ASSET 125 - 2013 by ASSET

ISSUE 125

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LEAD STORY

UP FRONT 04 EDITORIAL WHERE'S MY INVITATION?

07 OUT AND ABOUT NEWPARK'S NORTHERN REGION DEVELOPMENT DAY

10 NEWS FROM AUSTRALIA 11 NEWS FROM NEW ZEALAND

14 A hard line on soft commissions

THEY'RE AN EASY TARGET FOR THOSE LOOKING TO CRITICISE FINANCIAL ADVISERS, BUT INDUSTRY PARTICIPANTS ARE DIVIDED ON HOW MUCH OF A DIFFERENCE INCENTIVES SUCH AS TRIPS ACTUALLY MAKE TO BEHAVIOUR.

{DAVID IRELAND: STRATEGY FOR AN EVOLVING INDUSTRY.}

REGULARS

{OPEN TO QUESTION} { INVESTMENT }

{ INSURANCE }

{ ASSET ADVISER }

05 What do advisers think of soft commissions?

20 How much is your business worth?

22 Linking risk tolerance to portfolio risk 30 A look at the listed New Zealand dairy sector

24 Educate yourself on Asian equities 28 Finding value in Kiwisaver

UP FRONT

OPINION

{ FROM THE EDITOR }

OPEN TO QUESTION

Where’s my invitation?

HEAD OFFICE 1448A Hinemoa Street, Rotorua PO Box 2011, Rotorua P: 07 349 1920 F: 07 349 1926 E: editor @assetmagazine.co.nz PUBLISHER Philip Macalister

THIS MONTH IN ASSET WE COVER the highly controversial topic of overseas trips for life insurance advisers. It’s a subject we have toyed with writing about before but somewhat surprisingly haven’t done so in the 11-plus years ASSET has been published. Is it a secretive subject, like the NZ Herald claimed? No. The companies and advisers have been pretty upfront about them. Often I say, tongue firmly planted in cheek, that this is one of the very few things that I have not been invited to in more than 20 years covering the industry. (As an aside the things we get banned from these days tend to involve events where someone from the FMA speaks). I suspect if I don’t get an invite soon, I may never get one. These trips are almost certainly on the endangered list. But what about them? Do they really have a place in the advice industry? An adviser I regularly see in town has been to the recent Partners Life events and when I ask him he says they don’t influence him. Why? Because the company’s products are the best. A mate with a senior role in the funds management industry is absolutely gob smacked that insurance companies can get away with these trips. We recently asked Good Returns readers about the trips and many were happy to suggest other occupations where similar things are prevalent. Some were trades like builders and plumbers. Without wanting to sound snobbish are these occupations any that advisers would want to be benchmarked against? I don’t know.

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I was most curious with a comment about the cost. Again there is little doubt the offshore junkets have a big price tag. I doubt lawyers and accountants have these sorts of junkets offered to them. However some suggested that various health professionals may get such incentives. There is no doubt in my mind that these are incentives and they do that exactly that –encourage advisers to sell more product. With under-insurance being a big issue that may be a plus. I was most curious with a comment about the cost. Again there is little doubt the offshore junkets have a big price tag. Yet when I asked one chief executive about this the response was that if that money was channeled from trips to added commission the increase in commission would be so little that it wouldn’t work as an incentive. Advisers just wouldn’t notice it. They wouldn’t be incentivised to sell more products.

EDITOR Susan Edmunds PRODUCTION ASSISTANT Alana Petersen CONTRIBUTORS Jenny Campbell, Amanda Morrall, Russell Hutchinson, Paul Resnik and Jonathan Wu. DESIGN Jonathan Harding ADVERTISING SALES 07 349 1920 027 437 7527 SUBSCRIPTIONS Dianne Gordon P: 0800 345 675 E: subs@assetmagazine.co.nz ASSET is published by Tarawera Publishing Ltd (TPL). TPL also publishes online money management magazine Good Returns www.goodreturns.co.nz and The NZ Mortgage Mag All contents of ASSET magazine are copyright Tarawera Publishing Ltd. Any reproduction without prior written permission is strictly prohibited. ISSN 1175-9585

JOHN MILNER

CRAIG POPE

JOHN MCCARTHY

MILNER FINANCIAL LTD

CRAIG POPE MORTGAGES AND INSURANCE

INCOME PROTECTION INSURANCE NZ

WHAT DO YOU THINK OF SOFT INCENTIVES?

Most companies offer them and as long as you disclose it, it shouldn’t change where you place the business. The whole thing is to make sure you look after client needs. My bugbear is upfront commission, I believe the future of the industry is about spreading commission out so that you generate enough income to look after a client properly. If an insurer is paying 220% upfront, how can that be sustainable?

I’m not a fan of those sorts of incentives. They don’t do it for me. I think advisers get paid well enough already and it gives the wrong impression. Most advisers are above-board and do it for the right reasons but it muddies the water in my eyes, it’s better not to have them. I think they will die out.

Some companies promote them and some don’t. Because our businesses is a true comparison website it makes no difference to me at all. Once we get a client, we actually put it back to them and say "here’s a referral form for you to earn rewards". These incentives don’t grab my attention in the slightest.

HOW SHOULD THEY BE DISCLOSED?

In your general disclosure document, you need to state that you get a trip. Will they continue into the future? I don’t know. Asteron next year is offering a trip to the University of California at Berkeley. The future of soft dollar commissions might be doubtful but having trips like going to the University of California is the way of the future.

I’d just rather not have them. I could disclose it to ten people and five would be okay with it and five wouldn’t understand. I don’t think insurance companies should put advisers in that position to disclose something that might affect their businesses. Tickets to the rugby or the odd booze-up, that’s okay. But these flash trips, I don’t think they send the right message.

Do people ask their GP about the junkets they go on? It’s widely known that incentive programmes operate in many industries. I think because insurance is becoming more competitive, I think the lure for incentive programmes is driven by insurance companies, not brokers. They’re the ones throwing the lollies out. If someone’s throwing lollies at you, do you pick them up and give them back? Or do you hold on to them? The biggest incentive for me is decent underwriting, ease of use and the speed of turnaround.

Philip Macalister Publisher

UP FRONT

OUT AND ABOUT

a new appointment email details { PEOPLE } Ifandyoua have picture to editor@goodreturns.co.nz

Ian Moody

FIDELITY LIFE APPOINTMENTS Fidelity Life has created a new role to drive its group risk employee benefits business and has appointed a chief marketing officer. Fidelity Life has appointed Ian Moody as Chief Marketing Officer to head the company’s product and marketing team. He brings a wealth of knowledge to Fidelity Life with experience in digital, brand, retail, business and segment marketing in top services brands within a corporate environment. Fidelity Life chief executive Milton Jennings says Moody’s knowledge and

experience will be invaluable to the company as Fidelity Life takes on a new strategic focus following the purchase of TOWER Life’s assets. The company has also appointed Mark Nalder to the newly created role of Head of Corporate Distribution. He previously held the position of Head of Intermediated Distribution at TOWER; and prior to that was at AMP for eight years working closely with the AMP adviser network. Many of the models he helped design and deliver to adviser businesses will be relevant to this new role, particularly around adviser recruitment, business valuation, succession planning, compliance support and practice management.

FUND MANAGER MINTS A NEW TEAM MEMBER The New Zealand Superannuation Fund has lost a portfolio manager to boutique fund manager Mint Asset Management. It has appointed Anthony Halls as a portfolio manager to look after equities and listed property. Halls joins Mint from the NZ Super Fund where he has been managing a team of analysts who evaluate investment strategies and opportunities globally across both listed and private

{NEWPARK DEVELOPMENT DAY}

Advisers given update Newpark held its Northern Region Development Day in Auckland earlier this month, attended by 170 Northern Region advisers. Fidelity Life chief executive Milton Jennings updated delegates on the company's acquisition of TOWER Life and Partners Life managing director Naomi Ballantyne spoke about the importance of dealer groups and Newpark's contribution to the company's success. For more on what they said go to www.goodreturns.co.nz and click on Insurance News. Anthony Halls

asset classes. During his five years with the NZ Super Fund he was critical to the development and execution of a range of investments, helped build the investment analysis team and developed the strategy to manage NZ equities in house. He will work alongside Shane Solly, Mint’s Head of Equities, on both the equity and listed property portfolios. Halls has worked as an analyst and portfolio manager in investment markets since the mid-1990s and prior to his time at the NZ Super Fund, he spent four years at BT Funds Management where he was initially a senior equity analyst and then the portfolio manager of the BTNZ Dividend Share Fund.

