money management (october 27, 2011)

www.moneymanagement.com.au

The publication for the personal investment professional

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By Benjamin Levy

FINANCIAL advisers have reacted angrily tocontinuing attacks on the industry bycompensation lawyers who blame financialplanners for negative market performanceand encourage clients to sue their advisers forsupposed poor financial advice.

Industry leaders and dealer groups areaccusing lawyers of a shameless bid to gathermore clients by blaming advisers for marketvolatility, painting advisers as unethical, andpreying on hapless investors.

Chief executive of Western Australia (WA)dealer group Plan B Andrew Black saidlawyers who wrote such articles had ulteriorself-serving motives.

“It’s quite extraordinary that when themarket is going up, none of this is going on,but when the market’s going down, all of asudden you get all these people saying it’s thefault of the adviser,” Black said.

“If you genuinely had a client’s interest atthe heart of what you’re doing, that wouldresult in a little more balance around theissue,” he added.

Stoking these claims was also counterpro-ductive when only 20 per cent of Australianswere getting financial advice, Black said.

An article written by financial serviceslawyer David Huggins, principal of HugginsLegal in WA, stated “if financial planners tellyou that you suffered a loss because the globalfinancial crisis happened, you shouldn’taccept what you are told” and “you have

extensive legal rights against your financialplanner to recover that loss”.

“Quite clearly, articles like this do not helpin terms of getting the other four out of fivepeople who would do much better if theywere getting the advice,” Black said.

A recent Maurice Blackburn press releasewarned of “rogue advisers ... preying onelderly and vulnerable Australians by pres-suring them to sign up for financial prod-ucts without any regard for their clients’circumstances”.

The firm said there were “increasingnumbers” of clients contacting the firmbecause they were locked into high risk, highlygeared products, but could not provide a morespecific number of approaches than “a fewdozen over the past 12 months”.

The chief executive of the Financial Plan-ning Association, Mark Rantall, as well as thechief executive of the Association of Finan-cial Advisers, Richard Klipin, blasted compen-sation lawyers for blaming advisers for marketvolatility and product failures.

“Holding financial planners accountablefor the performance of investment marketsis totally unreasonable,” Rantall said.

Klipin said the Industry Super Networkcampaign against financial advisers has nowmoved to the next phase.

Indiscriminately attacking financial advis-ers through a range of market participantswas part of the broader strategy from the ISN,he said.

“In a sense, the future of financial advice is

up for grabs and currently under debate –there are lots of players with very specificvested interests that will contribute to thedebate without overly disclosing their ownvested interests,” Klipin said.

“Our strong advice to the ISN is to focus onthe positives of their value proposition ratherthan destroying the confidence of Australianconsumers,” he said.

Director of Western Australian dealer groupWealth Management Partners Steve Beattielabelled it opportunistic to blame advisers forglobal economic events.

“It undermines investor confidence whichis not a good thing from an individualinvestor’s perspective or from a greatereconomic perspective,” he said.

THE expectation of a change in Gov-ernment and consequent changes tothe Future of Financial Advice (FOFA)legislation has created serious uncer-tainty and prompted at least one majorplatform provider, Colonial First State, toadopt a two-stage approach to futureplatform development.

The strategy was revealed by Colo-nial First State general manager ofstrategy Nicolette Rubinsztein, who tolda Money Management roundtable lastweek about the contingency arrange-ments based on continuing uncertaintyaround elements of the FOFA changes,such as ‘opt-in’.

“I think there’s been a sort of declinein trust and now, just if we look at theway that we’re going to build opt-in froma platform point of view, we will proba-bly do the IT build in two separate sec-tions,” Rubinsztein said.

She said this was “almost on theexpectation that the Labor Governmentwill not be elected next time around.

“So we will build the ability to capturethe client information and the fee infor-mation in the first instance, and then thenext build which only needs to happen intwo years time,” Rubinsztein said.

Her comments came as other round-table participants expressed concernat the continuing uncertainty associ-ated with the Government’s three-tranche approach to the introductionof its FOFA legislation, and the mannerin which this had been magnified bythe surprise imposition of an annualfee disclosure obligation.

The participants were united in sug-gesting the continuing uncertaintymade the Government’s timetable forimplementing its legislative packageinappropriate.

Matrix Financial Planning managingdirector Rick Di Cristoforo said thedeadlines being imposed by the Gov-ernment were inappropriate given theamount of work financial services com-panies would need to carry out to meettheir FOFA requirements.

He said there were legitimate argu-ments for extending the start date.

“You only have to think back to howlong the industry was given, rightly, toimplement Financial Services Reform(FSR),” he said. “You know we didn’tget six, seven, eight months to imple-ment FSR – and FSR you could now

Planners rebuff ambulance chasers Platformproviders factorin Labor loss

MATRIX ON THE MARKET: Page 6 | STRUCTURED PRODUCTS: 4

Vol.25 No.41 | October 27, 2011 | $6.95 INC GST

GFC helped planners fight back todayBy Mike Taylor

THE Global Financial Crisis (GFC)acted as a catalyst for many finan-cial planners to change their busi-ness models – something that hasplaced them in good stead as theydeal with the current marketvolatility, according to new WealthInsights research.

The research, released toMoney Management, revealsthat 29 per cent of adviserssurveyed by the company hadmanaged to grow their prof-itability back to levels commen-surate with what they were expe-riencing before the GFC.

According to Wealth Insightsmanaging director VanessaMcMahon, this reflects the degreeto which these people re-engi-neered their businesses, strippingout costs and moving further intoareas such as mortgages andinsurance.

She said her research also indi-cated that the advisers who hadmost successfully re-engineeredtheir businesses were those whohad most fully embraced a fee-for-service model and were rela-tively unaffected by product.

However, on the downside ofthe Wealth Insights’ research,

41 per cent of the advisers thecompany surveyed reported adecline in profitability comparedto levels before the GFC, withhalf of those reporting profits asbeing down by between 20 and40 per cent.

This compares to the 29 percent of respondents who said

their profits had increasedbeyond those they had experi-enced before the GFC.

The current bout of volatilityand economic uncertainty hasalso created a significant shift inadviser recommendations to

Adviser Recommendations

15%

9%

2%

3%

19%

18%

3%

1%

24%

7%

1-20%

21-40%

41-60%

more than 60%

1-20%

21-40%

41-60%

more than 60%

About the same

Don't know

Current Profit Compared To Pre-GFC Levels

DecreasDecreased by: by:

Increased by: Increased by:

29%

41% In comparison to pre-GFC profit levels, many advisers report that their profitabilityhas dropped considerably.

Invest a lot into the markets

Stay in safe products

Invest some into the markets keeping between 25-50% in safe products (e.g. cash/term deposits)

Invest a little into the markets but keep over 50% in safe products (e.g. cash/term deposits)

Move out of the market and into safe products

April ‘11 Sept ‘11

7%14%

54%

71%

29%

13% 7%4%

40%

Source: Wealth Insights

Graph:

Andrew Black

Continued on page 3Continued on page 3

Losing an industry’s trustS

omething became very clear whenMoney Management last weekconducted a roundtable focusingon the Future of Financial Advice

(FOFA) legislation tabled in the Parlia-ment earlier this month – the Govern-ment had missed a golden opportunity todeliver a reform package capable of beingembraced by an entire industry.

What was confirmed by the roundtablewas that the broad support the financialplanning industry had found itself able todeliver to the findings of the Parliamen-tary Joint Committee on financial servic-es (the Ripoll Inquiry) had been erodedby the Government’s subsequenthandling of its FOFA agenda.

Further, what little trust remained thatthe Government had the ability to deliver abalanced approach to its FOFA changesutterly evaporated when the Assistant Trea-surer and Minister for Financial Services,Bill Shorten, blindsided many industryparticipants by including an annual feedisclosure requirement in the bill.

Industry organisations whose job it is tolobby the Government and extract thebest possible deal for their members arenot in the business of calling a spade aspade; they know only too well that politi-cians have a capacity to punish those they

see as being unduly critical. Certainly, theAssociation of Financial Advisers (AFA)has been made to pay a price for its overtcriticism of the minister.

However, the Government’s treatmentof the AFA seems to matter little incircumstances where those organisationswhich have adopted a more diplomaticapproach have found themselves tryingto explain difficult realities to theirmembers relating to issues such as retro-spective fee disclosure.

No one can deny that the Governmenthas undertaken the usual consultative

processes associated with the developmentof key reforming legislation, but that hasnot served to dispel the perception that theviews of some participants have weighedmore heavily than those of others.

The Money Management roundtablerevealed a genuine belief on the part ofvirtually all the participants that the viewsof the Industry Super Network (ISN) andconsumer group Choice had weighed moreheavily than those of either the FinancialPlanning Association or the AFA. Further,the participants believed the ISN had beeninfluential in the minister’s ultimateeleventh hour decision to include theannual fee disclosure requirement.

With further tranches of the FOFA legis-lation due to hit the Parliament in comingweeks, the Government needs to under-stand that trust in its processes is now invery short supply.

The Government and Minister Shortenmight also care to reflect that it mighthave been possible to deliver a reformpackage carrying broad industry supportif it had stuck to the findings of the bipar-tisan Ripoll Review, rather than followingthe narrow agenda prescribed by thoseperceived to be its political allies.

– Mike TaylorABN 80 132 719 861 ACN 000 146 921

2 — Money Management October 27, 2011 www.moneymanagement.com.au

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“With further tranches ofthe FOFA legislation due tohit the Parliament incoming weeks, theGovernment needs tounderstand that trust in itsprocesses is now in veryshort supply. ”

By Chris Kennedy

THE time is coming for the financial servic-es industry to start to shift its lobbying focusfrom the Government back to educating theconsumer – particularly on the topic ofunderinsurance, according to CommInsure’sgeneral manager of retail advice, Tim Browne.

Over the past 12 months the industry hasspent considerable time and energy workingwith government, regulators and the media tohelp them understand the vital role thatadvisers play in addressing the underinsur-ance problem. But much of the detail of theGovernment’s Future of Financial Advicereforms is now public and most of the lobby-ing phase is behind us, Browne said.

Over that time, the industry was successfulin communicating with government andbuilding a rigorous fact base, and it is time

for industry participants to do the samedirectly with consumers, he said.

“I don’t think we’ve been effective in clari-fying that a better result is achieved where anadviser is involved, rather than people doingit themselves,” he said.

A starting point may be to reflect on whyconsumers choose not to insure – to get clarityon those issues to maximise the effect of advis-ers’ responses, then choose the message ofengagement. “That may be personal conver-sations, group forums, through the media oronline,” Browne said.

Browne pointed to the approach success-fully adopted by former US president Al Gorein generating attention for his global warmingmessage, initially speaking to small groups,engaging the relevant community and relyingon facts to relay his message.

It is important to first understand consumers’

perceptions and preferences and then respondwith the facts in their preferred method ofengagement, he said.

There are two distinct groups that need tobe addressed: those that choose not to haveinsurance – possibly because they think “itwon’t happen to me” or that it is too expensiveand not worth the cost – and those that haveinsurance that is inadequate, but don’t realisethey have insufficient cover, Browne said.

One issue to address is the idea that insur-ance is too expensive: “We haven’t present-ed effectively enough that life can becomevery expensive in the event of not havinginsurance in place,” Browne said.

The classic underinsurance example isthose who believe they have adequate coverthrough their default industry super fundinsurance, in the belief that if something goeswrong the fund will look after it, he said.

www.moneymanagement.com.au October 27, 2011 Money Management — 3

News

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Australia • Asia • Europe • Middle East • The Americas

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Time to turn lobbying focus to consumers: CommInsure

GFC helped plannersfight back today

argue was less of an imposton the industry than FOFAwill be or any individual partof FOFA,” Di Cristoforo said.

Association of FinancialAdvisers chief executiveRichard Klipin also ques-tioned the appropriatenessof the timetable in circum-stances where the Govern-ment had introduced an ele-ment such as annual feedisclosure requirementswithout reference to thebroader industry.

“It kind of brings into ques-tion what’s the whole thrusthere, because the playingfield keeps on shifting andbig businesses and small aremaking big decisions aboutgetting ready because the

1 July 2012 deadline reallyhasn’t changed. It’s entirelyunreasonable for the land-scape to shift that dramati-cally in the space of weeksfrom what we saw,” he said.

– Mike Taylor

clients, with allocations to safe harbour investments risingsignificantly.

The Wealth Insights data pointed to 40 per cent of advis-ers telling their clients to take a very defensive approach,with 50 per cent or more of their allocation being directedtowards ‘safe’ investment products.

The degree of caution being exhibited by planners hadrisen significantly in the six months spanning April toSeptember. The number of advisers prepared to recommendtheir clients keep at least some money in the markets (andkeep 25 to 50 per cent safe) dropped from 71 per cent to just54 per cent.

McMahon pointed out that the number of advisersrecommending clients put all their money in the marketshad halved in the period between April and September,reflecting not only caution on the part of the advisers butalso on the part of their clients.

Platform providersfactor in Labor loss

Continued from page 1


Richard Klipin

Tim Browne

News

By Mike Taylor

FINANCIAL planners are not theonly ones concerned about thecost of implementing the Govern-ment’s changes to financial serv-ices, with superannuation fundtrustees also asking for a longerperiod of transition and greatercertainty about the ultimate regu-latory environment.

The superannuation fundtrustees’ concern is reflected in

submission to the Treasury fromthe Association of SuperannuationFunds of Australia (ASFA) relatingto the introduction of MySuper, inwhich it says a longer transitionperiod will be needed.

The submission warns that thetypes of changes envisaged by theGovernment are of a scale anddegree of interrelatedness that willnot only prove expensive, but willpose considerable risks with respectto altering member databases.

Further, the submission arguesthat rushing to meet deadlineswill increase the risks for thesuperannuation funds, while anydelays or changes to any aspectof either the Stronger Super orFOFA legislation would “signifi-cantly impact on trustees’ abili-ties to implement the requiredchanges in an orderly and appro-priately risk-managed fashion.

