions and Rothschild AustraliaAsset Management, as well asmanagement consulting roles withDeloitte.

Leonie Pratt, who was previous-ly AUI’s chief operating officer, hasmoved to the newly-created role ofgeneral manager – executive,where she will look after AUI’scorporate governance responsibil-ities including licences and capitalusage. Pratt has over 20 years finan-

cial services industry experience,including eight years at Intech insuch roles as head of institutionalclient services and head of invest-ment operations.

HASTINGS Funds Managementhas appointed a new chief exec-utive, with former Sensis chiefexecutive Andrew Day taking upthe position.

Day's appointment wasannounced by Hastings chair-man, Alan Cameron, on 19September, which also markedDay’s commencement date. Day’smost recent position was as chiefexecutive of an Irish-basedtelecommunications investmentcompany, Eircom.

Move of the weekSUNCORP Life has announced the appointment of SeanCarroll to the role of executive general manager (EGM) forLife Risk Australia, based in Sydney.

Carroll moved directly from his position as EGM ofSuncorp Life in New Zealand, where he was responsiblefor the New Zealand-based activities under the brands ofAsteron and AA Life. He had been acting in the Australianrole for five months, while still managing the firm’s NewZealand operations.

Commenting on Carroll’s new position, Suncorp Lifechief executive Geoff Summerhayes said, “Life Risk is theengine room of our life product and service offer at SuncorpLife, and the EGM role is critical to our business success.”

Don Sillar

Sean Carroll

Documents

Money Management (September 29, 2011)