Newpark advisers Adam Goder, Matt Letfus, Steven Green, Andrew Smith

Naomi Ballantyne - Managing Director, Partners Life

Newpark advisers Tinus Vermeulen, Bernard De Wet, Warren Butler, HermanRoodt

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Milton Jennings, Fidelity Life Hon Craig Foss - Minister of Commerce, Consumer Affairs,Broadcasting

Gaynor McLean - Partner Glaister Ennor

Philip Macalister, Tarawera Publishing

To speak to one of the experienced NZFS Group team call 0508 87 87 88, email info@nzfsg.co.nz www.nzfsg.co.nz

OPINION

{ OPINION }

SOLID PASS MARK FOR HUGHES { DAVID WHYTE }

s someone who is now going through his third financial services regulatory regime experience, I feel more qualified than most perhaps to pass comment on Sean Hughes’ stewardship. Despite some apparent misgivings and negative sentiment expressed by members of the public, overall, the FMA’s departing chief executive has done a good job Those naysayers from the general population may well be disgruntled Ross Asset Management victims, but with due regard to their predicament, their fire is aimed in the wrong direction. They, and for that matter, the FMA, have been poorly served by inadequate legislation incapable of dealing with the RAM situation - not something that can be laid at the regulator’s doorstep.

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It may be that in the early days, perhaps the choice of the term “cowboys” in an initial positioning campaign could have been more carefully considered, but in the grand scheme of things, neither those regulated, nor those intended to benefit from the FMA’s presence, have much to complain about. Industry participants expressing discontent would be well advised to consider the regimes in Australian and the UK. The financial services industry in both these jurisdictions has been subjected to much more adversarial regulatory treatment, and the impact has been more traumatic, dramatic, and intrusive. By way of comparison, the Australian industry is grappling with the Future of Financial Advice (FOFA) reforms introduced in 2010 have changed from July 1. There is an “opt in” requirement for clients who have to agree to be charged fees, and this is being amended as follows:

➊ Advisers who provide personal financial advice to retail clients will be required to obtain written agreements from their clients every two years in order to charge for ongoing services.

➋ Advisers will also be required to provide an annual disclosure statement detailing fee and service information.

➌ The "two-year opt-in requirement" applies to new arrangements with new clients entered into after July 1; the annual disclosure statement requirement applies to existing and new clients. There is also a statutory requirement

for the best interests of the client to be served – nothing too controversial, but just another layer of rules to go with all the other changes.

Compensation changes have been grouped under the following headings;

➊ Ban on product commissions, volume based benefits, asset-based fees on borrowed funds & volume related shelfspace fees

➋ Ban on commissions on group risk insurance products within superannuation and all risk insurance products within MySuper

However, reports from the UK suggest that there has been and will continue to be a significant movement away from the financial advisory sector, as yet another raft of regulatory changes are introduced.

➌ Ban on soft dollar benefits - From July 1, licensees and their representatives must not accept soft-dollar benefits over $300 where it could be expected to have “influence” over the choice of financial product recommendation or the advice given to retail clients (limited exceptions apply for general insurance, execution-only services and other prescribed benefits). There are other changes too detailed and extensive to be included here, but I suspect you’ll get the drift of the weight of legislation regulation and compliance required by the authorities in Australia. The story is very much the same in the UK. The Retail Distribution Review aims to drive structural change throughout the retail investments industry, in order to give consumers confidence that the advice they are given, and products they are sold, are best suited to their needs. The ban on all commissions payable on investment products is in keeping with the general trend to see the provision of investment advice driven purely by fees. To be fair, there are provisions made for the transacting of risk and insurance business in these countries, but don’t think there haven’t been conversations about commission payments in this space also. It’s also a racing certainty that the conversations which occur in Australia and Britain also take place here in some way, shape, or form. Introducing change to any commercial sector is never easy and seldom welcomed with open arms. However, to the credit of all financial services industry stakeholders, NZ has enjoyed a relatively smooth transition. Whether the finance company collapses had occurred or not, the industry was in need of a regulatory regime on two counts: To bring NZ into line with international practices, particularly in the sensitive area capital markets management. And to bring legitimacy to the practices of efficient, client-centric advisers who regard the setting of standards as an external guide for clients and potential, clients, to establish

their bona fides. These two aspects have been significantly progressed under Sean Hughes’ leadership and credit should be granted for this. New Zealand still has some way to go before it is recognised in the international community as a legitimate player in global capital markets. Government needs to recognise this and continue on the path. Advisers also have seen their role in the industry rendered more significant - if they're prepared to seize the opportunity and obtain the necessary qualifications and adhere to the appropriate standards. Within a statutory framework, it should be possible to create support for the positive and beneficial aspects of regulation, and while the NZ industry is coming to terms with the new standards, it seems obvious that financial services intermediaries overseas have suffered under a welter of rules, regulations, amendments, and structural re-organisations that will have encouraged many to leave the industry. So far we’ve avoided any significant exodus of advisers, and those who choose to make long-term careers in the industry and have committed their future to this sector appear to be coping pretty well with the Brave New World. It seems to be that those advisers who were broadly aligned with the recommended practices anyway, found it relatively easy to adjust to the regulations, while those who didn’t found the new environment threatening and difficult. So they may have been invited to leave the industry at some stage, either by their own inability to create long-term client relationships, or by the onset of better practices by competitors prepared to embrace and apply international financial advisory standards. Early estimates of advisers leaving the industry in Australia in 2004 were found to be off target as many simply reinvented themselves as financial planners or joined a dealer group, rather than apply for a license as individual practitioners. However, reports from the UK suggest that there has been and will continue to be a significant movement away from the financial advisory sector, as yet another raft of regulatory changes are introduced. It would be a shame to see that experience repeated here as the regulatory regime evolves, particularly given the early day foundations laid down by Sean Hughes and the initial team at FMA. As mentioned earlier, the regime is not perfect, but it is immeasurably preferable to experience elsewhere. Hughes has set an appropriate tone, and has presented the industry with a much less acrimonious regulatory regime than otherwise could have been the case. I fervently hope the authorities are able to secure the services of a suitable individual who can build on the solid foundations which have built over the last three years.

UP FRONT

{ NEWS FROM AUSTRALIA } Profusion Group survey has found. It asked 2310 banking and financial services professionals if they would "be open to new opportunities in 2013". Seventy-two per cent of total respondents said they were open to moving to a new job in 2013, and 62 per cent of financial planning respondents said they were willing to change to a new employer. Profusion Group associate director Cholena Orr said the findings meant that if an adviser employed 10 staff, they needed to know that seven of them could be head-hunted. "The employer really has to think about their staff and who they want to retain. Are they going to spend all of the time on the low performers in the team, or should they keep the high performers happy and help them be more productive?" she said.

Industry ‘needs to understand research’ Parts of the Australian financial planning industry don’t understand exactly what research houses do and what to rely on their ratings for, a research house says. Lonsec has raised concerns about an “expectations gap” between ratings houses and advisers. In a submission to the Australian Parliamentary Joint Committee (PJC) on Financial Services and Corporations, Lonsec said advisers relied too heavily on ratings without doing any supporting research on how the product should be used. “This can lead to a 'one rating fits all’ mentality. It is akin to a doctor prescribing an 'approved’ drug without knowing what type of people and conditions it is designed for, what type of people and conditions it isn’t suitable for, what its dosage should be, what its side effects are, and how the drug may react with other drugs already being taken,” Lonsec said. Lonsec said the Future of Financial Advice reforms - especially the best interests duty - and increased adviser education standards would significantly improve this situation, but suggested the Australian Securities and Investments Commission (ASIC) should explain what ratings are and what they can and cannot be relied upon for.

Watch out for policy lapses

Staff looking to move on More than 60% of Australian financial planning professionals are willing to leave their employers this year, a

Asteron Life research has found that most people lapse on trauma insurance at 44, just five years before the average age of claim on the policy. Asteron Life’s executive manager Mark Vilo said advisers should educate clients on how to “live smarter” in their 40s. “Work becomes increasingly important and it’s often when individuals are at their peak earnings, but the 40s also carries a high level of financial responsibility in the form of a mortgage and multiple dependents – immediate family and ageing parents. “Overlaying these pressures is the fact that in the 40s people also start developing chronic diseases. Forty-nine is typically the age people claim for trauma insurance due to middle-age onset of serious illnesses like cancer, cardiovascular diseases, stroke and diabetes,” he said. He said almost three-quarters of lapses were due to affordability issues so it was essential advisers had the tools and strategies to help explain the financial exposure of lapsing cover.

{ NEWS FROM NEW ZEALAND } Life insurer of the year awarded Life insurer TAL has won “Life Company of the Year” at the 2013 AFR Smart Investor 2013 Blue Ribbon Awards. TAL also won the Blue Ribbon Award for income protection with its Income Protection Premier product. TAL Life CEO Brett Clark said the awards recognised TAL’s passion and focus on excellent customer service and innovative product design. “We are very proud to have been awarded the title of AFR Smart Investor Life Company of the Year as well as winning the Blue Ribbon Award for Income Protection.” Clark said TAL has grown to be Australia’s leading specialist life insurer. Research for the Life Company of the Year award was conducted by independent actuarial firm Rice Warner.