“While ASFA supports both theStronger Super and Future of

Financial Advice (FOFA) reforms,it is important to note that compli-ance with both of these reformswill necessitate considerablechanges being made to a matureand complex superannuation

system,” the submission said.“For trustees to be in a position

to be able to make the thresholddecision as to whether or not tooffer a MySuper product necessi-tates a degree of certainty as to theregulatory requirements goingforward,” it said.

The ASFA submission arguesthat instead of a three-month tran-sition from 1 July 2013, withrespect to MySuper the processshould be extended to a year.

Emergingmarkets still keygrowth driver

By Andrew Tsanadis

MEDIAN wealth in Australia isthe highest of any country in theworld, but emerging marketsremain the main wealth growthengine, according to the annualGlobal Wealth Report by theCredit Suisse Research Institute.

Based on figures collectedfrom global household balancesheets, the report found theproportion of Australian adultswith total wealth aboveUSD100,000 was eight timesthe world average, whilearound half had net worthabove USD222,000 – makingmedian wealth in Australia thehighest in the world. In addi-tion, between January 2010and June 2011, Australia’stotal wealth increased byUSD1.9 trillion, and repre-sented the fifth largest contrib-utor to global wealth growth,the research stated.

Despite these figures, thefastest global wealth growth wasseen in emerging markets suchas Latin America, Africa andAsia. Asia-Pacific in particularaccounted for 36 per cent ofglobal wealth creation since2000, and 54 per cent sinceJanuary 2010, data revealed.

Chief executive of Asia-PacificCredit Suisse Osama Abbasisaid the results reconfirm thecurrent radical reconfigurationof the world’s economic order.

“Emerging markets areimportant drivers of the globalrecovery, and remain the keygrowth engines of globalwealth,” he said.

Credit Suisse global head ofresearch for private bankingand asset management GilesKeating went on to say thehigher debt per adult level inEurope versus Asia – coupledwith the much higher growthof Asia compared to Europe –suggests a capacity for mutualcollaboration in stemming thetide of debt in the Eurozone.

Government urged to provide time and certainty



News

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By Mike Taylor

AMP Limited’s acquisition of AXA AsiaPacific is continuing to be reflected in keysenior management appointments acrossAMP Financial Services.

In a flurry of appointments, the com-pany revealed it had blended both AXAand AMP personnel across its key opera-tional areas.

AMP Financial Services managing direc-tor Craig Meller announced that theformer AXA director of sales, Barry Wyatt,

had been appointed as director of saleswithin AMP’s strategic marketing andsales division, while AMP’s former directorof wealth protection products Michael Paffhad been named as director of strategicmarketing. AXA general manager of digitalbusiness and services relationships CamCimino has been appointed director ofbusiness marketing, while Belinda Myershas been named director of businessoperations.

Meller said that in the Banking andWealth Management Products division

Chris Jansen had been appointed as direc-tor of contemporary wealth management,while AXA’s head of wealth management,pricing and risk Robert Baillie had beenappointed director of pricing, and AXA’sgeneral manager, platform, Steve Burgesshad been appointed director of platforms.

AFS director of strategy and growth BradGreen has been appointed as director ofbusiness operations, while Mike Lawrencewill continue as managing director of AMPBank, as will John McIlroy as director ofMultiport.

In the Wealth Protection and MatureProducts division, AXA general manager ofFinancial Protection Michael Rogers hasbeen appointed director, retail risk, whileAXA head of group insurance Robert Berginhas been appointed director of group risk.Bernadene Gordon has been appointed asdirector of underwriting and claims policy,and Gopal Raman has been appointeddirector of mature products and businesssupport, with AXA’s head of pricing andreinsurance Stephen Varney being nameddirector of pricing and reinsurance.

FINANCIAL planner lobby-ing of the key independentsin the House of Represen-tatives has begun with agroup of planners under-stood to have met with PortMacquarie-based inde-pendent Rob Oakeshott.

A similar delegation ofplanners is also expectedto seek a meeting with Tas-manian-based independentAndrew Wilkie, seeking hissupport for crucial amend-ments to the Government’sFuture of Financial Advice(FOFA) bill introduced to theParliament recently.

The two impor tantamendments being soughtby the planners relate tothe proposed two-year“opt-in” arrangements,and the retrospective sur-prise of annual fee disclo-sure arrangements.

Oakeshott is under-stood to have been told bythe planner delegationthat, taken in combina-tion, the opt-in provisionsand the fee disclosureobligations will signifi-cantly increase red tapeand therefore drive up thecost of delivering adviceto ordinary consumers.

Both the Association ofFinancial Advisers and theFinancial Planning Associ-ation (FPA) have expresseddeep concern about theannual fee disclosurearrangements and themanner in which they areincluded in the proposedlegislation without beingpart of the broader consul-tative processes.

The FPA has said thatthe fee disclosure arrange-ments and the two-yearopt-in have made it impos-sible for the organisationto support the Govern-ment’s legislation in itscurrent form.

Plannerslobbyingindependents


News

Matrix on the marketBy Chris Kennedy

MATRIX Planning Solutions is seeking expres-sions of interest to sell 100 per cent of the busi-ness to an external investor.

At an extraordinary general meeting with Matrixshareholders last week, the group resolved to takethe first step to seek expressions of interest from anexternal investor to acquire the Matrix business,according to managing director Rick Di Cristoforo.

Di Cristoforo stressed the decision was a strate-gic one that would not be made in a hurry, withthe group currently in a financially stable position.

Matrix currently has plans based on a positivegrowth strategy that will require additional capitalto implement. The company will be seeking aninvestor looking for new exposure or seeking todevelop its current exposure in the Australianfinancial services industry, rather than one simplyseeking distribution, Di Cristoforo said.

While noting the current consolidation withinthe industry, Di Cristoforo said Matrix would notbe seeking an investor simply looking at buyingup adviser numbers.

It’s about finding an investor that fits the busi-ness and taking the time to complete the sale prop-erly rather than rushing it through, he said.

The move has been discussed within the groupand has significant support from Matrix share-holders and advisers, he said.

Canadian life guru questions FOFA’s intentCANADIAN financial planning and life insur-ance expert Bruce Etherington has comparedAustralia’s current round of Future of Finan-cial Advice (FOFA) reforms to previous experi-ences in Canada and questioned whether thechanges are really likely to benefit theconsumer.

Etherington is on a speaking tour of Australiaas a guest of Asteron, running workshopsaimed at highlighting the value of buildingtrusting relationships with clients, particular-ly in a risk insurance situation.

It’s not necessarily that advisers are lackingin those skills or an appreciation of relation-ship building, but that around the world exces-sive compliance requirements have eaten upan increasing amount of advisers’ time overthe past couple of decades, Etherington said.

Advisers want to comply with the law but it

is also incumbent upon governments to askwho they are really serving when they enactcompliance legislation that causes advisers tohave to spend more time with paperwork andless time seeing people. This could mean fewerAustralians receiving advice, leading many tobe woefully undercapitalised at retirement anda greater drain on the public purse, he said.

“If I was an adviser in Australia I would beraising the question with government: who areyou really helping?” he said.

Advisers should raise that question withtheir customers, the marketplace andconsumer groups, and if they can convince theconsumer that FOFA is not in their best inter-ests they can create a groundswell thatmembers of parliament have to pay attentionto, he said.

In Canada in the past when the government

has tried to make draconian changes, advis-ers have had lobbying success by focusing onwhether those changes will help or hurt theconsumer, because if you tell the governmenthow it is hurting the adviser that is too self-serving, he said.

For example the elimination of commis-sions from financial assets will mean onlywealthy Australians who can afford to write acheque for fees will be able to afford profes-sional advice in the future, he said.

“This legislation is not going to encouragepeople to seek more financial advice,” he said.“How is this move helping the Australianconsumer? How is it helping the widow or theemployee or charities? It isn’t.

“I’m just a visitor, I’m making no judge-ments, I’ve been asked to make observationsgiven a similar Canadian experience,” he said.

Matrix adds memberfirm; seeks moreMATRIX Planning Solutions hasadded a new member firm to itsnetwork and outlined plans toadd a fur ther 10 practicesnation-wide in the next coupleof years, while also increasingits adviser count from 111 cur-rently to 120 or more.

The new firm, Macquarie Part-ners Financial Advisory, islocated in the Norwest BusinessPark in northwestern Sydney andjoined Matrix in late July. It wasestablished two years ago byprincipal and sole adviserSunhee Hres, who has nineyears industry experience.

Under the member f irmarrangement it will remain inde-pendently owned. Hres wi l l

retain her own client book, butthe practice will be authorisedthrough Matrix as the newlicensee.

“What attracted us to Matrixwas the focused boutique practicedevelopment support, extensivefinancial services experiencewithin their senior executive team,and strong emphasis on compli-ance and investment productresearch,” Hres said.

Matrix executive director ofoperations and strategicalliances Atit Rungta said Matrixhas been very open with thepractices it has spoken to andkept them informed of thegroup’s plans to seek an exter-nal investor.

Rick Di Cristoforo

Bruce Etherington


News

Resistance to restricted licensing for accountantsBy Benjamin Levy

THE Small Independent Super Funds Asso-ciation (SISFA) has called on the Governmentto refrain from implementing a restrictedlicensing framework for accountants,labelling it problematic.

SISFA used a submission on retirementand savings policy to the assistant treasurerto suggest that the Government replace theremoval of the accountants’ exemption onSMSFs with a more definitive frameworkallowing accountants to provide services and

advice to fulfil “necessary obligations”, andto develop specialist knowledge and compe-tency requirements to provide that advice.

However, SISFA stopped short of support-ing government plans to create a restrictedlicensing regime for accountants.

“SISFA would be concerned and regard asproblematic any licensing or limited licens-ing regime,” the submission stated.

An accountant advising an SMSF client ona broad range of financial issues was no differ-ent to an accountant giving the same advice toa client within a company or trust, SISFA said.

SISFA also called on the Government toimplement a rolling concessional contribu-tion cap to allow investors to make morecontributions if their previous year’s contribu-tion was less than the cap limit.

The current regulations around contribu-tions were too rigid to provide a long-termconsideration of retirement savings, thesubmission said.

SISFA also suggested the alternative of alifetime cap of concessional and non-conces-sional contributions to allow investors toincrease contributions when they were

capable, or a single universal limit for lifetimesuper contributions, regardless of age.

The $500,000 threshold test for the $50,000concessional contributions cap should beremoved for that to happen, SISFA said.

SISFA slammed the current limits as almostpenalising investors who didn’t start savingearly or saved inconsistently.

They were rigid, discouraged saving throughsevere taxes, didn’t allow for significant eventsaffecting the adequacy of retirement savings,and militated against those who bore the costof raising a family, the submission stated.

Gen Y business owners want trustedadvice when buying insuranceBy Andrew Tsanadis

MOST Generation Y (Gen Y) busi-ness owners prefer speaking witha financial adviser for their insur-ance needs rather than goingonline, according to researchcommissioned by Zurich Finan-cial Services Australia.

Conducted by CameronResearch Group, the study foundthat most business owners bornafter 1980 preferred speakingdirectly with financial advisersbecause they wanted to ensurethey had the right type of insur-ance cover for their business.

The key reason why Gen Y busi-ness owners tend not to purchasebusiness insurance online isbecause it is often seen as beingcomplex, particularly by thoserunning a larger business, Zurichstated. Although they are gener-

ally tech savvy, this particular agegroup are also time-poor, believ-ing it’s better to outsource parts oftheir business operations andleave important insurance deci-sions to professionals, the studyrevealed.

According to Zurich generalmanager sales and marketing

Philip Kewin, business owners inthis age group are typically opti-mistic, and may not see the needto pay for insurance for somethingthey consider to be an unlikelyevent. He said because of this atti-tude, they need to be made awareof business insurance early on.

“Generation Y business owners –like many small-to-medium enter-prise owners – are extremely dedi-cated to their business,” Kewin said.

“They don’t want to risk doingtheir own insurance in case theybuy the wrong cover and end uplosing their business because theyticked the wrong box.”

Kewin said most Gen Y businessowners are happy to establish andmaintain a long-term relationshipwith a financial adviser so that theythemselves are not left dealing withthe risk process associated withinsurance.

Asia-Pac HNW population now second biggestTHE number of high net worth individuals(HNWIs) in the Asia-Pacific region grewalmost 10 per cent to 3.3 million in 2010,exceeding Europe for the first time andnow trailing just North America, accordingto the 2011 Asia-Pacific Wealth Reportfrom Merrill Lynch Global Wealth Manage-ment and Capgemini.

The total wealth of HNWIs grew 12.1per cent to US$10.8 trillion over the year,and the number of ultra-HNWIs in theregion increased 15 per cent to 23,000,with both growth rates exceeding globalaverages, the report stated.

In Australia, drivers of that growth includedreal gross domestic product (GDP) growth of2.8 per cent, market capitalisation increaseof 15.3 per cent in 2010, and an increase inhousing prices of 5.8 per cent for the year.

An improved exchange rate and positivemerchandise trade account and increasedexport demand of almost five per cent alsocontributed to the growth, according to thereport.

However, the increase in individualwealth is expected to be inhibited in the2010-11 financial year by a fiscal deficit

of 2.5 per cent and a budget deficit of 1.3per cent of GDP.

In Australia, HNWIs allocated 40 percent of wealth to real estate compared to 27 per cent in the Asia-Pacific overall, withAustralians allocating far less to fixedincome and cash. Real estate is expectedto remain the preferred asset class of Aus-tralian HNWIs in 2012, the report stated.

The Asia-Pacific HNWI population washighly concentrated, with Japan accountingfor more than half of HNWIs in the regionand three quarters coming from Japan,China and Australia.

Since the majority of Asia-Pacific HNWIssource their wealth from business owner-ship, wealth management firms that cangenerate value to HNW clients from acrossdifferent business units (such as leveragingthe corporate and investment bankingresources) will be able to serve clientsbetter, the report stated.

This is especially pertinent for Asia-Pacific’s ultra-HNWIs because of the largescope of their wealth and investments,which span regions as well as assetclasses, the report stated.

MLC adds licenseerelationship manager role By Chris Kennedy

MLC has created a licensee relation-ship manager role aimed at improv-ing the licensee experience through-out its aligned adviser network, whichincludes MLC Financial Planning,Garvan Financial Planning andApogee Financial Planning.