New licence for advice A new form of financial advice licence will increase the availability of advice for Australians, said the country’s former minister for financial services and superannuation. Bill Shorten said the limited Australian Financial Services Licence (AFSL) was expected to lead to up to 10,000 accountants becoming licensed and able to provide a much broader range of financial advice than they were previously able to. In addition to being able to advise on self-anaged superannuation (SMSF) funds and superannuation generally, licence holders will be able to give "class of product advice" on basic deposit products, general and life insurance, securities, and simple managed investment schemes. "This new licence will extend the consumer protection provisions of the Corporations Act, such as the best interests duty in the recently passed Future of Financial Advice reforms, to financial advice provided by accountants," Shorten said.

that don’t provide the benefits that had been available previously.”

Advisers struggling with principles-based approach: FMA

Advisers handling complaints Advisers are tackling consumer complaints head on and resolving them before they get to the formal stage, says dispute resolution service Financial Services Complaints Ltd. General manager Trevor Slater said it did receive complaints about financial advisers but not many. “Most complaints are still against the small lenders and insurance companies are still providing us with a bit of work.” He said most of the complaints about advisers related to replacement business, whether that was investment or insurance. “We do get complaints about advice to change to policies or investments

Financial advisers are struggling with the “principles-based” approach to regulation, says the FMA’s Sue Brown. She said all advisers were expected to be governed by the principle of “client first”. But some struggled when that was not laid out in clear rules or processes that they should follow. She said: “They say ‘where are the rules, how do we know we’re doing that?” Brown said advisers needed to act as professionals and put their clients first by giving them the best products for their needs, not the products that offered the best commissions. Ross Asset Management and the collapse of finance companies had taken a toll on investor confidence, she said, and if that was to be rebuilt people would need to see the market putting their customers first. “We expect the market to operate above the bare minimum,” she said.

FMA and Code at odds over adviser rules

of Professional Conduct is at odds with what the code says and its intentions. The Code Committee is consulting on proposed changes, and the FMA is seeking feedback on its draft guidance on how advisers should interpret the existing code. Some advisers have questioned why the committee and FMA seem to be at odds, particularly over issues around how advisers demonstrate the basis of their advice, and whether that requires a full explanation of suitability. FMA’s draft guidelines indicate that a full suitability explanation should be included each time. The committee, which says it recognises that some advisers feel bogged down in paperwork, says that is unnecessary. Committee chairman David Ireland said the committee was trying to understand where the FMA was coming from. “We’re writing the rules and the FMA is applying and assessing conduct. If we say the sky is pink, the FMA has to go out and review on the basis that the sky is pink.” He said the FMA’s guidance was based on the existing wording of the code, and if the changes were introduced, its guidance would likely change. “If we adjust that, it will send the FMA off in a different direction. What’s important is that the principles are quite clear.”

Advisers have expressed concern that the FMA's interpretation of the Code

Keeping New Zealand financial advisers strong 0800 88 22 88 010

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PROFILE

{ PROFILE }

NOTHING BY HALF Code committee chairman is driven by a desire to get strategy right and get runs on the board for financial services sector.

By: Susan Edmunds

sked to sum up his colleague in a sentence, a Kensington Swan partner didn’t hesitate: “Bad ties, lots of children, and minis.” David Ireland, he said, was a tall man who liked to “origami” himself into small cars. When I put this to Ireland, he hesitates: “Not cricket?” For advisers who have run into Ireland at one of the many consultation meetings held around the country to get feedback on proposed changes to the Code of Professional Conduct for Financial Advisers, or have heard him speak at one of the professional bodies’ conferences this year, it may come as a surprise that he can fit in anything beyond his work as a partner at Kensington Swan in Wellington and his role as chairman of the Code Committee. But he’s also recently ticked off six years as a Workplace Savings councillor, co-leads Kensington Swan’s pro bono programmes, is on the Board of Trustees at Wellington’s St Patrick’s College, spends each weekend traipsing around refereeing kids’ soccer games or on the sidelines of basketball or handball games, and spends hours –

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he won’t say how many – working as a cricket administrator. He admits he was a reasonably competent low-grade cricketer but it was his eldest son, now 17, who got him hooked into the administration side of junior cricket. “At one stage we had all four kids playing for Onslow Junior Cricket. Then when the convenor stepped down it was natural for me to take over.” That was in 2007 and his involvement has grown. “My most proud achievement was when I received the Jack Newman award for contribution to cricket.” That gong was handed over in June. New Zealand Cricket praised Ireland’s dedication and commitment to the game. Ireland says it’s a way to help the community in a very palpable way and there’s a lot of reward in seeing kids learn to tackle challenges and value good sportsmanship on the field. “They learn that it’s far better to have lost but played fairly and abided by the rules… that’s something that’s still part of New Zealand culture. It’s so important, especially with kids. It’s a real opportunity to teach them.” The financial advice sector has needed

the odd lesson in sportsmanship over recent years and Ireland says some advisers are keeping up better than others with the changing regulatory environment. “For some, it’s a real challenge because the world has moved and some are struggling with what they need to do to keep up.” Most want to comply but aren’t sure how, he says. “They’re looking at grappling with how to do it on a cost-effective basis.” Many complain about the Financial Markets Authority (FMA), but he says without the regulator, things could have been a lot worse. “Had we had the Financial Advisers Act and the code without a regulator like the FMA, we would see a very different dynamic in the marketplace… it’s fantastic that the absolute commitment is to the outcome and they steer away from tick-box compliance.” He says people who look at compliance as a burden will eventually be dragged down by it. “Those that succeed will see the opportunity to deliver a better outcome for clients and use it to their advantage.” Ireland has been a Wellingtonian all his life – his children went to the same kindergarten he attended. He hasn’t worked overseas

With the state of financial literacy being what it is, only a small percentage of people will recognise the value of advice – DAVID IRELAND because he’s never been tempted to give up the city, or his job in it. “I enjoy working here and I enjoy the work. There’s never been a reason to go overseas because I enjoy it so much.’ Ireland started at Kensington Swan opening the mail in the 1980s before finding his niche in the financial services sector, working under John Ingerson and building up relationships with large insurers and fund managers. “You ended up specialising

in what the clients did … that was superannuation, insurance products and investment products.” It’s not the most glamorous of specialisations – try getting someone interested in 600 or more pages of the Financial Markets Conduct Act - and Ireland says the regulatory regime has changed so much over the years that it’s almost like he’s been tricked into the industry. But the challenges it presents keep things interesting. “Investment and financial services law is constantly changing. In the last 20 years, there’s been constant reform and challenges to grapple with. It’s almost like we’ve grown up with the regime developing as or experience has developed.” But while there are some not so fun bits, he says the financial sector has a great future and there are lots of opportunities to work with fantastic operators. “I love being involved with developing strategy.” One of the proposed code changes would allow a pathway for registered financial advisers to become AFAs who give investment advice only on KiwiSaver. But Ireland said he was not convinced that

requiring all advisers to be authorised was the way to go. “The danger is that it could have a chilling effect on operators in that space and drive competent advisers out of business.” He said there were smarter ways such as making the duties of care more explicit and involving the FMA more seriously in the RFA space. Those who wanted all advsers to be AFAs would need to prove what the risk was and the most cost effective way of shoring up consumer confidence. “I’m also not a fan of the proposition that insurance is a simple product. You can do a lot more damage with rubbish advice on income protection structures than on a $10,000 investments.” Investments had been in the spotlight because of the global financial crisis, he said. But if more complaints started to come through about insurance products, risk advisers could feel the heat of more regulation. Advisers had to work out how to deliver cost effective advice and operate a business at the same time, Ireland said. “Financial advice isn’t a social service, you’re not doing it for charity. It’s a commercial business and some of the naysayers sometimes seem to lose sight of that.” The most effective advisers were those that made a reasonable income out of it, he said. How they’re remunerated is a topic that has been hotly debated over recent months but Ireland says he doesn’t have a problem with commission. “It can have its place. What is critical is transparent disclosure so that advisers receiving commission make sure there can be no perception or argument that they have been improperly influenced by commission to put someone in a product ahead of one that might have been better. If it’s all equal, I’m grappling with what is the issue?” A fee-for-advice model such as that required in many other countries would be hard to implement. “With the state of financial literacy being what it is, only a small percentage of people will recognise the value of advice and be willing to pay for that. Commissions might have that negative perception but many clients aren’t going to begrudge the cost coming out incrementally rather than being confronted with a fee for advice.” Tackling high upfront commissions, often blamed for churn, was another issue. Providers were not allowed by law to get together and agree to change the structure at once and no one wanted to be first. But he said the market would likely drive commissions out eventually, especially as a lot of New Zealand advisers have Australian parentage. Rules across the Tasman have already changed. “There’s going to be increasing pressure on commissions… it’s not sustainable long-term.”

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COVER STORY

{ COVER STORY }

COVER STORY

SOFT INCENTIVES:

Is it time to take a hard line? Adviser trips have made headlines but industry participants say their effect on behaviour is minimal. By: Susan Edmunds

artners Life advisers filled the customs queues at Honolulu airport, their matching armbands distinguishing them from the other ashen-faced travellers who had dragged themselves off the midnight Hawaiian Airlines flight from Auckland. They were headed off to another Hawaiian island, but like the other passengers on the plane, they just wanted to make it past the stern officials fingerprinting and checking passports, and into the warm tropical air. Depending on who you talk to, these advisers were indulging in a well-earned – and possibly educational - reward for their hard slog, a bright light at the end of the tunnel of countless conversations that most people want to avoid. Or they were being bribed and cajoled into offering Partners Life products at the expense of all others for the next year, just so that they could get a coveted spot on the trip. Soft commissions, and trips in particular, have been under the spotlight lately. The Code Committee for Financial

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Advisers indicated that it wanted to look at them in the context of conflicts of interest, but that taking direct action was outside its realm. Then the mainstream media got hold of information about Partners’ trip to the Playboy mansion and came down hard, if a little misguidedly, on insurance “salesmen” benefitting from the sales of increasingly expensive policies. Most of the attention has been reserved for insurance firms although many other providers also offer soft incentives of varying types. But how much of an impact do incentives such as trips have on adviser behaviour? And how do they differ from other rewards that few people bother about, such as help with office equipment? Many industries offer bonuses and rewards when a specific product is sold. Some advisers ask why they should be expected to be treated differently. The amount that product providers spend on the trips is actually quite small. Industry consultant Russell Hutchinson said insurers allocated about 6% of their total spend to business development outside commissions. That 6% would include business

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COVER STORY

{ COVER STORY } development staff and the full suite of noncommission incentives. Trips themselves might only make up 2% or 3%. “As a proportion of total spend, it’s not vast. They’re eye-catching but they may not be very material.” Naomi Ballantyne, of Partners Life, said that if the company took the amount it spent on trips and rolled it into general upfront commission, it would add about another 4%. Advisers must usually place about $75,000 or $80,000 of annual premium income with an insurance provider to qualify for a trip. Ballantyne said international conferences created a competitive environment that encouraged advisers to strive to qualify and provided value by exposing them to training opportunities. “We are able to effectively create peer pressure to support us… being able to host supporting advisers in an environment where they are effectively a captive audience away from competitive influence gives the Partners Life team a unique opportunity to solidify the partnership, discuss the company and to truly create a ‘team’ feeling with our advisers.” Hutchinson said this was particularly valuable to product providers who would otherwise be forced to jostle for space with other companies at industry events. “The company can’t send the chief executive around the country to see all the advisers, it’s too difficult to take them out of the company. But if they can get all their advisers together and spend two or three days with them, that’s really valuable.” Ballantyne said, for the company, it meant encouraging advisers to use Partners Life as their preferred or primary provider in as short an amount of time as possible. “And to incentivise them to increase their own productivity so we get a bigger share of their increasing production.” Data showed that it worked – there was a significant increase in business submitted in March and April last year, just before the qualification period for a trip ended, she said. More than 90% of those who qualified to attend did so. “It would be very difficult to estimate the impact on our business if we withdrew the offshore conference as an incentive… we do know that the 300 attendees of our 2013 conference would have then been available to qualify for other providers’ conferences.” But she said that did not mean that advisers would follow incentives at their clients’ expense. “The success of any incentive offered is dependent on whether the adviser believes the customer value proposition of that insurer is strong enough to justify their support. Otherwise they would be exposing themselves to significant liability if they choose to support a carrier for any other reason.”

They foster good working relationships, and can encourage trust and offer direct feedback both ways. It does seem unfair that advisers get criticised for accepting these trips and other benefits. – NIGEL TATE Ballantyne said incentives were a standard part of the market. If her company did not offer them, it opened itself up to competitors to step in and capture that “preferred provider” position. Fidelity Life’s chief executive, Milton Jennings, said it was hard to get new advisers into the industry. “Even with attractive trips and commission, we still can’t get people who want to give advice. Trips are a bit of a perk to keep advisers in the industry.” He said the expense of putting on a trip was roughly about 5% to 7% of commission. “It gives them a goal for the year and an incentive to get out there and give advice rather than saying ‘I can’t be bothered’. When you go away and mingle with peers, you get motivated to come back fired up again. You can’t go 52 weeks a year without a break.” Fidelity used trips as an opportunity to run business sessions and offer training. “All the time, you’re talking about insurance. We find they work very well.” There was a public perception that the cost of the trips came out of premiums, he said, but they made up a very small proportion of commission. “There’s no impact on the pricing of life insurance.” But whether the trips were actually making a difference to adviser behaviour or not was not as important as whether consumers thought it was likely to, said Massey University’s Mike Naylor. And he said that was a serious problem for the industry because most perceptions were negative. “My best guess is that they change the behaviour of a subset. The better advisers will always operate in a client’s best interest.”

Sue Brown, head of strategy, innovation and engagement at the FMA, said advisers needed to act professionally and ensure that they put the needs of the client before everything else, even if that meant taking a hit financially. “You need to give them the best product for them, not the one that offers the best commission for you.” But if an adviser had to reach a sales target of a set number of policies or certain API in a particular period, and was getting close, they might be convinced to put a client with a provider to get across the line, Naylor said. “But I don’t think it’s as bad as bank behaviour, which has specific targets for its staff.” Advisers needed some motivation to get out every day and have negative conversations with people, he said. “My fear is that if the insurance industry sits back and doesn’t prepare a reasoned argument to why they need insurance commissions they will lose the entire debate and get commissions banned.” He said Sovereign, struggling for market share, had boosted its commissions and soft dollar incentives. “They would not waste that money if they thought it had no impact.” David Haak, Sovereign’s chief distribution officer said: “We offer a range of loyalty programmes for advisers, some of which are travel-based. Other incentive programmes are designed to support advisers around the launch of a new product and could include short-term increased rates of commission; or rewards programmes similar to Fly Buys where advisers can earn points based on sales. We also support the industry via numerous educational and motivational industry conferences designed to support financial advice in New Zealand. Most of these are based onshore but from time to time can be offshore.” He said the trips gave the company an opportunity to strengthen its relationships with advisers, and get feedback on products and services. “The reason we offer a variety of rewards programmes is that we're all motivated by different things - some people love to travel and others don't, so we try to appeal to a range of preferences. " Overseas conferences with a training component could easily be justified, Naylor said. Negative publicity over Las Vegas trips was unfair because there were lots of legitimate conference venues there. “Training is good, golf clubs and strip shows are not. But there are lots of legit conferences there. That’s the problem, it’s very hard to get down to the detail of this trip is fine, this trip is not fine.” The regulator would have to find a way to distinguish between trips for training and those that were just rewarding sales targets, he said. Institute of Financial Advisers president Nigel Tate was sceptical about claims that

Partners Life: Hollywood Asteron: Excelsior 2014, San Francisco, Napa Valley, time at the Berkley University Hass School of Business. Fidelity Life: Eight-day cruise between Italy and Croatia. Sovereign: Italy, including including a cruise up the Adriatic coast on a five-star yacht. OnePath: Melbourne and Vietnam. AIA: A three-day annual trip for partners and advisers, always in a New Zealand location. Last year was Franz Josef, this year is Mt Cook. adviser behaviour would be altered at all. He said most of the advisers who qualified for the trips were writing significant amounts of business and so could afford to pay for their own trips around the world whenever they wanted to. He said provider-funded trips would not cause business to be placed inappropriately. “If I wanted to, I could qualify for the Fidelity Life trip. But the trip itself doesn’t entice me. They all have them.” He said in a perfect world advisers would completely disregard all incentives and focus purely on their clients’ best interests. “I’ve got rid of my close alliances with some companies but if they come along, I’ll take the trip. But it’s not something I’ll strive for. There’s one next year to China but I go to China two or three times a year anyway, it’s no big deal.” Some advisers had asked providers to consider offering travel vouchers rather than set trips, so they could take their families with them on holidays to destinations they chose. He agreed with Naylor, though, that if

consumers thought trips were a problem, they were. “It’s a conflict of interest if it’s perceived to be one. The key thing is to talk to clients. Even if there were no commission, there would still be incentives.” Hutchinson said he had heard of providers chipping in for everything from trips to business tools and even staff recruitment. “It’s not what the incentive is, it’s about having clarity. The consumer is entitled to know that the adviser is paid commission and where that creates conflict.” Advisers could ask what the difference was between being paid commission in cash or being given an incentive, he said. But either way, they needed to be careful not to mislead those who approached them for advice. “Advisers often talk about buying a car. They know the person selling the car is going to receive money for doing so. What we want to prevent is the idea that you walk into an adviser’s office and it says over the door ‘independent financial advice’ but then you’re dealing with what is essentially a tied agency because there’s something behind the scenes that isn’t disclosed and in practice they are only going to write for one person.” He said commission itself was a good, clear reward system that enabled consumers to get advice that they might otherwise not be able to pay for. His firm had asked advisers whether their advice changed on the basis of incentives and the responses were split evenly, between some who said it did make a difference, some who said it didn’t and some who said incentives were terrible and should be avoided. “Some advisers refuse to take any soft commissions. Others declare the total value of their remuneration and don’t differentiate what the different bits are.” Professional Advisers Association general manager Jenny Campbell said those questioning trips and incentives were missing the point. “I honestly don't think trips alone play any significant part in an adviser’s decision to place business with a particular product provider. Advising is a relationship business, and advisers are most likely to place business with providers that support