MLC will appoint nine licenseerelationship managers across Aus-tralia who will be responsible for sup-porting advisers with all actions relat-ing to core licensee services, and willwork alongside practice developmentmanagers and practice managementcoordinators, MLC stated.

The role will involve improvingadvisers’ knowledge of and accessto licensee and MLC services avail-able, and providing information andresponses to practices within thenetwork.

Greg Miller, general manager

advice solutions at MLC & NABWealth, said that with licenseerequirements now being managedby a specialist, practice develop-ment managers and practice man-agement coordinators will be ableto focus on helping advisers to growtheir business, and preparing themto respond to new customer oppor-tunities and regulatory change.

Greg MillerPhilip Kewin

iShares recommends industry standards for ETF marketEXCHANGE traded fund(ETF) provider iShares hasreleased a paper recommend-ing universal standards oftransparency and disclosurefor the global ETF market.

According to the paper, enti-tled ‘ETFs: A Call for GreaterTransparency and ConsistentRegulation’, the term ‘ETF’ hasbecome a blanket term thatinconsistently describes anumber of products with arange of different structures,and the recommendationshave called for clear labellingof product structure andinvestment objectives of ETFproducts.

iShares head of AustraliaMark Oliver said that the busi-ness has become aware of themove from traditional ETFsbacked physical securitiesand the emergence ofcomplex, synthetic products.

“These products may be

called ETFs, but they’re worldsremoved from ETFs as iSharesunderstand them,” Oliver said.

One of the recommenda-tions from the paper suggeststhat the term ‘exchange tradedproducts’ (ETPs) be used todescribe any portfolio expo-sure product that trades on anexchange, while ‘ETF’ shouldonly refer to a specific sub-cate-gory, in particular a productthat is regulated as a publiclyoffered investment fund, and

is appropriate for a long-termretail investor.

iShares also believes in thefrequent and timely disclo-sure of all holdings and expo-sures, particularly with regardto derivative-backed prod-ucts. The paper also recom-mends standards for diversi-fying counterparties andquality of collateral; disclosureof all fees and costs paid,including those of counter-parties; and universal tradereporting for equity trades,including ETFs.

“Because ETFs remain rela-tively new in Australia, regula-tors and the industry have hadthe opportunity to observeinternational trends and applybest practice here,” Oliver said.

Oliver believes Australiahas one of the strongest ETF-related regulatory systemsand simplest products sets inthe world.

Mark Oliver

This is general information only and does not take into account any individual objectives, fi nancial situation or needs. Investors should consider the relevant PDS available from us

before making an investment decision. *Source: Wealth Insights 2011 Platform Service Level Report and survey of 867 aligned and non-aligned advisers, conducted Mar/Apr 2011.

**Investment Trends 2011 Planner Technology Survey. Sample of 490 IFAs (advisers employed by dealer groups with less than 50% institutional ownership) surveyed in June-July

2011. Different fees and costs apply to other investment options. Fees and costs may change. 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. CFS2040/FPC/MM

Sat-is-fac -tion

Colonial First State’s FirstWrap & FirstChoice have been ranked

No.1 and No.2 respectively by advisers, for overall satisfaction in

the 2011 Wealth Insights Service Level Survey* – evidence that our

investment platforms offer you a choice that’s designed to satisfy

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First For You – By offering some of the lowest fees in the platform

market, it’s no wonder FirstChoice is the winner of Investment

Trends Best Value for Money Award for five years in a row.

And it’s hardly surprising that more IFA’s use FirstChoice than any

other platform, making it Australia’s most popular platform.**

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News

ISN backs annual fee disclosure imposition By Mike Taylor

THE Industry Super Network hasstrongly backed the inclusion of anannual fee disclosure requirement inthe new Future of Financial Advicelegislation.

ISN chief executive David Whiteleysaid in a statement that the inclusion ofthe requirement in the legislationreflected “a community expectation thata service provider will disclose the costof their service to their customer orclient”.

While the Government's inclusion ofthe requirement in the bills introducedto the House of Representatives last

week caught financial planning organ-isations by surprise, Whiteley said hebelieved it was extraordinary theyshould be surprised.

“I cannot think of another industrywhere ongoing fees and charges are notclearly disclosed to customers andclients on an ongoing basis,” he said.

“Disclosure of fees and commissionswill enable super fund members toassess the value of the service they arereceiving from their financial planner,”Whiteley said. “This is necessarybecause there is substantial evidencethat millions of Australians pay ongoingsales commissions and advice feeswithout receiving financial advice.”

Property appeal for newbreed of SMSF trusteesBy Chris Kennedy

BORROWING to purchasewithin a self-managed superfund (SMSF) will become anincreasingly popular option for a“new breed” of younger, higherbalance SMSF trustees, accord-ing to Multiport technical serv-ices director Philip La Greca.

Super balances are increas-ing more quickly than at anystage in the past now thatpeople are working from thestart of their careers with the 9per cent superannuation guar-antee (SG), and would increasemore dramatically if the SG wasraised to 12 per cent.

The option to gear propertyinto an SMSF is becomingmore popular but presents aparticularly attractive option foryounger couples, La Grecasaid.

Rather than maintainingseparate industry or retail fundbalances, a couple looking tobuy an investment propertycould pool their super savingsinto a single SMSF and use the

funds to buy a property. The option would be less

effective tax-wise if the prop-erty is highly geared, but iftrustees have most of the pur-chase price it can be a veryeffective option, La Greca said.

It is also useful for trusteeswho can’t afford to buy a prop-erty outside super (for exam-ple, due to other financial com-mitments) but have asignificant balance, especiallywhen it is pooled together as acouple.

Another growth area forSMSFs will be small businessowners looking to put theirbusiness premises within theirSMSF, he said.

Another advantage with thisstrategy is when the businessowner is looking to retire andsell the business, they havethe option of selling the busi-ness and premises together,or retaining the premiseswithin super and just sellingthe business, which can thenpay rent back into the SMSF,La Greca said.


Former Sonray CEO sentenced to 5 years jailBy Andrew Tsanadis

FORMER Sonray Capital Markets chief executive officerScott Kenneth Murray has been sentenced to five yearsjail by the Australian Securities and Investments Commis-sion after pleading guilty to 10 charges of fraud.

ASIC found Murray guilty on six charges of falseaccounting involving fictitious deposits totalling$36,439,588 and USD$9,779,395, and false withdrawalstotalling $7,800,923. ASIC also charged the former exec-utive with two counts of theft totalling $2,256,500; onecharge of obtaining a financial advantage by deception;

and one charge of misleading an auditor concerning acapital injection of $5,200,000.

Murray will serve a minimum of two years and sixmonths before he is eligible for parole, which took intoaccount his early guilty plea and cooperation, ASIC stated.

The matter was prosecuted by the CommonwealthDirector of Public Prosecutions.

ASIC’s decision follows the 27 September convictionof former Sonray director Russell Johnson, who wasarrested and charged with 24 offences. Johnson’s casereturns to the Melbourne Magistrates’ Court on 15December 2011, ASIC stated.

David Whiteley


SMSF WeeklySMSF trustees feel the pinchBy Mike Taylor

RECENT volatility and uncertain timesappear to have undermined the confidenceof self-managed superannuation fundtrustees.

New research released by Roy MorganResearch has revealed that SMSFs have notproved immune to the decline in confidencewhich has accompanied recent marketvolatility and the negative economic newsemanating out of the US and Europe.

According to Roy Morgan industrycommunications director Norman Morris,

total market satisfaction with superannua-tion investment performance fell by 0.3 percent per cent between July and August asthe share markets began to slide.

He said this reduction in satisfaction wasespecially evident in those with SMSFs, whohad registered a 1.6 per cent decline in senti-ment in the Roy Morgan SuperannuationSatisfaction Report.

However, according to Morris, SMSFtrustees were overall more satisfied withtheir lot than either retail superannuationfund or industry superannuation fundmembers.

Warning on ATO draftruling implicationsNON-DEPENDENTS could be forced to pay an additional 15 per cent capital gains taxon shares and property on top of the existing 16.5 per cent death levy, following a draftruling issued by the Australian Taxation Office clarifying the tax treatment of pensionassets following the death of a member.

That is the assessment of financial advisory group Lachlan Partners which last weekwarned ageing people with do-it-yourself superannuation funds that their non-depend-ent beneficiaries might ultimately face big tax bills as a result of the draft ruling.

It said that on top of the existing 16.5 per cent death levy imposed on taxable com-ponents, the non-dependent beneficiaries could be forced to pay a further 15 per centCGT on shares and property.

However, the company claimed this new death tax could be legally avoided if theshares and property were converted to cash before the death of a parent.

Lachlan Partners partner Eric Maillard said the ATO had asked for submissions onthe draft ruling “as it represents potentially another death tax on people who havetaken the initiative to establish and manage their own superannuation funds to sup-port themselves in retirement.

“Our advice to ageing clients is if this ruling comes into force, they should consider sell-ing shares that have grown in value every couple of years and then buy them back or justconvert them to cash, or risk their beneficiaries paying large unexpected bills,” he said.

Deficient regime requiredauditor registrationBy Damon Taylor

THE objective reality of audi-tor registration and the aboli-tion of the accountants’exemption is that there weredeficiencies under the oldregime, according to OnePathsuperannuation strategymanager Graeme Colley.

Commenting on theStronger Super changes,Coley said that on the evi-dence available, suchimprovements are long over-due.

“I think the only objectiveview you can get on compli-ance is what the ATO (theAustralian Taxation Office) issaying,” he said. “I was onthe self-managed fund work-ing party, and the ATO wasindicating quite clearly thatthere were professionals outthere that weren’t conduct-ing audits of self-managedsuperannuation funds, but

also that the way in which thefunds themselves were con-ducted was very ad hoc andvery haphazard.

“Now if that’s indicative ofa portion of the self-managedfund market, then the com-petencies of advisors to thissector certainly need to beimproved, particularly on themargins.”

Colley said that while com-pliance within self-managedsuper had undoubtedly

improved in recent years,there remained problemareas that needed to beaddressed.

“The competency of SMSFadvisors has improved, but itstill has a way to go and I thinkthat’s what the Governmentwas concerned with in theCooper Inquiry,” Colley contin-ued. “And you’ll probably seethat pan out over the next fewmonths once we start the leg-islation for auditors, account-ants, financial planners andsee whether the legislation willactually require another bit of ajump to improve the compe-tency of those professionalsfurther.

“At the end of the day,SMSF rules are quite com-plex,” Colley added. “Sopeople trying to get into theself-managed fund spacereally need to be competentbefore they get in there ratherthan learning on the job.”

Multiple accounts aboutmore than insuranceSELF managed super fund (SMSF) trusteeshold multiple accounts for a range of differ-ent reasons, rather than just for insuranceas the anecdotal evidence might suggest,according Andrea Slattery, CEO of the SelfManaged Super Fund Professionals’ Asso-ciation of Australia (SPAA).

Commenting on insurance provisionwithin self-managed super funds in lateSeptember, Slattery said that it quite oftencame down to simplicity.

“People can and do hold numerousaccounts for a range of reasons and, otherthan people suggesting that they’re holdingthe account just to hold the insurance, wedon’t know the reasons behind that,” shesaid. “But in the SMSF world, the majorityof individual super policies are held in theSMSF environment simply because youcan only get an insurance policy on youpersonally.

“You’re not a part of a pooled fund soyou often can get a lot larger insurancepolicy, if you wish, than you could in a

larger fund,” Slattery continued. “Youmight even have a range of insurance poli-cies within your superannuation.”

Alternatively, Slattery said that when amember joined an Australian PrudentialRegulatory Authorithy-regulated fund, theywould also join that fund’s insuranceprogram, where all members were givencover to a certain level without needing amedical assessment.

“So depending on the fund, that levelmight be the balance of your contribu-tions right up to a certain dollar limit, thehighest being around $200,000,” she said.“But what a lot of people will beconcerned about is that once you takeout an insurance policy, no matter whereit is, once you close that down you losethe date that you started it and you haveto reapply and get medicals and all thosesorts of things.

“So there are reasons why people holdtheir insurances wherever they mightalready be.”

Graeme Colley

There are those who suggest theAssistant Treasurer and Minister forFinancial Services, Bill Shorten,believes his style has much in

common with that of former Prime Ministerand Australian Council of Trade Unionssecretary Bob Hawke.

On the available evidence, the similaritiesbetween Shorten and Hawke are limited to thefact that they are of similar height, have lawdegrees, became national trade union leadersand then entered Federal Politics.

Hawke cut his teeth as an industrial relationsnegotiator in the hard days of the 1970s whenstrikes could be long and punitive and whenpeace deals were hammered out in smoke-filled rooms and honoured on handshake.

Shorten comes from a different era - the post-Hawke industrial relations era when, clearly,different rules and a different culture apply.

There were no smoke-filled rooms as repre-sentatives of the financial planning industrysought to negotiate a reasonable outcome withthe Federal Government around the Future ofFinancial Advice (FOFA) changes, and if therewas a handshake it was clearly not honoured.

When Shorten on 13 October rose to deliverhis second reading speech with respect to theCorporations Amendment (Future of FinancialAdvice) Bill 2011 he knew it contained some-thing that would surprise and annoy the repre-sentatives of the financial planning industry.

That “something” was an annual feedisclosure requirement – “the annual disclo-sure obligation (that) will apply to all clientsand advisers”.

The moment those words left Shorten’s lipsin the House of Representatives he was seenby many as having confirmed the worst accu-sations of his harshest detractors in the finan-cial services industry – that he has, from theoutset, been about prosecuting the agenda ofthe Industry Super Network (ISN).

There were those who had argued that theallegations directed towards Shorten weremore anecdotal than definitive and could notultimately be justified by the facts. The best

these defenders could offer in the wake of theminister’s second reading speech was that,perhaps, the annual fee disclosure obligationrepresented a bargaining chip which mightultimately be discarded.

Whatever the case might be, there can beno doubting that when the requirementsaround the annual fee disclosure obligationare taken together with the two-year “opt-in”, the cost impacts far exceed the $11 perclient estimate of actuarial consultancy, Rice Warner.