ONWARD AND UPWARD

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them in ways that are not necessarily 'financial' or incentivised.” She said providers with a good broker unit, with helpful assessors or underwriters were more likely to gain business. “The same can be said for BDM support - the BDM's that actively work with advisers to get a policy through, or a loan approved, are more likely to be that adviser’s first port of call in future.” She said trips and events provided value to advisers and the product providers. “They foster good working relationships, and can encourage trust and offer direct feedback both ways. It does seem unfair that advisers get criticised for accepting these trips and other benefits. Most industries have customer incentives, and I know I wouldn't mind if my builder went to Fiji with Placemakers - as long as I felt the product he recommended to me was appropriate and properly priced!” Campbell agreed the biggest concern should be that every incentive was fully disclosed so the customer knew exactly what reward was being offered for their business. “I believe that customers will want their adviser to place business with a product provider with whom they have a good relationship. We know that a good relationship is gold at claim time, and frankly, a good business writer is more likely to get claims paid promptly, or be able to negotiate a special waiver or inclusion.”

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PAA NEWS

The code – version

two I

By: Jenny Campbell

This product provider exclusion will be of real concerns to QFEs, as they are required to provide a certain amount of structured CPD to their advisers.

n August, the Code Committee released the highly anticipated review of the Code of Professional Conduct for Authorised Financial Advisers. It has now been two years since advisers got to see the first incarnation of the “Rule Book”, and the committee members have spent quite some time reviewing the current code, and have made a number of suggested changes and offer further clarification for advisers to comment on. It is clear to see in this review, that the impact of the Ross Asset Management debacle is still reverberating with both the Code Committee members and the FMA. A lack of clarity around the DIMS rules has been highlighted, and both the committee and the FMA have undertaken considerable consultation with key stakeholders to try and improve compliance and regulatory oversight in this tricky area. Overall, the review centres on a few key themes: the need to put the clients’ interest first, access to KiwiSaver advice, and the lifting of educational standards. It is clear to see that the major focus of the Code review is to reiterate to advisers the importance of Code Standard 1 – “Putting clients’ interest first, and acting with integrity”. This is the overarching theme of the Code, and they are making it clear that even by breaching any other Code Standard, advisers will be deemed to have failed this most important principle. If you read through the Code review document, you will see the committee members recognise that there is a real risk of “overkill” in the paperwork/compliance area, and that there is a fine balance between a robust documentation process and the tolerance level of clients to being presented with mounds of paperwork or irrelevant product detail. This “paper mountain” is a good example of how easily regulation can actually make accessing advice a far more difficult proposition for the general public This idea of streamlining documentation requirements in certain circumstances has been followed with clarification around the “product research” requirement in the Code. There seems to be agreement that there is simply no way any client should or would expect a direct comparison with every single product in the market, so the focus has been put on advisers by making sure that their clients understand the parameters of their advice offering – especially in a

PAA NEWS

scaled or limited service. An issue with the potential duplication of files has been identified, and the review proposes some ideas to deal with the practical aspects of using third party platform providers. Possibly the most contentious part of the review is the suggestion to develop a new KiwiSaver advice pathway. As an association, we have long argued that regulation has made it incredibly difficult for “ “ordinary” New Zealanders to get good quality advice on KiwiSaver. With fewer than 2000 AFAs and just over 2 million people in KiwiSaver, there are simply not enough qualified advisers available to service the needs of these savers. This disconnect between the supply and demand for advice on this product looks likely to be addressed by the creation of a new category of AFA. Some AFA advisers may be concerned about the potential for the “dumbing down” of KiwiSaver advice, but we have always held the view that a properly-trained adviser, who can demonstrate good levels of competency, should not have to sit the entire investment strand in the Level 5 Certificate in Financial Services if they wish to give advice on KiwiSaver alongside category two products, such as insurance or mortgages. A lot of the content in the investment strand is not directly relevant to most advisers that wish to advise solely on KiwiSaver. The Code Committee agree that as KiwiSaver is largely commoditised, and is reasonably generic across providers, it may not be necessary for an adviser to have a comprehensive qualification in the whole investment product spectrum to give good quality advice in this one area. It will be interesting to see whether this new pathway actually attracts new AFAs. We would suspect that as KiwiSaver is not a particularly lucrative advice field, some advisers may choose to take this pathway only as an added extra to their core business of risk or mortgage advice. The last major Code change that has been suggested is to tweak the guidelines for advisers’ continuing professional development requirements. Under the current Code, all AFAs must complete 10 structured and 10 unstructured hours in each calendar year. The committee has realised that a two-year rolling period for completion of a slightly higher requirement for formal or structured CPD may offer Advisers a little more flexibility around their training options. Many groups or organisations hold their conferences bi-annually, and these events often offer advisers a good forum to complete CPD in

a time efficient manner, it looks sensible to increase the time period for completion. As the requirement under the existing Code was for 20 hours per year of CPD training (structured and unstructured), the Committee has presented a sensible midway compromise of 30 hours of CPD training over the new two-year period. The requirement for unstructured hours looks likely to be done away with completely, as the Code Committee has realised that most, if not all, advisers would exceed this requirement easily, just in their day-to-day business activities. There is one element to the CPD changes that raise some potential cause for concern, that is the suggestion that product providers will be specifically excluded from providing structured CPD on product training – “where that training is provided to promote or assist with selling that financial product”. We were disappointed to see the Code referring to “sales” rather than “advice” , and also feel that product providers do provide essential training that directly affect advisers ability to properly understand and analyse product differences, and highlight nuances that may offer genuine benefits to consumers. While no one should get CPD credit for obvious “sales” events such as product launches, we believe that if an insurer for example, comes out with a new product that may help a specific part of the population (enhanced policy wording, for example), then advisers should be able to get CPD credit for a session on that, as long as the session is technical in nature. It is important to note that only professional bodies, TEOs and QFEs may verify structured training, and we believe that these organisations are more than capable than identifying the difference between an hour long sales pitch, and an hours session on technical matters. This product provider exclusion will be of real concerns to QFEs, as they are required to provide a certain amount of structured CPD to their advisers. If they can’t count training on their own products (which are the only ones these advisers can advise on), then they will be left scouring the market for alternative CPD options. Overall, the Code review appears to be very well thought out, and with a number of common sense and practical enhancements. We must always remember that the Code was never developed to make advisers’ jobs easier, it was developed to protect consumers’ interests, and this review seems to hit the right mark between what can be practically implemented by advisers with robust regulatory oversight.

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019

INSURANCE

What is the value of your business? Once the challenge to earn a good living has been met, most advisers want to achieve more: and that means having a valuable business.

n the life insurance advice segment there are really excellent fundamentals to support the construction of a valuable business. The relative unpopularity of insurance is a positive asset. As Adam Smith once wrote: “Anything a man will do for sport will be badly paid.” Put another way, there will always be too many restaurants and cafes – because people like the idea of running one – and too few insurance advice businesses. Although we often hear insurers talk about business value, they don’t support that conversation with much in the way of practical advice on how to achieve it. Owning my own business I have come to know the cold, hard, truth that no one cares as much about your business as you do. So you will probably have to find your own way to developing a business which is

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really valuable and saleable. Obviously your business value means less when you are just starting out, perhaps still trying to find a formula for your advice business that works. It is clearly more important in the last five years of your career when you may be very focused on your exit strategy – but it is also a good management tool throughout the middle of your career, because of how it helps you to have a different perspective on the business that you run. Taking off your adviser hat and putting on your investor hat can reveal things about your business you might not want to consider day-to-day. The first fundamental is to consider your product – which isn’t insurance, of course. For most advisers it is their advice about the insurance they offer and their analysis of client needs. It can even be just the ability to know about and find the right insurance quickly. The “investor-you” that owns the business may ask you hard questions about some of the markets you serve, how good your customer service is, or why your productivity isn’t higher. The “adviser-you” is more likely to be concerned with doing the best job for this particular client today. Both are vital perspectives, and most advisers I know probably focus on being an excellent adviser almost excluding the investor. If that describes you, then I would encourage you to allow the investor to take priority next time you sit down and re-plan your business future.

The interests of your inner investor are not always at odds with your adviser role. The investor might spot some excellent advisory work that you have done and say “how can we do this more often?” and “could we make more money just focusing on this area where we have a particular competitive advantage?” The investor will pounce on any new marketing activity that has been particularly good at generating client interest and want to get the business doing more of that. These are the kinds of questions that can lead to innovation, focus, and growth. If your advice business looks like every other adviser’s it will command an average price. If you work to have good persistency, client data, service, and few complaints, then it will achieve a premium. But if you really want to lift it into a different class then innovation is necessary. Another perspective that can be opened up is who you intend to sell your business to. It is usually assumed that it will be another adviser – but does it have to be? Perhaps your business could employ excellent advisers, but might be worth more if it is sold to a local financial planning business, accountancy practice, or trust company. Keeping an open mind about the potential buyer could enable you to see how you can reach for more scale in your business, and build a business that is recognisably a great investment

The fundamental question in shifting perspective to one of an investor is whether your business can run without you.

proposition. It also means that you are not limited to the pool of advisers and the capital that they possess – more potential buyers means an opportunity for a better sale price. The fundamental question in shifting perspective to one of an investor is whether your business can run without you. Trying to address that question inevitably leads to many others but the key issues are: Scale – is your business big enough to employ others? If it is not, then no matter how innovative you are, you are really talking about a client-base sale, rather than a business sale. On the other hand, if you employ advisers then you have an opportunity to address the other requirements for a valuable business. Marketing – can you systematically find new clients? This is the essential element

for growth. Do you know how? Can it be done at a reasonable cost? This is hard to achieve, but it is closely connected with both achieving the necessary scale and the next point. Difference – is what you do special somehow? Either you have a particularly good way of reaching clients, or a particularly good way of serving them – or ideally, both. Is that difference something that is hard to copy? That’s the essence of competitive advantage. You may have a uniquely good advice process, or ability to recruit and manage advisers, or ability to reach new clients. But it must be different, and not obvious – otherwise everyone else can just copy it, and they don’t need to buy your business to get it. Resilience – can your business run for a week without you? A month? Could it

survive a major complaint? What about a couple of staff leaving? How easily could new staff pick up if one of your team was suddenly unwell? Documented processes, good systems, and some capital are all essential to resilience. Finally, consider your vision as an adviser. On the one hand some advisers feel great disappointment when they sell their business. They worry that the new owners won’t take as good care of their clients as they would. But if you have a strong vision for the advice process you want to deliver, and build a strong business around that, you don’t have to feel that way. Your business might be one of the rare ones that is able to carry your vision forward under the guidance of a new owner, because that vision was what made it valuable enough for them to want to buy it.

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PRACTICE MANAGEMENT

{ PRACTICE MANAGEMENT }

Ask CCH FIGURE 1 LINKING RISK TOLERANCE TO PORTFOLIO RISK DISCOMFORT

STOCKS 100%

SHADING IN

COMFORT

90% 80% 70% 60% 50% 40% 20% 20% 10% 0%

100

RISK TOLERANCE SCORE

LINKING RISK TOLERANCE TO PORTFOLIO RISK

BY: Paul Resnik, Finametrica

client’s risk tolerance affects all financial decision making, but usually is most critical in the decision regarding a long-term investment strategy. Here the conventional wisdom is that the longer the term, the higher the risk that can and should be taken. However, a client with a low risk tolerance who takes on a high-risk strategy is inviting disaster. As we saw in the 2008-09 bear market, clients who are overexposed to risk can find the pain of a major downturn

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to be unbearable with no alternative but to bail out. Unfortunately, this usually occurs at or close to the bottom, and when they stay out of the market for an extended period, they miss the recovery. This can do great damage to a client’s emotional and financial well-being, which may lead to the client seeking someone to blame. The relationship with their planner is likely to end acrimoniously and may finish up before a tribunal or in court. Obviously, this is in neither party’s interest.

It is easy to say that somebody with low risk tolerance should not be in a high-risk portfolio, but this thinking presupposes that the planner can make a valid and reliable estimate of his or her client’s risk tolerance and then compare that with the level of risk in a portfolio. The second article in this series, “Using Psychometrics to Assess Risk Tolerance,” demonstrated how a planner can meet the first leg of that challenge. Let us now consider the second leg. Planners typically are significantly more

When there is a mismatch between the client’s risk tolerance and the risk required to achieve the client’s goals, it is important that the client make the trade-off decisions rather than the planner. risk tolerant than clients and this can cause them to overestimate the client’s risk tolerance and, underestimate the risk in a portfolio. As a result, a real danger exists here, so an objective rather than intuitive approach is what’s needed. Such an approach can be demonstrated using the FinaMetrica methodology that is based on research involving 20,000 client risk tolerance tests and monthly historical performance data going back to 1972. In particular, how clients answered questions regarding preferred portfolios, downside volatility, and expected returns was compared with performance data for a representative set of portfolios. This research enabled a client’s risk tolerance score to be mapped to the percentage stocks in a portfolio. So, for example, an average score of 50 mapped to 47% stocks. However the volatility of a portfolio is not particularly sensitive to the percentage of stocks. A client who is comfortable with 47% stocks is also going to be comfortable with 48%, 46%, and so on.

(REFER TO GRAPH - FIGURE 1) In this context, it needs to be remembered that risk tolerance is not an upper limit on a negative but, rather, a balance point between too much and too little risk. Although a client will not want to be overexposed to risk, thereby putting his or her financial wellbeing in danger, neither will he or she want to be underexposed to risk and to miss out on opportunities. The aim here is not so much to be precisely right but, rather, to avoid being badly wrong. At all costs, planners must strive to avoid situations in which a client’s risk tolerance indicates a 30% stocks portfolio, but the client is in a 70% stocks portfolio. This is a ticking time bomb. Using the FinaMetrica methodology as an example, both the balance-point and shading-in concepts are illustrated in figure 1, in which the 0–100 risk tolerance scale is mean 50 with standard deviation of 10. Most of the time, planners deal with too-much-risk situations. Typically, clients cannot achieve their goals from resources available at a level of risk consistent with their risk tolerance. This will require some trade-off decisions to be made by the client, which will involve the following: - Easing goals by delaying, reducing, or forgoing less important ones. - Increasing resources by earning more, spending less, or converting personal use assets to investment assets. - Taking more risk but not so much as may cause a panicked sale in a downturn. Occasionally, planners come across too-little-risk situations in which a client’s goals are modest, given the available resources, and those goals can be achieved well within their risk tolerance. In these happy circumstances, the client has the option to adopt more ambitious goals, spend more or convert investment assets to personal-use assets, or simply go with a less risky strategy. When there is a mismatch between the client’s risk tolerance and the risk required to achieve the client’s goals, it is important that the client make the trade-off decisions rather than the planner. The planner’s role is to suggest and illustrate alternatives, explain consequences, and provide guidance—but not make the decisions. This is the client’s life, and it must be the client who makes the ultimate decisions. From the planner’s perspective, guiding clients through this process demonstrates the planner’s expertise and results in properly informed clients who are committed to their plan because they understand what they are doing and why they are doing it. Such clients are more confident, sleep better, are easier to service, and are more likely to refer.

From the CCH tax analysts QUESTION:

A look-through company (LTC) provides labour-only services to one customer. The company’s shares are held 50/50 by a husband and wife, with all the services performed by the husband. How do the personal services income attribution rules operate alongside the LTC rules? Will the income be split 50/50 between the shareholders?

ANSWER:

For the purposes of applying the attribution rule for income from personal services, an LTC is treated as the associated entity and is not treated as transparent. The net income derived by the LTC will be attributed to the person performing the services (ie the husband), and the LTC's income will not be split 50/50 between the shareholders.

Get fast answers to your everyday tax and legal questions... The CCH Question and Answer service allows you to ask CCH Analysis everyday questions on tax, trusts and investments.

Be the one who has All the answers  s ubstitute your research time with income earning work  b uy yourself more time by having someone else to do the research  h ave peace of mind with the support of a second opinion  s ave consultant fees for simple queries  g et answers to your complex questions  k eep accurate records, as answers are provided in writing  e xtend your areas of expertise by having expert support in a variety of fields

Call CCH today to find out more on 0800 500 224 or go to www.cch.co.nz/qanda References: Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill.