That is because under the arrangements asoutlined in the legislative documentation,financial planners would not only need toprovide extensive detail and documentationaround disclosing the fees they charge in anyone year, they would also be required to fore-cast to the client what they believe they’ll belikely to charge in the upcoming year.

From a negotiating point of view, the inclu-sion of the fee disclosure obligation represent-ed a major victory for the ISN and forconsumer group Choice – both of whichlauded the content of the minister’s speech.

The change more than offsets any feelings ofvictory the financial planning industry mayhave felt about the initial proposal for anannual “opt-in” being turned into a two-year“opt-in”. The fee disclosure requirement alsowent some way towards undermining theperceived value of the grandfathering arrange-ments around volume rebates.

Many financial planners who read Shorten'ssecond reading speech will not be impressedwith his statement: "I would (also) like toemphasise that the Government undertook athorough, methodical and open-mindedprocess with industry, consumer advocatesand financial services experts."

“While parties started in significantly differ-ent places, I believe that through persistenceand negotiation effort we were able to arrive ata destination that has prompted widespreadsupport from the industry, the experts andconsumer groups,” the minister said.

While no one will question the fact the

Government did, indeed, consult all themajor stakeholders, there is a clear percep-tion in the financial planning industry thatthe minister listened most to the ISN andthat, ultimately, it is the industry superan-nuation funds which will benefit most fromthe changed environment.

When Money Management late last weekconducted a roundtable of senior financialplanning industry officials, it became clearthe Government had lost a large measure oftheir trust that it was committed to abalanced outcome.

Both the chief executive of the Associationof Financial Advisers, Richard Klipin, and themanaging director of dealer group Matrix, RickDi Cristoforo, made clear that in circumstanceswhere the FOFA legislation was to be handeddown in three tranches, Shorten had sown theseeds of serious doubt.

Di Cristoforo said if the minister had beenprepared to inject the fee disclosure elementinto the first tranche, then it would be an openquestion about what might be contained inthe subsequent legislative tranches.

What also became clear from the round-table was that after more than two years ofdebate – extending from the Ripoll Reviewthrough to the introduction of the first bill tothe House of Representatives – the Govern-ment had not succeeded in removing indus-try uncertainty.

It became clear that as the industry movesto put in place the commercial and legalmechanisms necessary to implement theFOFA changes, they are doing so with an eyeto the inevitability of further changes andamendments if and when the Governmentloses office.

Bob Hawke's political and industrial legacyis considerable, built around the Prices andIncomes Accord and the balance and pragma-tism which saw the floating of the Australiandollar. Despite the laudable original objectivesof FOFA, the manner of its delivery representsa poor legacy for an ambitious politician facedwith a prolonged period in opposition.

InFocus


While many in the financial planning industry support the broad, originalthrust of the Future of Financial Advice changes, Mike Taylor writes that themanner of their introduction has already left a sour taste in many mouths.

Overall index value by country

77.9

AIST – RG146 Refresher4 November 2011CBD, SydneyMore information provided aweek prior to the eventRegister at www.aist.asn

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

Procure to Pay 201115 November 2011The Sebel, Sydneywww.procure-to-pay.com.au

FPA 2011 NationalConference16-18 November 2011Brisbane Convention &Exhibition Centrewww.fpaconference.com.au

Australian SecuritisationForum Conference21-22 November 2011Hilton, Sydneywww.abs2011sydney.com.au/

Netherlands

What’s on

GlobalPension IndexSnapshot

75.0Australia

72.7Switzerland

72.0Sweden

69.1Canada

Source: 2011 Melbourne Mercer Global

Pension Index

FOFA – Shorten’sbitter harvest


Structured products

TIMES are changing. With theshare market rollercoaster

continuing to deliver clients awild ride, advisers are increasingly facingup to the idea they may need to find afresh path through the volatile newinvestment environment if they are todeliver the growth and capital protectionclients want.

Many are realising they are stuck onthe horns of a dilemma – choose to playit safe until markets settle down, oraccept things have changed and newstrategies and tools are needed.

To do that, advisers may need to getover their longstanding hesitancy overembracing the complexity of structuredproducts.

As Geoff Watkins, managing directorof specialist consulting firm Path Inde-pendent, explains: “A typical adviser viewof structured products is they are toocomplicated and they feel frustrated atthe costs and lack of transparency.”

He believes they need to overcome thisview if they want to access the productsolutions available to protect clientinvestments.

“Many advisers are critical and disin-terested due to transparency concerns,but on the flipside, they are very inter-ested in capital protection for clients.They want the protection, but this is hardto achieve without complexity,” Watkinsargues.

Standard & Poor’s director fund serv-ices Rodney Lay agrees complexity is anissue with structured products, but hebelieves it can be overcome.

“Structured products are generally notthat complicated, but you need to under-stand them. Knowing your product isessential in this area,” he says.

Watkins believes the share marketdeclines in the second half of the yearmay have been the final straw. “In thepast two months, people have been veryinterested to talk to us – much more thanin the previous six months,” he says.

“Before that many financial plannersseemed to be hoping there will be areturn to business as usual, but theturmoil of August and September has

Structured products still confuse toomany advisers and clients.Market growth remains slow despiteperceived need.Most growth is amongst older investorsand SMSFs.Investors remain cautious about struc-ture and gearing.

Key points

Neither advisers nor investors have been particularly interested in structured products over the pastfew years and the sector has significantly shrunk since the global financial crisis. However, the capitalprotection feature seems to have quite a lot of appeal, writes Janine Mace.

A capital idea


Structured products

seen some advisers decide they mayneed to start doing things differently.There is a shift in thinking by advisers toconsider alternative investment tools, asthey realise the old model may not becoming back.”

Slow market growthDespite this new willingness to at leastconsider structured investments, themarket still has some way to go.

The March 2011 Investment TrendsCapital Protected Products Report foundin December 2010 there were only 50,000investors in structured products, whichrepresented a modest rise from the43,500 in November 2008.

The figures highlight the slow growthin the structured product market at themoment, according to Lay. “It is not aparticularly vibrant market in Australiasince the global financial crisis (GFC).We have seen less resources beingthrown at the sector since then.”

This explains media reports that majorinvestment banks such as Bank ofAmerica, Merrill Lynch, RBS and UBShave experienced recent staff departuresdue to the reduced retail sales volumes instructured product since the GFC.

Watkins agrees interest is limited atthe moment. “Actually there has beenvery little money going into structuredproducts – or most investment productsexcept term deposits – in the past six to12 months,” he says.

“As far as flows go, there has been verylittle and in terms of size, the structuredproduct market is irrelevant comparedto the rest of the investment market.”

Lay believes the outlook will remainunchanged for some time. “Most peopleexpect to see the market stay flat, as thereis a very high degree of risk aversion atthe moment. Advisers are reluctant toput money into structured products insuch a risk-averse environment.”

Who is interested?Although there is limited informationabout Australian investors in structuredproducts, what is available indicatesinvestors have several main areas ofinterest.

A recent paper by the Australian Secu-rities and Investments Commission’schief economist, Alex Erskine, for the2011 Australian Centre for FinancialStudies’ Money and Finance Conference,gathered together some of the availabledata from the Investment Trends surveyto create a portrait of structured productinvestors. He noted their median age was56, they had a median income of$110,000 and a portfolio size of $1.2million. Most (60 per cent) were invest-ing in their own name, with 32 per centinvesting through self-managed superfunds (SMSFs).

The key factors triggering their initialinvestment were diversification (43 percent) and capital guarantee (43 per cent).

Internal gearing was being used by 15per cent of investors, while 17 per centhad gearing by the product provider.

This data matches the experience ofthose working in the area, with capitalprotection products representing the majorgrowth area in structured products.

As HSBC head of sales in globalmarkets, Ian Collins, explains: “Productswhich maintain 100 per cent capitalprotection have seen a good pickup ininterest from real investors, rather thaninvestors interested in short-term prod-ucts and trends.”

These real investors increasinglyinclude SMSFs. “We are seeing more

interest by SMSF investors as the five-year timeframe suits their investmenthorizon,” he says.

Capital protection is the major attrac-tion for the smaller balance investor.“The main focus on the 100 per centcapital protection is in the retail market,but less so at the wholesale level,”Watkins notes.

“We have been promoting bespokeproducts for wholesale investors and wehave seen further interest in this area.The move in that space is away from fullcapital protection to shorter durationproducts.”

Capital protection was an importantcomponent in the SMSF structuredproducts launched earlier this year byDeutsche Bank and Wilson HTM. Theseproducts were designed to provideupside to the S&P/ASX200 and offeredthe choice of two strategies – 100 percent principal protected or 85 per centprotected. According to Wilson HTM, theproduct was designed for SMSF investorswho were keen to have a leverage expo-sure to the share market without the riskof margin calls.

Collins believes there are two areas ofinterest when it comes to structuredproducts. “The interest is in short-datedstructured products with no capitalprotection, or in long-dated productswith full protection.”

Geoff Watkins

Continued on page 16


The Erskine research paper also high-lights the importance of diversificationwhen it comes to structured products.According to Collins, this attribute is nowmore important to many investors thanthe gearing element that largely drovestructured product use pre-GFC.

He believes structured products canbe used to provide diversification andassist with easy access into unfamiliar orinaccessible asset classes. “Where we seestructured products as fitting into theportfolio is for investors with a long timehorizon and who are seeking capitalprotection as a safe way to access anasset class that they may not be thatfamiliar with, such as emerging marketsor global equities,” Collins explains.

There is also interest in other areas.“We are seeing a pickup in demand inthe dual currency investment space andalso in reverse convertibles due tocurrent market conditions,” he says.

Leverage loses popularityWith only a small group of structuredproduct investors involved in gearing,this represents a major change from afew years ago.

“The big products pre-GFC were theloan products and those are now mostlyno longer around,” Lay notes.

Much of this is due to the fallout fromthe use of constant proportion portfolioinsurance (CPPI) in structured productsissued prior to the crisis. The cash-lockthat occurred with many of these olderproducts has led to the emergence ofnew volatility-targeted products.

“Most loan products aren’t in the marketanymore as the environment is not asattractive as it was due to changes in theinterest regime and equity market condi-tions,” Lay explains.

“Structures that providers were usingsuch as CPPI are not being used any more.”

While leverage products are less popular,they have not disappeared entirely.

According to Lay, some of the newerleverage products have the entire invest-ment at risk and include a form of calloption. The idea behind them is to put asmall (1 per cent – 2 per cent) part of theportfolio into the product to achieve amuch higher market exposure – oftenaround 10 per cent.

“These are very high risk products andthe market needs to go up by a certainpercentage to achieve a return,” he notes.

Watkins agrees leverage products havereduced appeal. “There has been someinterest in the Macquarie Flexi Trust-style geared and protected products, butthey are June-type products,” he says.

“The few products in the market areticking along, but there is little hope ofit getting back broad market interest forsome time.”

The growing use of structured productsby SMSFs is also making the tax aspect lessimportant, as this investor group is lessfocussed on tax, Watkins notes.

Simple is bestOne of the main changes in the struc-tured product market has been driven byadviser and client feedback for simpler,more understandable products.

According to Collins, there is far less

interest by investors in ‘black box’ orcomplex products than in the past. “Thisview has been reinforced by the fact thatcomplicated structures didn’t performas well in bear market conditions.”

Lay agrees: “There has been a changeto make them a little more palatable overthe past two to three years.”

While newer structured products stillconsist of underlying assets and an addi-tional structure over the top, there havebeen big changes made to the underlyings.

“The underlying assets have beensimplified since the GFC and now mainlyoffer a basket of equities or index expo-sure such as the ASX200 or S&P500 in theUS and also basic exchange traded funds.They have been really simplified,” Layexplains.

“The issuers are trying to make themas simple as they can so advisers will beinterested and understand them.”

There has also been a strong trendtowards shorter duration products. Inthe past, structured products tended torun for five-plus years, but most nowhave a duration of around three years.

“We have seen a move towards shortertenor or duration products. These tend tobe riskier, but also offer a yield pickup,”Collins says.

While innovation in the structuredproduct space is limited at the moment,there are tailored products being developed.

“There is some bespoke product devel-opment being undertaken for some dealergroups, but these are small $20 millionissues for a specific dealer group’s clientneeds,” Lay says.

Watkins agrees: “There are bits andpieces going on and some tailored prod-ucts being developed. Some are likely tohit the market very soon for specificdealer groups.”

However, when it comes to a widerrollout of these products, Watkins isuncertain. “The question is: will manyfunds and fund managers come out withthem and will they have the resources toput behind them? There are difficultiesin how to communicate them to clients

and there are a lot of challenges in devel-oping broad market appeal.”

The current heightened regulatoryconcern about structured products is alsolikely to see some manufacturers pause.

Protection for retirement savingsOne of the key areas where the popularityof structured products will grow is inproviding protection for retirement savings.

Structured products designed for thispurpose such as OnePath’s MoneyFor-Life, Challenger’s Liquid Lifetime andMacquarie’s Lifetime Income Guaranteehave already found a niche.

Lay believes there is a demand forretirement-linked products that provide“income certainty and increasing retire-ment income over time”.

However, they have yet to achieve asignificant market. “The retirementproducts are useful, but the uptake hasbeen less than expected by the issuers,except for AXA North. North’s populari-ty is due to the better protection itprovides than CPPI, but the price is thecost of the capital protection. AXA Northshows investors still want capital protec-tion, especially in the pre-retirementphase,” Lay says.

With a rapidly ageing population,more capital-protected products areexpected to emerge.

“There is a lot of work being done inthe background on developing productsdelivering capital protection attachedto the platform or super fund where theinvestor holds their assets,” Watkinsnotes.

“Australians are not really keen onlong-term income stream products, butthey are looking at capital protection inthe pre-retiree and retirement areas.Interest seems to be about finding solu-tions for retirement income strategies,rather than income streams,” heexplains.

Solving client problemsDespite the flat market, structuredproduct experts remain convinced theyhave an important role to play.

“Structured products do certain thingsand have specific profiles for specificinvestor groups. They appeal to certaininvestors and to investors at certain pointsin their investment lifecycle,” Lay explains.