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INVESTMENT

{ INVESTMENT }

Ongoing education needed for Asian equities Jonathan Wu – associate director and head of distribution and operations, Premium China Funds Management

he biggest reason why people invest in Asian equities is the growth potential. But what is this growth potential that is so frequently spoken about? The first thing to be very clear on is that it is long term. In essence, we are looking at an incredible bullet-proof urbanisation process in Asia which leads to increased levels of productivity. This in turn provides higher income, which then converts itself into higher levels of consumption. This has driven nominal GDP over time (as per the chart in Figure 1). GDP composition by China and the rest of Asia has only grown over the decades. China is the key to Asia (and the world to an extent) so much so that ASEAN nations leverage off China as the largest consumer. The power of the world’s most populous nation cannot be ignored, as can be seen by the breakdown of the composition of the Asian Middle Class in Figure 1. Even India (which will overtake China’s consumption by around 2050), has a population of 1 billion people but is only approximately a sixth of the region’s middle class. Any allocation to Asia for the foreseeable future will be driven into the Greater China region (made up of Mainland China, Hong Kong and Taiwan), so this should not be of any surprise in the makeup of Asian equity funds. One big mistake that advisers and investors alike make is looking at Asia as if it is one country. This is certainly not the case. Look at the stage of development. Some of the nations within Asia are more self-dependent and a larger part

FIGURE 1

of their economy is already coming from consumption, such as Indonesia, Malaysia, Hong Kong. Others, such as China and Korea have large proportions coming from investment as well as from a strong export market. The dynamics between nations also differ with some nations which are more urbanised (Malaysia (72%), Singapore (100%)) and some which are less (China (50%), Thailand (34%)). This means that development of such things as infrastructure is at different stages. The region is also not similar to the Euro as there is neither fiscal nor monetary unity as each nation independently determines these for themselves. One very important point that needs to be noted is that there is no clear empirical evidence that proves that higher GDP growth economies in

turn achieve higher levels of sharemarket returns. All we can say is that in a high GDP growth economy, one has a larger, opportune set of companies that could produce supernormal returns and hence requires active stock picking to make the most use of the investable universe. One reason for investing in Asian equities that is not discussed is for its dividend potential. As people get too ahead of themselves, simply buying companies for supernormal capital gains, they forget that dividends also form a part of the equation as per the chart in Figure 2. Considering Australia has had as much as half of its total return derived from dividends over the last decade, places like China are not far behind, having had over one third of its total return coming from dividends in the same period. Thailand is the standout for

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FIGURE 2

Asia with 42% attributable to dividends. As the region becomes more developed, the attribution to dividends will also increase as less money is re-invested back into the market.

The Current Valuation Situation

Asian markets have been a serial underperformer over the last three years. This has been caused by a few factors including the shift to what are known as “safe havens”. These refer to developed markets, leaving Asian equities markets unloved and valuations at attractive levels. There has not been any meaningful upwards P/E re-rating for a long time and as it stands, Asian equities are currently almost at a 20% discount to the world (refer to Figure 3). Over the past three years, the de-rating has occurred within the markets of China, India and Korea. The largest impacted sectors were financials, industrials and technology. Interestingly enough though secular growth areas inclusive of consumer and healthcare have had positive re-ratings in P/E levels over this same period. Clearly there has been a lot of bad news factored into this with structural fears coming from China. At this level, there is value that has emerged which has not been seen since late 2009. Each time there is a global selloff, Asia does get hit rather badly, and this is a trend that has occurred over the last decade. This in turn does, on the surface, prove that decoupling has not occurred in Asia when compared with developed markets. In the three crises of the past decade, Asia suffered the most from peak to trough. However, when looking at the decade as a whole, the outperformance of Asia is clearly showing proof that long term investment does work for the region.

Case Studies of Small Cap Asian Companies

Finally, I want to share three case studies of small cap Asian equities (<US$1bn Market Cap) to link back to the future growth story of Asia. Many large cap stocks are quite well researched and again the theme here when looking at small cap stocks and where the value is, is based upon companies that are under researched and offer value and growth potential.

easy payment schemes, personal finance schemes and insurance services. The brand is part of the AEON group that originated from Japan. As one can envisage, credit cards have become the norm of people's lives as their incomes have increased and they want to upgrade their standards of living. As such, the groups bottom line after tax profit from 2009-2013 has increased on average by 30.2% p.a., with return on equity reaching over 34% for the financial year end 2013. Simply looking at the insurance angle, as people's wealth become more important and incomes rise, the necessity for insurance, like what we have locally; including trauma, income protection, etc., will increase and also add to the growth path of AEON Malaysia.

Kimia Pharma (Indonesia)

Kimia Pharma is the first pharmaceutical company in Indonesia and was established in 1817. Subsequently it changed its name a few times until its listing in its current form in 2001 on the Indonesian stock exchange. It has created a strong brand following over its history, and now has moved into the health services business. Given its already strong reach of over 400 retail pharmacies, its health clinics also offer a range of services from minor surgery, childhood immunisation, basic rehabilitation and first level emergency handling. Through the utilisation of health clinics, it can distribute its drugs and other health products

allowing a seamless vertical integration. In one of the world's most populous countries, Indonesians are also striving for higher standards of living, which in turn drives demand for healthcare. Kimia Pharma, which commands the country's health sector, has a strong growth path ahead as new services are demanded.

Four Seas Mercantile Holdings (Hong Kong)

The Four Seas group was founded in 1971 in Hong Kong covering raw material supply, food manufacturing, food trading and distribution, packaged food retailing, restaurant operations and agricultural holdings. As you can gather it is another group which has strong vertical integration. It has covered the whole network from agriculture to manufacturing and then to distribution and retail. Many of the items they sell are everyday items like dried seaweed, cup noodles, biscuits, chips, coffee mixes and other assorted snacks. Being a very powerful and recognisable brand in Hong Kong and Mainland China, it is able to have controlled increases in sales price and for the year ended 31 March 2013, it registered an increase in top line sales of 4%, but at the same time achieved net profit growth of 111% over the previous year due to increased profit margin as well as a depreciating Japanese Yen. It also runs 3 restaurants (1 Chinese, 2 Japanese) in Hong Kong, which also expands its business footprint. FIGURE 3

AEON Credit Service M Bhd (Malaysia)

AEON is a credit service provider in Malaysia that opened its service in 1996 and subsequently listed on the Malaysian stock exchange in 2007. Today, they not only issue credit cards, but also provide

025

INSURANCE

{ INSURANCE }

Replacement business or churn? Why do providers and advisers seem to be speaking different languages?

{ NAOMI BALLANTYNE }

ew life companies inevitably benefit from “churn”. Particularly if their value proposition to clients is as strong and unique as we believe ours is. But while we have benefited from replacement business, it does not mean we are not concerned about the impact churn could have on the industry or the very significant risks itcan pose to advisers and their clients – as evidenced by our recent seminar series on this very issue.

“Churn” versus “Replacement Business”

This debate has continued for as long as I have been in the industry. Advisers argue they have to keep reviewing their clients to ensure they are giving them the best advice and are keeping their clients’ cover relevant to their current circumstances. That their review advice often results in replacement

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business is a function of product advances and if companies don’t want to lose clients, they should keep their products up to date. With regulation now putting even more pressure on advisers to prove they have done the right thing by their clients, advisers are likely to increase their review activities rather than reduce them. Life companies struggle with this explanation as the significant upfront commissions and production bonuses they now pay are effectively financed by an advance against the future renewal commissions priced into their premium rates. The amount advanced is assumed to be recovered over the medium term from the difference between the renewal commission assumed in the premium rates and lower renewal commissions actually paid. If policies do not stay on the books for long enough, this commission advance cannot be recovered and profits are significantly affected. If advisers are saying policies need to be replaced every two or three years to stay relevant, commissions will have to change to reflect that. Some recent research that was shared with me identified broker-driven replacement as the reason for more than 40% of policy cancellations so it is not okay to pretend this is not a significant issue for the industry. Life companies do encourage advisers to regularly review their clients’ cover, but have never expected review to automatically mean replace. Additional cover can be added and benefits can be amended without cancelling the underlying policy. There should only be a few occasions where the benefits of moving to new cover can be demonstrated to

outweigh the loss of features and benefits from the existing cover as well as outweigh the risks of re-underwriting the client. Life companies have not expected the level of churn that the industry is experiencing so they have not allowed for it in their profit assumptions. If they have to revisit their lapse assumptions because of it, they will automatically experience a significant and immediate profit hit which they will then have to recover through cost cutting, premium increases or commission changes. You can see why the industry is really struggling to figure out how to stay profitable into the future. There are always differences between products and if you look hard enough you could always find some benefit in replacing one product with another. If the product differences are of significant overall benefit to the client – and the client is not at risk of underwriting issues - then the adviser should encourage the client to move and, in fact, is required to do so by regulation. But we all know that there will quite possibly be some parts that are not as good in the new product which need to be balanced against the benefits. In addition there are underwriting risks in replacing cover. Life companies have no way of