Collins agrees they can be very valuablein solving particular portfolio problems.“They can provide investors with accessto income as well as capital growth. We arenow structuring products that allowinvestors to take capital gains and incomereturns as well along the way.”

According to Watkins, the key tosuccessfully using structured vehicles isseeing them as a solution for achieving aclient’s objective, rather than as aproduct. He believes much of the earlyproduct development was manufactur-er driven, rather than client focussed.

“There are benefits from structuredproducts as long as things are clearlyexplained and they serve a useful strat-egy purpose. Whatever the product, itshouldn’t be the driver, the strategyshould be. Advisers need to work out thestrategy they need and then find aproduct that suits that or meets thatneed,” Watkins notes.

In particular he believes structuredproducts can be used to solve the trickyproblems around poor investmentmarket growth and capital protection.

“Structured products address them byincreasing returns, locking in gains in bothrising and falling markets, and by limitingdownside losses,” Watkins explains.

To successfully use structured products,Lay says advisers need to understand thestructure, payoff profile and performanceof the vehicle in different market condi-tions. “They also need to match theproduct to the right client,” he notes.

Collins agrees: “There is definitely afuture for structured products, but youneed to pick the right product for theright circumstances.”

Both Collins and Watkins believe theFuture of Financial Advice (FOFA)reforms will have an impact on the struc-tured product market.

“The future use of structured productsis going to be a function of FOFA andhow financial planners approach theirbusiness,” Collins says.

“Advisers are maintaining the viewthat there is a role for them in a portfo-lio, but they are not sure yet how theirremuneration model will fit in a postFOFA world.” MM


Structured products

Rodney Lay


Structured products bring learning curve Earlier this year, ASIC promised to direct most of its efforts to scrutinising areas such as advicerelated to structured products. Janine Mace examines the implications of such close scrutiny.

Since the global financial crisis(GFC), calling a financial product‘complex’ has taken on a wholenew meaning.

Rather than clever or innovative, it nowconjures up images of risk and capital loss.It is also likely to be a great way to gener-ate some extra attention from nervousregulators.

As Standard & Poor’s director fund serv-ices Rodney Lay notes: “Regulators aretaking a very cautious approach given theGFC. The emphasis as an adviser is to makesure you understand the product.”

In March, the Australian Securities andInvestments Commission (ASIC)announced it planned to direct most of itsefforts this year to scrutinising several keyareas, one of which included advice relatingto structured products. “In the last 18months we have seen a proliferation ofcomplex products. A number of these prod-ucts are highly risky and unsuitable formany consumers. While we will be lookingat complex products across the board, wewill be focusing in particular on capitalguaranteed products.”

The regulator went on to note: “Theseproducts are often very complex andgenerally no two are the same. If anadviser recommends these products toclients, it is vital the adviser fully under-stands how the products work and care-fully considers whether they are appropri-ate to the client’s circumstances andinvestment goals. The adviser should alsobe in a position to explain to the client therisks associated with the product andquantify the potential for loss.”

ASIC also noted it planned to conduct ahealth check on structured capital protect-ed and guaranteed products, particularlywhere the client borrowed up to 100 percent of the investment amount via a non-recourse loan.

The regulator has acted on its warningsand in July it imposed licence conditionson JB Global following concerns about theadvice provided on a number of capitalprotected products and structured prod-ucts generally. ASIC also obtained correc-tive disclosures from JBG StructuredInvestments in relation to its JB GlobalIncome & Equity Accelerator Units Series12, 14 and 15 Product Disclosure State-ments (PDSs).

ASIC went on to release its ‘Review ofdisclosure for capital protected productsand retail structured or derivative products’which looked at the level of disclosure in64 products in this area. The report recom-mended issuers improve their level ofdisclosure, particularly in relation toexplaining counterparty risk, the likelihood

of early terminator or other significant limi-tations, and about the break costs for earlytermination or redemption.

This close interest by the regulator isunlikely to evaporate, according to HSBChead of sales in global markets Ian Collins.

“Regulators have always been concernedabout structured products and that has ledHSBC to structure our products at the moreconservative end of the spectrum,” he notes.

“However, we may find the rules may bemore strictly applied in the future in the faceof this concern.”

Synthetic ETFs – bad or justmisunderstood?Although structured products have longbeen viewed as complex, regulators are

also considering applying the tag tocertain types of exchange traded funds(ETFs). In fact, some experts argue the linebetween structured products and ETFs isblurring. They believe synthetic ETFs(some of which include aspects of ‘finan-cial engineering’) are now more like struc-tured products than the traditional index-based ETF.

In September, Bloomberg reported Euro-pean regulators were becoming increasing-ly concerned that retail investors werebuying more complex ETFs in search ofhigher returns. Anxiety was further high-lighted when the $2.3 billion trading loss by

a ‘rogue trader’ at UBS AG was linked to ETFtrading.

Steven Maijoor, chairman of the Euro-pean Securities and Markets Authority, saidthe demand by consumers for higherreturns was seeing the emergence of “allkinds of structured products” in response.“We can see that more and more complexproducts end up in the hands of retailinvestors. That’s a concern for us.”

He said new ETF varieties were morecomplex and the risks for investors andfinancial stability needed to be analysed. TheUK’s Financial Services Authority and theBank of England Financial Policy Committeehave also expressed concerns about thepotential impact of these products.

In Australia, ASIC has added information

to its website to help consumers understandthe different types of ETFs and their risks. Inlaunching the guidance, ASIC chairmanGreg Medcraft, pointed to the differencesbetween ‘physical’ ETFs which invest in theunderlying investments they are designedto track and ‘synthetic’ ETFs which usederivatives such as swap agreements toachieve similar outcomes.

“While conventional ETFs are often rela-tively straightforward, there are complexi-ties and risks to be aware of. Furthermore,the use of derivatives by synthetic ETFscreates separate additional issues forinvestors to understand,” Medcraft noted.

“ASIC is monitoring this area closely andwill review thoroughly the introduction ofany new types of ETFs in Australia, as someof these can be complex investments thatmay not be suitable for many retailinvestors.”

Despite the regulatory concern, Laybelieves ETFs are not structured productsand points out there are three different typesof ETFs: traditional ETFs, exchange tradedcommodities (ETCs) and exchange tradednotes (ETNs).

“I would not consider them structuredproducts. The more standard ETFs andETNs over gold are not structured prod-ucts,” he says.

“The ETNs we will see coming to thismarket in the foreseeable future will not beconsidered structured products.”

Path Independent managing directorGeoff Watkins takes a slightly different view.

“ETFs and synthetic ETFs are put togeth-er by the same people who put togetherstructured products. The same desk in theinvestment banks are developing ETFs andstructured products. As soon as they aresynthetic they are structured,” he argues.

Although regulators may be concerned,Watkins believes there is little to be worriedabout here. “Australia is relatively safe, butcomplexity will be looked at more careful-ly by regulators in the future.”

However, he does sound a warning note.“Regulators need to be careful they do notstop innovation, or confuse complexity withrisk.”

According to Lay, the regulatory interestmeans the advice for advisers is simple.“The makeup of the different types ofexchange traded products and structuredproducts is different and advisers need tomake sure they understand them beforethey use them with clients.”

Structured products

Ian Collins

The Reserve Bank of Australia(RBA) has the dual mandate ofmaintaining price stability andful l employment. Its main

weapon for meeting both targets israising or lowering the cash rate – orkeeping it on hold. Of course, raisingrates tends to appreciate our currency,and vice versa. Currency has a majorimpact on import prices and so thestory gets complicated.

Back in 1989 I got into a heateddebate in the media over the RBA's theninterest rate setting. It was the thenTreasurer's view (Paul Keating) and theSecretary to the Treasury, Chris Higgins,that interest rates should be kept highto solve the current account deficitproblem. In essence, the idea was thathigh rates would slow down economicgrowth and put a check on imports. Mythesis (with Garry White) was that there

was another force at work via thecurrency. High rates cause a high dollarwhich, in turn, causes cheap imports -hence, increased import demand -other things being equal. Surprisingly,at the time there was strong oppositionto the notion that there could be asignificant currency effect. After theevent, Paul Keating claimed “we had therecession we had to have” to controlinflation. Maybe we did, but inflation

was never front of stage in the debatebefore the recession took hold.

When the RBA (then under BernieFraser) pushed up rates, they certainlypushed them up – as can be seen fromChart 1. The peak rate of 18.18 per cent(in November 1989 – just before thecurrent 'target cash rate' was intro-duced in 1990) would certainly getsome reaction today. Of course, weweren't then also in the middle of a


OpinionEconomics

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Source: Thomson Reuters Datastream

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Chart 2: Total unemployment rate

A case for a rate cutA cut in interest rates would result in the rise of consumer and businessconfidence, a fall in the Australian dollar and improvements on the stock market,according to Ron Bewley.

commodity price boom, so the dollardidn't get to parity that time around –just 89 cents – earlier in 1989. Ratescame down to 4.75 per cent in 1994, thesame as they are today, before the nexttightening phase began.

Interest rates were st i l l beingincreased during the early days of theglobal financial crisis (GFC). The lastrise to 7.25 per cent in March 2008 wasonly days before the collapse of BearSterns. But in November 2008 the RBA

cut rates by 100 basis points (or 1 percent) to 6 per cent – just after the failureof Lehman Brothers on 15 September2008. By April 2009 rates had beentaken down to an 'emergency setting'of 3 per cent. This swift action was oneof the several factors that savedAustralia from recession.

Australia – not getting involved in theglobal recession – was about the firstdeveloped nation to start increasingrates after the GFC; as early as inOctober 2009. Seven rises of 0.25 percent between September 2009 andMelbourne Cup Day 2010 took rates upto 4.75 per cent. Not high by historicalstandards but the US is still effectivelyon 0 per cent and the Federal Reservehas promised another year or two atthis setting. The European Central Bank(ECB) did recently increase rates by 0.5per cent, but many commentators arenow suggesting this increase will soonbe reversed.

So, just like in 1989, we have a highdollar through relatively high interestrates (compared to the US), and it ishaving an impact on growth as well asimport prices. What will happen next?

Month-to-month levels of the officialunemployment rate are subject to'sampling variation'. Only about 29,000households are surveyed to estimatethe unemployment rate for eachmonth. Care must be exercised incomparing consecutive unemploymentrates as the Australian Bureau of Statis-tics (ABS) advises.

The (seasonally adjusted) unemploy-ment rate, in Chart 2, can be seen to havereached a low of 4 per cent in February2008 - just before the onset of the GFC; apeak during the GFC of 5.9 per cent inJune 2009; and a low of 4.9 per cent post-GFC. While the two-speed economy wasbeing battered by a high dollar, the unem-ployment rate quickly jumped to 5.3 percent in August 2011 – only 0.6 per centbelow the GFC peak unemployment rateof 5.9 per cent. The September figure,

released on 13 October of 5.2 per cent wasa drop of 0.1 per cent from September. Bythe nature of the survey which samplesonly about 1 in 300 of the civilian popu-lation, the ABS reports that the month-to-month change in the unemploymentrate is only accurate to ±0.2 per cent. Thebig question is, therefore, should rates beon hold, or headed up, or down?

In order to focus on the rate of changeof policy targets, I have taken the rate ofchange of unemployment – and not atone-month intervals but three monthsapart to reduce the impact of samplingvariability. Also, I have switched myattention to (seasonally adjusted) maleunemployment because that tends to bemore sensitive to change than totalunemployment.

These rates of change data in Chart 3are quite alarming. Except for the 1990/91recession and the GFC, the recent data isworse than at any other time in thatperiod. More importantly, interest rateswere being cut during the GFC and therecession when this rate of changereached this level. To me, it is not now aquestion of guessing whether the RBA will

raise rates, keep them on hold, ordecrease them. The question is: why havethey not already cut rates - at least inOctober 2011?

On another front, the NationalAccounts released in early Septemberback up the slow growth argument.Growth seemed strong at 1.2 per cent for2011 Q2 but, on the back of a -0.9 per centfor the flood-affected Q1, it left Q2 2011at about the same level as Q4 2010 – andlower in per capita terms. Not a prettypicture. These data do not point to arecession – China and resources will againsee to that. But is the current situationproducing the across-the-board fullemployment that we want and deserve?

If interest rates are cut, consumer andbusiness confidence will rise, our dollarwill fall, economic growth will improveand the stock market will improve. Infla-tion could get a little worse but if the RBAcan't fulfil both price stability and fullemployment, I think most people wouldopt for having a job.

Ron Bewley is the executive director ofWoodhall Investment Research.

Blinded by fool’s goldThere is a propensity for market participants to be dazzled

by bright and shiny objects and, as a consequence, overlookwonderful opportunities that lack immediate appeal.

www.platinum.com.au | 1300 726 700

Tby

3CPAMM08


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Chart 3: Rate of change of male unemployment rate

WHAT DOTHE HEADS of AUSTRALIA’S

leading fundRESEARCH HOUSEShave in common?

FPA. BEST PRACTICE

They’ll all be addressing an exclusive FPA Portfolio Construction Masterclass, brought to you by PortfolioConstruction Forum, at the annual FPA National Conference at the Brisbane Convention and Exhibition Centre on 16 – 18 November 2011. Along with an exceptional line-up of speakers, our programme focused on professional development and FOFA transition, promises to deliver outstanding value for you and best practice for your business. Register now at fpaconference.com.au.

To most people a comfortablelifestyle in retirement meansbeing able to afford gifts for thegrandchildren, dine out occa-

sionally, renovate a bathroom or kitchenor maybe buy a new car.

A couple will need about $54,562 and asingle person, $31,263 annually to retirecomfortably today. This assumes they owntheir home outright and are relativelyhealthy. The Association of Superannua-tion Funds of Australia (ASFA) retirementstandard on which these estimates arebased is a useful benchmark for retireesand pre-retirees. It’s an indicator of theamount of income that a couple or singleperson would need to support either amodest or comfortable lifestyle in retire-ment. But what does it mean for youngergenerations, who naturally are less engagedwith their superannuation?

According to the final report on the SuperSystem Review, “Members are often notengaged with their super until closer toretirement…Since the introduction of the‘Choice of Super’ legislation, switching ratesbetween funds have actually declined fromaround 5 per cent in 2005 to 2 per cent bythe end of 2009” shows clear evidence thatmembers generally are disengaged withtheir super. Of the 80 per cent of memberswho have invested in the default invest-ment option in the employer’s default fund,“approximately 60 per cent of members donot make active (investment) choices.” TheMySuper product which was recommend-ed by the Super System Review is designedto cater for this vast majority of unengagedmembers.

Not all members are disengaged withtheir super. Engagement may depend onfactors such as the member’s age, accountbalance, education, and financial circum-stances. Take, for instance, the members ofself-managed superannuation funds(SMSFs). “Compared to members of othertypes of superannuation funds, SMSFmembers are on average older, earn ahigher income and have larger superannu-ation balances.”1 With average assets permember of $439,037 (2008/09)2, its easy tosee why SMSF members have such a stronginterest in their super. The rapid andcontinued growth in the number of SMSFsis evidence of more members seeking acloser level of engagement with super. TheAustralian Taxation Office (ATO) statisticsshow the total number of SMSFs havegrown from 273,049 in 2004 to 424,059 in20102. They also account for more than 30per cent of all superannuation assets.1

We can expect all members to havegreater involvement with super as accountbalances grow to historically record levels.Treasury predicts that the average super-annuation account balance for all fundmembers will grow from $70,000 in 2009 to$180,000 in 20353 (in today’s dollars). Thiscan be compared to the average superbalance of $165,000 for pre-retirees aged55-64 in 20094. By 2035 pre-retirees are likely

to have significantly more than $180,000 insuperannuation.

For younger generations, the ASFA retire-ment standard might not mean a lot asretirement seems so far away for them. Theretirement standard calculates the incomeneeded today to fund retirement today.Compare this to a 40-year-old who maywant to know what they need to do todayto retire comfortably in 30 years time. Whatmay mean something to younger genera-tions is the size of the lump sum requiredto fund a comfortable retirement. Also, theyare interested in how the lump sum can beaccumulated over a person’s working life.

Based on the ASFA research, a coupleneeds a superannuation balance of over$500,000 combined with a part age pensionto support a comfortable lifestyle in retire-ment. An individual earning $100,000 peryear (plus average wage increases) for 30years may achieve the required balance ifthey contribute 12 per cent of their salaryeach year. The same would apply to acouple, where both members earn $50,000for 30 years and contribute 12 per cent oftheir salary each year. Using this bench-mark, a working individual can quicklyascertain whether they are on their way toachieving a comfortable retirement basedon how much they contribute, how muchthey earn and how many years they areexpecting to work over their lifetime.

Of these three factors, we can most easilychange how much we contribute to super.Most people acknowledge that contribut-ing the current compulsory 9 per cent ofearnings to super will fall short of meeting

retirement objectives. The governmentrecognises this and intends to progressive-ly raise the rate to 12 per cent by 1 July, 2019.The low level of engagement with supermay be the reason that:

• We are unwilling to increase our supercontributions;

• We find it difficult to quantify exactlyhow much we need to contribute each year;or

• We are unwilling to sacrifice currentspending for future income.

Whatever the reason, alarm bellsshould ring for most people if you consid-er an individual earning $100,000 for 30years and contributing 9 per cent to superwill not be able to provide for a comfort-able retirement. One solution could be toincrease salary sacrifice superannuationcontributions.

It can be harder to control how muchwe earn, but thankfully for those who don’texpect to earn $100,000 (or a couple,$50,000 each) there are strategies availableto assist in closing the gap. Low andmiddle-income earners can boost theirsuperannuation balance by taking advan-tage of the co-contribution and spousecontributions. By comparing their situa-tion to the ASFA benchmark, individualscan see the importance of utilising incen-tives if they are to retire comfortably. Theproposed ‘low income earners governmentcontribution’ also helps boost superannu-ation balances of low income earners.Effectively it refunds the tax paid on contri-butions for individuals with adjustedtaxable income below $37,000 and is

expected to take effect from 1 July, 2012.These days an average person is likely to

work for longer than 30 years, when weconsider the overall trend to continueworking later in life and the increase in agepension age to 67 by 1 July, 2023. Obvious-ly this won’t necessarily be true for parentswho take time out of the workforce forfamily reasons. Working for longer isanother way we can edge closer to provid-ing ourselves a comfortable retirement.

It’s important for working individualsto understand how increasing their salarysacrifice contributions, making use of theco-contribution (where available) andstaying in the workforce longer can signif-icantly impact a person’s ability to livecomfortably in retirement. Benchmark-ing current situations with the level ofsalary, contribution rate and number ofworking years required to produce a lumpsum sufficient for a comfortable lifestylein retirement can be very useful. It mayalso help individuals to become moreengaged and take control of their retire-ment lifestyle.

Claudine Siou is OnePath’s technicalservices specialist.

1.Super System Review – Final Report – PartTwo: Chapter 82. ATO Self-Managed Super Fund statisticalreport3.Super System Review – Final Report – PartOne: Overview and Recommendations4. ABS Trends in superannuation coverage25/3/2009

Are your clients happy with their super?

OpinionSuperannuation


Claudine Siou investigates some benchmarks that will help ensure clients enjoy a comfortable retirement.

No kind of advice – personal,financial, legal, or otherwise– is a silver bullet. Even ifyou’ve provided a client with

the best financial advice you’ve evergiven, it will not remain forever rele-vant and prevent them from everneeding advice again. People’s circum-stances change. Their needs change.Their objectives change. These changesnecessitate new advice.

Because of this, an important part ofyour relationship with your client ishow you engage with them, enablingyou to provide them with the advicethey need as their circumstances,needs, and objectives change. Engag-ing with your clients on an ongoingbasis is important to your client. It’salso important to your business.

The proposed Future of FinancialAdvice (FOFA) reforms haven’t changedthis. Of course, some of the rules of thegame may change, but at its heart clientengagement will be the same in thefuture as it is now.

At the time of writing this article, thefirst and second tranches of draft FOFAlegislation have been released. Two big-ticket items for advisers are the bestinterest obligations and the ongoing feearrangement provisions, which includea requirement for clients to renew anarrangement of this nature every twoyears (an “opt-in” requirement).

What we cover in this article relates toadvisers if the first tranche of the legisla-tion is implemented exactly as publishedon 29 August 2011, particularly in relationto ongoing fee arrangements.

This article also provides guidancethat is relevant now and for the fore-seeable future, whether or not FOFA isimplemented.

The importance of setting clear,manageable terms of engagementIt is vital that you and your client areon the same page in relation to theservices that you are providing. This isespecially the case when you have anongoing relationship.

A fundamental distinction relates tohow you frame your ongoing obliga-tions with your client. For example,there is a huge difference betweenagreeing that you will review theiraffairs on a continuous basis, comparedto agreeing that you will review their

affairs at regular intervals.If you are receiving ongoing fees, a

client is likely to assume that you’reproviding ongoing advice.

When you conduct an annual reviewof your client’s affairs and you don’tthink they need to make any changes,you’re still giving advice. After all, arecommendation to do nothing is still arecommendation. It is f inancialproduct advice under the CorporationsAct 2001. So you will need to prepare aSOA or ROA on at least an annual basis.

The nature of the ser vice beingprovided is often communicated clearlyby advisers. Ask yourself if you aremaking it clear what the nature of yourservice is going to be. Do your clientsunderstand this?

This is especially relevant duringtimes of volatility and economic uncer-tainty. The terms of your engagementshould be set out clearly in writing. Thiswill help you if there is ever a dispute.There are plenty of FOS adjudicationsand determinations which demonstratethe importance of this.

On this note, the draft FOFA legisla-tion says that an adviser ‘must act inthe best interests of the client whengiving the advice’. While it is easy tofocus on the first part of that statement,the second part is equally important.The proposed best interests dutyapplies only when the advice is given. It

is not an ongoing duty that requires anadviser to continue checking the appro-priateness of advice.

The word ‘the’ prompts the question:what is the advice? The answer to thisquestion should be able to be answeredby reference to the scope.

Setting out the scope of your advice As well as being clear about the natureof your relationship, it is important toset out what you are doing in relationto a specific task.

Any given task has a scope. This istrue whether it is to conduct a compre-hensive review of the client’s financialsituation, whether it relates only toproviding advice about the level of lifeinsurance and a product suitable totheir needs and objectives, or whetherit relates to how to invest an inheritancewindfall without regard to any of theirother circumstances.

Of course, the scope of advice is rele-vant where you are providing one-offadvice, but it is also important whenundertaking tasks as part of an ongoingrelationship.

Going beyond the scope leads to over-servicing, which can lead to unnecessarycost to the client or to you spending moretime on a task than is necessary. It mayalso introduce confusion about what theclient asked you to do.

Failing to meet the scope of a task iswhere things can go awry. If there is adispute and the scope of your task isunclear, it will be difficult to say thatyou performed a task as agreed with aclient. In most forums, whether it isthrough an external dispute resolutionscheme or a court, the benefit of thedoubt will be given to the client.

Set out the scope of your task clearlyto help manage this type of risk. Insetting out the scope, you can ensureyou and your client are on the samewavelength about the services they arereceiving.

ASIC’s recent Consultation Paper 164Additional guidance on how to scaleadvice is also relevant here.

Ongoing fee arrangements –beyond “opt-in”It is easy, when looking at the draftlegislation, to focus on the “opt-in”requirement. However, the “opt-in”requirement is only part of the broader

framework of having an ongoing feearrangement.

An ongoing fee arrangement willapply to almost any ongoing client rela-tionship. It will relate as much to a setfee arrangement (such as quarterly orannual fees, invoiced to the client andpaid directly to you) as it will to asset-based fees.

It seems almost certain that if youhave an ongoing relationship with aclient you will be charging ongoing fees.Accordingly, we would argue that itwould be more accurate to refer to thisas just one element that is part of anongoing client arrangement.

If you have an ongoing client rela-tionship, you need to provide a ‘feedisclosure statement’ to the client atleast once a year.

In this document, you will need toshowcase the services to which theclient has been entitled, the servicesyou have provided to them and the feesthey have paid for the past 12 months.You will also need to outline the servic-es to which they will be entitled in thenext 12 months, as well as the servicesyou expect to provide and the fees youexpect they will pay.

Every second year the client needs tonotify you in writing that they wish torenew the arrangement, in response toa ‘renewal notice’ that you provide to


OpinionFOFAEngaging with clients in apre and post-FOFA world

The Government’s FOFA legislation will undoubtedly changesome of the relationships which exist between planners andtheir clients but, as Sonnie Bailey writes, underlying clientengagement will remain crucial.

“If FOFA comes into effectas currently proposed, thehealthy thing to do is put apositive spin on it. ”

them, usually at the same time as thefee disclosure statement.

Apart from needing to be in writing,the manner in which your client renewsyour ongoing arrangement is notprescribed by the draft legislation.

Fee disclosure statements andrenewal notices will be able to builtinto, or accompanied by, existing docu-ments you provide to the client. Theywill need to trigger some kind of writtenresponse from the client.

For example, a Terms of Engagementdocument that you have your client

sign every year or second year mayinclude this information. Alternative-ly, an acknowledgement or authority toproceed in an annual review Record ofAdvice (ROA) or Statement of Advice(SOA) which you provide to the clientmay include this information.

Alternatively, you could prepare anemail or an internet form, providing therelevant information, which they canrespond to (where necessary) by typinga (short) response, or accessing a formon the internet and responding appro-priately in writing.

If you are providing ongoing servicesand your c l ient is not s igning oracknowledging anything you are doingin writing, then FOFA or not, we suggestthat you should be doing so. At the veryleast you should be doing this tomanage your r isks. We think thatinvolving your client is a wise practicein terms of engaging with them as partof an ongoing relationship.

The draft legislation prescribes someof what you will need to disclose, andthe timing with which you need tomake your disclosures and get a

response. We suggest this should onlyrequire slight amendment to what isalready best practice.

Setting fees or minimum feesOne element of the draft legislation isthat if a client terminates an ongoingagreement (which they will be able todo at any time, under proposed section962B(1)), you can still claim fundsowing by them as long as the funds areclearly owed under the terms of theagreement.

For example, you may agree upon afixed fee of $4,000 for your services atthe start of the year. This will be paidquarterly as a percentage of fundsunder advice. If your client terminatesthe ongoing agreement in the middleof the year, when you have onlyreceived $2,000 from the funds underadvice, you will be entitled to requirethe client to pay the remaining $2,000directly to you.

However, you will only be entitled tothis if it is a condition of the agreement,for example, as par t of a Ter ms ofEngagement document.

Of interest, the draft legislation doesnot prohibit you from establishing anarrangement where a client has to pay$4,000 or asset-based fees for the year ata set percentage, whichever is higher. Tothe extent that some might argue this isnot in the client’s best interests or is aconflict of interest, this arrangement doesnot relate directly to the advice given. Theproposed conflict of interest provisionssuch as 961K and 961L and the best inter-ests requirement set out in 961C onlyrelate to when the advice is being given.This is a fee arrangement that you’renegotiating with your client.

ConclusionIf FOFA comes into effect as currentlyproposed, the healthy thing to do is puta positive spin on it. By requiring youto make these disclosures, you will berequired, by law, to showcase to clientsthe services you are providing to them.There may be a cost involved, but manysavvy advisers will probably considerthis not as a compliance cost, but aninvestment in marketing.

Sonnie Bailey is a lawyer with HolleyNethercote commercial lawyers.


The greatness of Ancient Greece isconsidered by historians to havebegun with the date of the firstOlympic Games in 776 BC and

ended with the death of Alexander theGreat in 323 BC. During his brief reign,Alexander’s army subjugated the kingdomsof the Medes and Persians and with otherconsumed territories he conquered all theland stretching from Egypt and Greece inthe west, to India in the east, within 13years. Although Alexander’s kingdom wasdivided into four regions after his death andeventually declined, Ancient Greek civiliza-tion has been highly influential onlanguage, politics, educational systems,philosophy, art and architecture for thesubsequent 2,300 years. Indeed, AncientGreece is considered by most historians tobe the foundational culture of present-daywestern civilisation.

Between then and now, Greece hasgone from controlling the known world,to the known world controlling most ofit, following the total mismanagement ofits government finances over the pastdecade. Greece is now a country which ismore or less insolvent, as governmentrevenue cannot maintain services and payits debtors.

For example, Michael Lewis, the authorof Liar’s Poker, detailed the state of theGreek railroad system in the magazineVanity Fair and stated that the networkhad revenue of 100 million Euros perannum, but annual expenses of 700million Euros. Indeed, as it turns out, itwould be cheaper for the Greek govern-ment to put every rail commuter in a cabeach day, take them to their destinationand pay the bill than to continue runningthe rail network.

There are similar stories in the Greekeducation system. This inefficiency hasculminated in the Greek government nowbeing completely dependent on globalfunds to remain functioning. This situa-tion, and its flow-on effects on the Euro-pean financial system, has become a head-wind for investor confidence worldwide.

Three broad problemsCurrently there are three broad problemsthat are negatively impacting global sharemarkets: the northern hemisphere debtsituation; heightened fears of financialsystem stress; and weak growth in theadvanced economies (with rising infla-tion) due to broad-based deleveraging byhouseholds and governments.

Accordingly, the International Mone-tary Fund has cut its global growth fore-casts for 2011 and 2012 (by 0.3 per centand 0.5 per cent to 4 per cent and 4 per

cent respectively). The emerging Asianregion is forecast to grow a rapid 8 percent, whereas the growth slowdown iscentred in the advanced economies (ledby the US and Europe). Indeed, twoFrench banks were downgraded over thepast month due to their weak growthprofiles and debt exposures in stressedEuropean economies. China has bannedforeign exchange futures and swaps withFrance’s banks, most probably due toelevated counterparty risk.

French and German leaders (Sarkozyand Merkel) have stated that Greece willdefinitely remain part of the Euro, but thiswas probably a case of telling marketswhat they want to hear rather than tellingthem what’s likely to happen. They didnot say that Greece won’t default or thatthere won’t be a major restructure ofGreek debt, as a significant amount of thedebt of Greece, Portugal and Ireland willhave to be written off, with creditors(namely, the European banks, wearing thewrite-downs on their balance sheets withseveral probably having to be partlynationalised) bearing the impact.

Periphery Europe’s problems arespreading into the larger economiesWith the Greek economy in a sizabledownturn and with the Greek bankingsystem continuing to lose deposits, manyconsider debt default as inevitable. This

view is reinforced by statements thatGreece is ‘exhausted’ from the reformprocess when a lot more reforms need tobe undertaken, and arises in the contextof increased European hostility to usingtaxpayers’ funds to finance bailouts.Nevertheless, Greece is not the mainconcern as its economy is about the samesize as the state of Victoria and its bondmarket is not overly large. Indeed, Euro-pean banks only have 4 per cent of theirtier one capital exposed to the debt ofGreece, Ireland and Portugal (see Table 1,

page 25), whereas 60 per cent of theircapital is exposed to the debt of Spain,Belgium and Italy. These six countrieshave around 3.5 trillion of bonds on issue,14 per cent of which is held by the bankslisted in Table 1 and by far the biggestexposure is to Italy, whose credit ratinghas just been cut.

European authorities only have twooptionsGiven the current state of things inEurope, the regional authorities have two


OpinionGreece

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007

US Savings (% US GDP)

Including government payments

Excluding government payments

Source: Credit Suisse as at 1 September 2011.

Chart 1: How much longer can the US government borrow money to fundthe consumer?

Greek tragedy In providing an update on Greece, Matthew Sherwood writes that modern day Greece is hardlysomething that Alexander the Great would have envisaged. The country stands on the brink ofdefault to the detriment of investor confidence worldwide.

options on what to do. They can eithercontinue on the current path whereausterity measures are producing a severerecession and driving a worsening in theGreek budget balance, or they can partial-ly write the debt off and restructure it. Themain function for the authorities is toinspire broad-based confidence and thefirst potential solution is what is current-ly happening – which is like trying to putout a fire by smothering it in paper.

Europe needs a debt restructureThe key question for policy makersregarding the second option is ‘what dowe need to do to underpin an orderlyrestructuring of debt in the stressedmarkets’. This question would require asubstantial write-down of stressed debt(in Portugal, Greece, Ireland and so on), arefinancing of existing debt to an extend-ed term, capital injections into the Euro-pean banking system, an extension of thedeadlines for repayment of coupons onexisting debt and a lowering of the inter-est rate (including the coupons). Inexchange for this, the stressed debtgovernments would have to agree topermanent widespread austerity meas-ures and limitation on future deficits.

… but the process need not bedisorderlyThe market reaction to this will dependon how well the European authoritieshandle the situation, but the process neednot be disorderly. However, it is impor-tant to keep in mind that the total Euro-pean government bond holdings withEuropean banks would lead to some insti-tutions being partly nationalised.However, these developments might alsogive investors comfort that the authori-ties are finally getting ahead of theproblem, rather than simply reacting toit. This may well inspire investor confi-dence that the crisis will eventually end –at the moment the European authoritiesseem to be dithering and telling the popu-lation that policies which are clearly notworking, are likely to continue.

US monetary policy is impotent, butstill importantThere is little doubt that over the pastmonth, tier one economic data in the UShas been ‘less-bad’ than what the markethas expected. However, the past two

attempts of US authorities to improvegrowth prospects have not worked. IndeedPresident Obama’s jobs package and the USFed’s ‘Operation Twist’ (to flatten the USyield curve by buying long-dated assets andselling short-dated assets) have promptedsell-offs in the risk markets. Why? Becauseeven if you lower interest rates, US house-holds still do not want to borrow, and creditdemand has declined. It appears that USmonetary policy is now exhausted asinvestors have seen rates drop to 0 per cent,have had two subsequent rounds of quan-titative easing, and now a process to flattenthe yield curve, yet growth and confidenceremain anaemic. However, monetary policyis still very important as keeping interestrates low means households can accelerateprincipal repayments and reduce their debtmuch faster. Accordingly, monetary policy’sjob is not to support growth in the short-term, but to support growth in the long-term and shorten the duration of thedeleveraging process.

The US needs an urgent fiscal circuitbreakerConsequently, the issue of supporting USgrowth in the short-term becomes a polit-ical one. That is, the US needs a circuitbreaker from the Government to supportspending. One significant problem for theUS is that rates are low, but house priceskeep declining, and a significant amount ofhouseholds are sitting on negative equity.As such, these people cannot take advan-tage of lower rates by refinancing theirmortgage. If this were somehow to beallowed, then consumer confidence couldrise. One other issue is that the US savingsrate may be around a 20-year high, but ithas been entirely funded by the USGovernment (see Chart 1). One has towonder how much longer the ObamaAdministration can continue to borrowfunds from global investors and the USFederal Reserve to fund the US consumer.

The trade impact of the northernhemisphere’s problems on Australiawill be modestThe direct trade impact from the northernhemisphere situation on the Australianeconomy is likely to be minor. Althoughthe US and Europe have historically beenour major trading partners, our exposureto these regions has progressively beendeclining over the past 20 years from

around 15 per cent in 1990 to 8 per centnow. Australia’s trade base is now domi-nated by Asian economies and this meansthat the Australian economy shouldcontinue to benefit from the ‘fast lane’ ofglobal growth. However, global events cancertainly still impact Australia through itseffect on household and business confi-dence and the extent to which this influ-ences spending decisions, and unliketrade, the transition through this channelis much more fluid.

RBA’s next move depends on globaleventsGiven the global situation, two consecu-tive rises in the unemployment rate and arevision to recent inflation results, manyinvestors have indicated that they expectthe RBA to cut rates to support growth.However, the RBA has stated that the near1.5 per cent of rate cuts priced into futuresmarkets appears (at least at present) quiteexcessive. Until the US and Europeanauthorities establish and implement aviable solution, risks remain to the down-side. It could be the case that the RBAwants to preserve as much policy ammu-nition as possible, until it is forced to useit. Indeed, any rate cut before heightenedmarket volatility would lose its impactimmediately. This suggests that despitethe current state of inflation and unem-ployment, the RBA’s next move willdepend on global events.

Buying high yield is not sufficientThis environment is likely to be one whereinvestors are not rewarded for taking largerisks in their portfolio, but are rewardedon a relative basis for investing in compa-nies with sound business models, thathave strong balance sheets and candeliver earnings and dividend growth in adifficult climate. At this time, investorsare searching for yield, not only from areturn point of view, but also from a riskmanagement perspective. Dividends mayhave been a smaller proportion of

investors’ total return than in the past, butnow the search for yield is paramount.However, investors should be wary of simplysearching for the highest yield, as thehighest-yielding investment since 1983 hasprovided investors with the least incomegrowth through time. For example, theinterest rate in the cash market has aver-aged 8.7 per cent since 1983, but the incomereceived each year has declined by 2.2 percent per annum. Conversely, the yield fromAustralian shares has only averaged 4.4 percent (see Chart 2), but the income hasgrown at 8.1 per cent per annum (despitethe GFC). Income growth is a very impor-tant consideration as it is required to offsetthe potential impact of inflation and main-tain real spending power.

Implications for investorsThe key question in this environment ishow to manage risk. On most occasionsAlexander the Great had less troops andinferior equipment and yet was unbeatenin battle. Had he simply charged into anopen field to attack the Persians or theMedes, he would have been slaughtered.Instead he minimised risk and operated inan environment that gave him the highestprobability of success. Similarly, investorscould consider how to minimise risk.Regardless of whether investors invest inequities, credit securities or other assets,the best defence against market volatilityis ‘quality’. Listed companies with a strongbalance sheet, consistency in cash flowgeneration, reliable earnings growth anddividend growth, and who are sharehold-er-focused in their payout strategies, arelikely to outperform peers with weak busi-ness models and weaker balance sheets.There is little doubt that markets willremain volatile, but investing conserva-tively in proven business models mayprovide more stability in portfolios in whatcould be a somewhat uncomfortable ride.

Matthew Sherwood is head of investmentmarkets research at Perpetual Investments.

-4%

-2%

0%

2%

4%

6%

8%

10%

Cash LPTs Residential Property Australian Shares

Average yield (%)

Average income growth (% pa)

Gross Investment Yield and Income Growth (%)

Source: REIA, Reserve Bank of Australia, IRESS and UBS Australia Limited as at 31 December 2010. Property is calculated using the REIA timeseries on rents and values for 2-bedroom units . Before 1980, the series used in the change in Sydney and Melbourne house prices per quarter.

Chart 2: There is an inverse relationship between yield and income growth

Bank Portugal, Ireland Greece Spain, Italy, Belgium Total

St. Chartered 0% 0% 0%

Lloyds 0% 0% 0%

Credit Suisse 0% 2% 2%

UBS 1% 7% 7%

HSBC 2% 6% 7%

Deutsche 5% 13% 18%

Barclays 3% 31% 35%

Soc Gen 9% 29% 38%

Credit Agricole 4% 40% 44%

ING Bank 4% 50% 54%

Commerzbank 16% 64% 80%

Santander 7% 80% 87%

BNP 10% 78% 89%

Bakinter 0% 100% 100%

UniCredit 1% 100% 102%

Banco Popular 7% 96% 103%

Others 3% >160% >160%

Aggregate 4% 60% 64%

Table 1: European banks net exposure to stressed sovereign debt (% Tier One capital)

Source: RBS as at September 2011


When a super fund memberdies, their surviving spousemay be able to receive thedeath benefit as a lump

sum payment, income stream or a combi-nation of the two. Receiving an incomestream can provide benefits such as tax-free income and capital gains in the fund,rebatable or tax-free income payments andpotential social security concessions. Thedownside is any anti-detriment payment isforgone, as this additional amount is onlypaid when a death benefit is received as alump sum.

When evaluating the options, it isimportant to:

• Determine whether the fund is able tomake anti-detriment payments, as not allfunds can or will.

• Identify the potential anti-detrimentamount, which will depend on factors suchas whether the fund uses the audit orformula method to determine thepayment, how much of the total benefitrelates to insurance, the tax componentsand the deceased’s eligible start date.

• Consider whether receiving an anti-detriment payment outweighs the ongoingtax and social security benefits an incomestream may provide.

The tax implications for future benefi-ciaries should also be considered. Whilethe surviving spouse is able to receive thesuper benefit tax-free, the survivingspouse’s non-dependants for tax purpos-es (often financially independent adultchildren) will pay tax on the taxablecomponent of the death benefit when thesurviving spouse dies.

Strategies1. Spouse aged 65 and over and not workingIf the surviving spouse is age 65 or over andnot working, they are unable to make supercontributions. For these clients, receivingthe death benefit as an income stream willenable them to retain the capital in thesuperannuation environment. This strate-gy may be particularly attractive if thepotential anti-detriment amount is rela-tively small, or the fund is unable to makeanti-detriment payments, which is oftenthe case with self-managed super fundsbecause of funding issues.

2. Death benefit greater than contributioncapsIf the surviving spouse is eligible to makesuper contributions and the fund willmake an anti-detriment payment, theymay want to receive some of the deathbenefit as a lump sum. This will enable

them to qualify for an anti-detriment upliftfor the portion received as a lump sum.

If the spouse then uses the money tomake a non-concessional super contribu-tion (up to $450,000 in certain circum-stances), they could ensure the full amountof capital is held in the super environmentand the contribution will be paid tax-freeto all beneficiaries, including financiallyindependent adult children.

The contributed amount will be preservedand the spouse must satisfy a condition ofrelease to access the money as a lump sumor income stream. Also, no anti-detrimentpayment will be made on the amountreceived as an income stream, and thisportion will inherit the deceased’s tax-freeand taxable components, which may havetax implications for future beneficiaries.

3. Access to super held in accumulationphaseIf the surviving spouse is under agepension age and receiving incomesupport, they may ultimately want tohold the death benefit in the accumula-tion phase where the money may beexempt from the social security incomeand assets test. To do this, the survivingspouse must first receive the deathbenefit as an income stream and thencommute the income stream outside thelater of six months from the date ofdeath, or three months from the grant ofprobate or letters of administration.

A commutation outside these time-frames results in the spouse receiving alump sum member benefit, which can berolled to an accumulation fund. The

amount rolled over is classified as an unre-stricted, non-preserved benefit and themoney can be withdrawn at any time orconverted to an income stream. However,while in the accumulation phase, any earn-ings on this amount will becomepreserved.

Other issues to consider include:• No anti-detriment payment is avail-

able.• While commuting the pension may

have tax or social security implications,these may be a short-term cost for longer-term benefits and flexibility.

• Any lump sum or pension paid fromthe amount rolled over will no longer be adeath benefit. Where the recipient is lessthan age 60, this will mean a lump sumbenefit may be taxed and pension incomepayments may be taxed with no 15 percent tax offset available if the recipient isaged less than preservation age.

ConclusionThe above strategies illustrate when it mayor may not be appropriate for a survivingspouse to receive a superannuation deathbenefit as an income stream. But just likea financial plan, an estate plan should bereviewed on an ongoing basis. While anestate planning strategy may be appropri-ate now, a change in circumstances maymean it will no longer be the most appro-priate strategy.

Jennifer Brookhouse is a senior technicalconsultant at MLC Technical Services.


Toolbox

Jennifer Brookhouse outlines the options, issues and strategies to consider when payinga superannuation death benefit to a surviving spouse.

Super death benefit optionsfor a surviving spouse

The Australian Taxation Office proposed in Draft Tax Ruling TR 2011/D3 that effec-tive 1 July 2007, account-based pensions and certain other pensions cease andbecome an accumulation benefit on the death of the member if there is not amember (or dependent beneficiary of a member) who is automatically entitled toreceive the death benefit as an income stream.

This proposal has the potential to make it more attractive to have an income streamautomatically paid (or continue) to an eligible beneficiary. This is because, once anincome stream ceases, fund income, such as dividends and interest, are taxed at upto 15 per cent.

Also, when assets are sold to pay lump sum death benefits, discounted capital gainsare taxed at 10 per cent. When you consider that lump sum death benefits are alreadytaxable when paid to non-tax dependants, this measure also has the potential toimpact estate planning strategies.

Recent Draft ATO Ruling

Appointments


Please send your appointments to: [email protected]

Opportunities For more information on these jobs and to apply,please go to www.moneymanagement.com.au/jobs

SENIOR PARAPLANNERLocation: BrisbaneCompany: Saxons Pty LimitedDescription: A financial planning firm with anew client-focused approach is looking torecruit a senior paraplanner.

Having re-entered the industry after sellingthe business prior to the GFC, the firmpromises that the successful candidate willnever have to write another SOA again, as thefocus will be on what skills you can bring tothe role.

You will have experience in developingstrategies to assist clients achieve their goalsand will have at least three yearsparaplanning experience, and relevant tertiaryand professional qualifications.

The successful candidate will be located inBrisbane CBD – both full-time and part-timeroles are available.

For more information and to apply, visitwww.moneymanagement.com.au/jobs, orcontact CEO Bill Cantor at Cantor WealthManagement - [email protected]

RELATIONSHIP MANAGER – COMMERCIALLocation: AdelaideCompany: Terrington ConsultingDescription: A tier 1 bank successful withinthe corporate banking sector is seeking a

relationship manager – commercial.The company has a strong and efficient

internal support structure, modern industrytechnology, and a focus on your continuedprofessional development.

Working in a team of corporate bankers andbased in SA CBD, you will be responsible forservicing an existing book of corporate clients.

In this role, you will maintain and grow aportfolio by building strong relationships withthird party referrers. You will also providesupport to analysts and other key internalstakeholders.

You will possess highly developed cashflowlending skills; a proven ability to provideholistic solutions; ideally three-to-five yearsexperience working in an RM or BDM capacitywithin an Australian bank; and tertiaryqualifications.

For more information and to apply, visitwww.moneymanagement.com.au/jobs, orcontact Emily at Terrington Consulting - 0422918 177 / 08 8423 4444 [email protected]

PARAPLANNERLocation: CanberraCompany: RSM Bird Cameron Financial ServicesDescription: A nationally-owned charteredaccounting and financial planning firm is seekingan experienced paraplanner to join the

company’s Canberra financial services division.If successful, you will have the opportunity

to expand your current paraplanningexperience while being mentored byexperienced financial professionals.

You will also receive continued training andsupport in undertaking education programs aspart of a large network of professionals.

As part of this role, you will prepare SOAsand portfolio reports, and devise investmentrecommendations.

You will also provide technical support tothe firm’s financial advisers through thecoordination of workflows and managingclient databases.

The successful candidate will have atertiary qualification with a business/financedegree; hold a post-grad financial planningqualification; and have three years experiencein paraplanning.

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

CONTRACT FINANCIAL PLANNERLocation: MelbourneCompany: Fortrend SecuritiesDescription: A financial planning firm islooking for a financial planner who hasexperience as an authorised representative towork on a contractual basis.

In this role, you will report to the firm’s

head of compliance and financial advisers for1 to 2 hours per week, and be theresponsible manager for managed funds,IDPS, life insurance and superannuation.

The position would most likely suitsomeone who has sold their practice recently,or is on maternity leave, taking a sabbatical,or has at least two hours a fortnight or onehour a week spare.

If successful, you may continue to practicein your own practice or as an adviser inanother practice.

To find out more and to apply, visitwww.moneymanagement.com.au/jobs

BUSINESS DEVELOPMENT MANAGERLocation: SydneyCompany: Terrington ConsultingDescription: A niche broking firm is currentlyseeking a business development officer for itsSydney office.

In this role you will liaise and negotiatewith underwriters, service a portfolio of clientsand promote and sell insurance.

To be successful you will be RG146compliant.

For more information and to apply, visitwww.moneymanagement.com.au/jobs orcontact Jo at Terrington Consulting – 0408090 749 / (08) 8423 4440,[email protected]

AS part of its newly-createdfundamental equities team, AMPCapital has appointed GianPandit and Michael Price assenior portfolio managers andPhillip Hudak as portfoliomanager/analyst.

Pandit will be responsible forfurther developing AMP’slong/short and concentratedfundamental equities strategiesafter three years as senior portfo-lio manager at ING InvestmentManagement (INGIM).

Price also joins AMP fromINGIM and will assume responsi-bility for the AMP Capital Sustain-able Share Fund in early 2012.

Hudak will specialise insmall/mid cap stocks after spend-ing the past year in a related roleat INGIM.

Ed Rayner, seconded fromAllianceBernstein for six months,

will also join the team and collab-orate with the new team on stock,sector and domestic equitymarket views.

CENTURIA Capital has appoint-ed Ben Butler as senior portfoliomanager of its property fundsmanagement subsidiary, CenturiaProperty Funds.

In this role, Butler will beresponsible for the asset manage-ment of Centuria’s NSW andQueensland assets, including thedevelopment of strategies toenhance asset value. He will alsomanage the constant review ofbest practice policies and proce-dures. He will work closely withCenturia Property Funds head ofassets David Govey and head ofdevelopment Andrew Bali.

Butler spent seven years at INGReal Estate Investment Manage-ment as asset manager andinvestment manager with theING Industrial Fund. Prior to thisposition, he was a valuer with CBRichard Ellis.

Jeremy Robotham moves intothe national leasing manager roleand Jacques Duvenage takes onthe position of national facilitiesmanager.

HUNTER Hall InternationalLimited has announced the

appointment of Naomi Edwardsas non-executive director andboard member.

Between 2007 and March2011 Edwards was chair ofAustralian Ethical Investmentsand served as a company direc-tor since 2005. She also servedas a Trowbridge Consultingdirector and then as a Deloittepartner.

Hunter Hall executive chair-man Peter Hall said Edwards’experience in investmentmanagement and finance, alliedto her track record in environ-mental activism in a number ofadvisory roles, was the kind ofpragmatic idealism the

company was looking for.Edwards’ appointment follows

the announcement of the resig-nation of executive director JackLowenstein and James McDon-ald from the board.

ANZ has appointed AlistairCurrie to the role of group chiefoperating officer responsible fortechnology, shared services andoperations.

Reporting to ANZ chief execu-tive officer Mike Smith, Curriewill be responsible for boostingthe delivery of the company’ssuper regional strategy, whichincludes a focus on ANZ’s

Bangalore, Manila and Chengducentres, property and majorprojects.

Currie was previously ANZ’smanaging director transactionbanking and institutional. Beforejoining ANZ in 2008, he wasHSBC Taiwan’s president andchief executive officer and previ-ously held senior roles through-out Asia, the Middle East and theUnited States.

Currie’s appointment followsthe announcement of the depar-ture of ANZ chief operatingofficer for global services andoperations David Cartwright.

Currie commenced hisduties on 15 October 2011.

Move of the weekBLACKSTONE has appointed Paul Costello as non-executivechairman.

The former Future Fund general manager will report to Black-stone president Tony James and private equity head in the Asia-Pacific Michael Chae.

Before his role at Future Fund, Costello established the NewZealand Superannuation Fund, where he spent four years. Priorto that, he was chief executive officer of the Superannuation Trustof Australia.

Commenting on Costello’s appointment, Chae said Australiarepresented a market of long-term importance to Blackstonebecause of the increasing number of institutions which werechoosing to invest with the company.

“Paul’s background superbly positions him to guide us as wegrow the business in Australia and New Zealand,” he said. Paul Costello

Michael Price

““OUTSIDER recognises that Industry SuperNetwork chief executive David Whiteley,while not the most popular chap in thefinancial planning industry, has gained acertain influence and entrée in some ofCanberra’s better known corridors.

However, Outsider was somewhatastonished when he ambled into Sydney'sAmora Hotel to attend a Money Manage-ment roundtable on the Future of Finan-cial Advice and found that it was beingheld in the Lindsay Room, just adjacent tothe Whiteley Room.

Being a cultured fellow, Outsider imme-diately recognised that these rooms hadbeen named after some of Australia's better-known artists and was particularly pleasedthe roundtable was being held in theLindsay Room because, after all, NormanLindsay liked to paint things in the raw.

It says something about Whiteley's influ-ence on the psyche of the financial plan-ning industry that both Financial Planning

Association chief Mark Rantall and Asso-ciation of Financial Advisers boss RichardKlipin, felt compelled to mention the prox-imity of the ‘Whiteley Room’.

For the record, Outsider notes that whileboth artists were controversial in

their time, Norman Lindsay was bestknown for his “frank and sumptuousnudes” while the same source says thatBrett Whiteley “became increasinglydependent on, and became addicted to,alcohol and drugs, leading to bouts ofschizophrenia”.

Outsider senses that Rantall and Klipinmight be willing to hang a Whiteley, butwould be more comfortable with a sump-tuous Lindsay nude.

Outsider


“If you don’t like a company,

you sell it.”

Former NAB chief executive officer

Don Argus’ advice to shareholders

who aren’t happy with executive

salaries.

“You can buy pretty much

anything you want to in

Greece.”

Antin Infrastructure partners

managing director Mark Crosbie at a

BNP Paribas breakfast in Melbourne.

“When Lehmann’s collapsed in

1998 ... sorry, 2008. Feels like a

long time.”

Crosbie has aged terribly since the

financial crisis.

Out ofcontext

FatCats and UnderDogs

Serial gigglers in Freudian slips

No room to compare the pair

ON a recent sojourn throughSydney’s financial district, Outsidernoted that the “Occupy Wall Street”protest that seemed to be gainingglobal traction had also attracted asmallish gathering in Martin Place.

While noting that the economicsituation in Australia is far less direthan in the US and many parts ofEurope, and that the disparitybetween rich and poor is much lesssignificant in this country, Outsideris certainly not suggesting thismotley crew had nothing to beunhappy about.

What he did question, however,was what exactly would beachieved by a group camping outin the financial district – particu-larly given there seemed to be

significant confusion amongst theprotesters as to exactly what theirdemands actually were.

One thing that did seem to unitethe protesters was a call for an endto “corporate greed” – and givenOutsider’s legendary bouts ofbonus envy, this is probably some-thing he can get on board with. Buthow many fat cats would be likelyto look down at the crowd fromtheir ivory towers and realise theerror of their ways?

This seemed particularly thecase in circumstances whereincreasing numbers of said fat catshad already settled into fancy digswell away from Martin Place andcloser to the water, with ColonialFirst State recently relocating

down to Darling Harbour alongwith corporate poster childMacquarie Bank. Westpac/BT liessomewhere between the two,while the likes of AMP, AMPCapital and AXA are long-terminhabitants of Circular Quay.

Outsider would also question thevalue of protesters attracting the ireof lawmakers by camping overnight(without tents, which have appar-ently been confiscated), given thefinancial centre is a veritable ghosttown between roughly 7pm and6am, and those being protested aremostly at home with their families.Surely a shower and a solid night’ssleep would better prepare themfor another hard day of, er, being inMartin Place?

OUTSIDER has always beensomething of an elitist when itcomes to his television prefer-ences, and although hedespairs for the future of thenation – given what seems topass for news and currentaffairs on the commercial sta-tions these days – Aunty stillprovides occasional solace(Kerry O’Brien, you are sorelymissed).

But flicking through Chan-nel 9 as he sipped his morn-ing coffee recently, Outsider

noticed Today co-host andserial giggler Karl Stefanovicwas about to interview noneother than Assistant Trea-surer and Minister for Finan-cial Services, Bill Shorten,on a subject which seemedto hark back to the Minis-ter 's union days – theQantas dispute.

Given the sun was not quiteup, Outsider felt he could for-give the usually ebullient Min-ister for his convincing imper-sonation of someone who had

only just woken up.Outsider also can’t blame

Shorten for the fact the sounddropped out right as he beganto answer a stuttering and longwinded question from Ste-fanovic (a question that some-how meandered on for, quiteliterally, more than 30 sec-onds). Outsider shall refrainfrom commenting further onthe irony and/or appropriate-ness of the Minister beingsilenced by a technical fault.

Producers quickly cut back,

once again, to Stefanovic,who then threw to an adbreak with an apology Out-sider interpreted as aFreudian slip: “stay with us onToday and forgive us for someof our shortfalls”.

Only some? Outsider pre-sumed the specific shortfallsfor which Stefanovic apolo-gised were the sound-relatedtechnical difficulties, and thatthe genial host was entirelycomfortable with the rest ofthe program’s performance.

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