There are plenty of uninsured or underinsured New Zealanders out there for the life insurance industry identifying whether the advisers who are giving replacement advice are truly presenting this full risk versus reward story to the client – until claim time. They fear that replacement decisions being made by clients might be on the basis of incomplete or incorrect information. Especially if the adviser doing the replacing doesn’t actually have an in-depth knowledge of the company, the products or the specific policy they want to replace. Certainly products which include guaranteed upgrades in their policy wordings will mean the advantage of any new product enhancements offered by competitors might be short-lived both for new clients and, more importantly, for their existing clients. Advisers giving advice to replace these products need to be more cautious given the benefits of doing so might be very short-lived whereas the risks are not. To the life companies, the adviser argument that business is being replaced for the sole benefit of the client has often proven to be untrue. I am sure we have all had claims against replaced policies where the client was clearly worse off at claim time due to the replacement of their original cover – almost always due to non-

disclosure at the point of replacement. So churn can end up damaging the reputation of the unwitting company to whom the business was replaced as well as the reputation of the industry as a whole.When coupled with the significant impact churn has on life company profits it is not surprising therefore, that it is seen as one of the most pressing issues facing the industry. Another argument I’ve heard from advisers is that life companies themselves have encouraged churn through special underwriting, i.e. transfer terms. Some companies certainly have tried to make it easy to transfer business to them, but I am certain those same companies are also concerned about their own lapse rates. I also suspect some of those companies might be the same ones that also then go through claims avoidance periods from time to time when claims experience from those easy underwriting periods starts to hurt. This can then mean transferred clients could again be worse off for having been moved. For those life companies who don’t actively play that churn game, it is very difficult to understand why advisers would proactively replace business simply because one company is making it easier for them to do so – doesn’t that fly in the face of doing the right thing by the client first and foremost? Just because a life company is playing that game doesn’t automatically mean the adviser should, does it? On the other hand we have seen examples where life companies have proactively tried to block the relationship between an adviser and their clients – possibly in reaction to reduced new business support or deteriorating lapse rates. This can make it impossible for the adviser to service those clients – prompting them to proactively replace that business. If this is the primary reason for the replacement advice, the adviser needs to be sure the client understands this and can weigh up the benefit of sticking with an adviser they know and trust against the risk

and reward equation between their existing policy and the recommended product. My view is that until we adopt a universal methodology for advisers to be able to demonstrate they have given complete and comprehensive replacement advice and that replacement can be proven to be the correct decision for the client, then life companies (and regulators for that matter) are going to continue to suspect commission rather than value to the client is a key driver of churn. If lapse rates do continue to deteriorate, the industry might end up with no option but to revisit commission structures, because no one can afford to advance 10 years’ worth of commission upfront on policies that only stay on the books for two or three years. So from the CEO of a life company’s perspective, I would summarise this issue as follows: ➊ Profitable, thriving life companies provide a sustainable win-win-win for the company, its advisers and its clients. ➋ Life companies should compete on the value proposition that they offer not only new clients, but also their existing clients this is their best defence against churn. ➌ Advisers should be sure they can and do present a balanced risk and reward picture specific to the client’s existing policy so the client can make an informed decision about whether to replace existing policies. This is their best defence against accusations of churn, reduces client disputes and is also the industry’s best defence against reputational damage. ➍ There are plenty of uninsured or underinsured New Zealanders out there for the life insurance industry to insure – we need to readjust our focus on addressing this situation – increasing new business volumes coupled with lapse rates that match policy assumptions are the two keys to giving life companies the best possible chance of continuing to remunerate advisers as we do today. ➎ This should not be a war – we need each other – lets work together for the best interests of the client.

027

KIWISAVER

{ KIWISAVER }

Finding value in Kiwisaver

Carey Church

Carey Church is working hard to battle the apathy that's stopping more people seeking out professional advice when it comes to their KiwiSaver accounts - even if it's not earning her much money, yet. BY: Amanda Morrall

hen KiwiSaver is heralded a savings success, the usual statistics are trotted out. Two milliom New Zealanders are enrolled in the national saving scheme. There is close to $15 billion under management. It has brand recognition that is second-to-none. In the face of public or media criticism over high fees, fund managers have downplayed its value for them as a business proposition. That’s despite taking in an average of $125.5 million in fees since it was 2007. But while an average of 18,800 searches for KiwiSaver via Google happen every month, those looking for advice to go with it are so few as to barely warrant mention. Only 10. A reasonable conclusion is that the KiwiSaver curious public is either not interested in seeking advice or the question of advice in relation to KiwiSaver hasn’t even occurred to them. This lack of engagement among the masses isn’t news to the industry or Government. The Code Committee is currently taking submissions on whether a separate KiwiSaver adviser qualification ought to be introduced that somehow fixes

the problem of members knowing precious little about the product they’ve been sold into. Carey Church, managing director of Money Works, intends to use her Google findings as part of her submission to the committee about how to resolve the issue. She hasn’t come up with a magic bullet yet. “My general impression is that people are still at the stage where unless they do have a relationship with an adviser, they don’t even have enough information about it to ask a question. I think people are still at the ‘I’ve got it because I’ve been told it’s good for me but I'm not sure how it works; I don’t want to know-how it works, I just know that it’s good for me and don’t bug me with it, I don’t want to know because it’s too confusing, I’ll deal with it when I have to’.” If apathy or ignorance are at the root of so few people seeking professional advice on KiwiSaver, Church sees it as a challenge for advisers - and policy makers. It’s one she isn’t shrinking away from. “Our whole business has been developed around giving education,’’ says Church. Before KiwiSaver was officially launched in 2007, Church and her business partner/ husband Peter began to prepare their business for it.

“Knowing what had happened in Australia with compulsory super we realised KiwiSaver was going to become a core part of peoples’ financial planning so we made a commitment at the end of 2007 to get into KiwiSaver really strongly. “ Church wrote a “white paper” on KiwiSaver, advertised it through the internet and then pursued the corporate market as a way to reach employees who were going to be fed into it. It was no small effort. Church and her partner profiled all the providers at the time and packaged the information for general audiences wanting to know how the schemes and providers differed from one another. The appetite for information back then was voracious, says Church. “We were doing back-to-back seminars, sometimes nine in a day. Basically, we were living and breathing KiwiSaver.’’ While Money Works has since shifted away from the corporate market to individual clients, the national savings scheme remains a central part of her vision for the business and one of her passions. KiwiSaver, she says, is “non-negotiable” for Money Works clients. If they aren’t enrolled when they come to her, she enrolls them without delay. The job of choosing from the vast range of providers

Committed to advisers and the advice process 0800 88 22 88

is made easier by virtue of the fact Money Works uses, almost exclusively, ANZ Wealth’s OnePath. Money Works has so far put more than 2000 clients into its funds. A handful of others are invested with other providers for various reasons. Church said the arrangement was not profit-driven. Although her business does receive commissions from OnePath she says they are lower than others on offer. By and large, she believes it's the best of a breed. Why? “Basically because they were the first out there that gave really good support and had a fantastic product.’’ Church explains Money Works metrics for evaluation. “As an adviser I look for something that is going to be consistent relative to other performers, I’m looking for an organisation that delivers what they say they will, a provider who has robust systems and processes in place and that is backed by a large organisation that has a commitment. Morningstar NZ’s data shows the SIL OnePath balanced fund (which Money Works uses as a benchmark against other similar funds offered by competing KiwiSaver providers) has returned on average 6.9% per annum (after fees) since inception putting it in second place in overall performance for its peer group. Church says it's the ranking that she pays closest attention to and until OnePath loses it seating here, she’ll remain loyal. “The important thing for me is having the historic comparison and the important thing is consistency of investment returns. I don’t want fund managers going from the best last time to the worst this time. The SIL balanced fund has been consistently in top half since their launch. That’s what I want for my clients and that’s what I teach my clients. It doesn’t always have to be the best but it should just be in the top half. While OnePath’s balanced fund is used as the benchmark for determining overall best provider, Money Works clients are enrolled in funds across the spectrum each

The challenge for regulators and policy makers will be in how to make the general public care about their private savings one according to their individual interests, goals and risk appetite. Church says her business has three categories of clients, which reflect varying degrees of knowledge in the KiwiSaver space. Membership clients are seen once a year where full reviews are done in person. This group tends to have the highest level of financial literacy especially with respect to KiwiSaver. A separate group of clients has been seen face to face at some stage and has either KiwiSaver or insurances or both invested through Money Works. Knowledge levels here are low to average. A third group of clients are those that

have come through corporate channels, having been auto-enrolled into KiwiSaver via a preferred provider arrangement with their employer. It is this group that concerns Church the most because they are least informed and yet in all likelihood will need KiwiSaver the most to pad out their retirement income. Money Works’ efforts to reach out to these clients have been largely unsuccessful, says Church. In January her business posted more than 2000 letters of introduction in hopes to connecting. Only eight responded. Church sees it as another blunt reminder about the lack of engagement that belies the KiwiSaver success story. In her upcoming submission to the Code Committee, one of the pitches she’ll make in this regard is for Qualifying Financial Entities (banks and the like who constitute competition for independent advisers) to abide by the first principle of the Code binding Authorised Financial Advisers; putting client’s interests first. According to Church’s interpretation of the law, QFEs are exempt from this principle. If they weren’t, she thinks the poaching of KiwiSaver members from the hands of advisers who took care to ensure their clients were put into the right fund with the best provider would cease. QFEs undoubtedly have a different view. Either way, the challenge for regulators and policy makers will be in how to make the general public care about their private savings to the same extent as ticket clippers fighting for their business.

ANZ KIWISAVER FUND PERFORMANCE FUND

3 MONTHS

1 YEAR

3 YEAR*

SINCE LAUNCH*

Cash

0.69%

2.81%

3.00%

3.14%

Conservative

0.64%

6.82%

6.62%

5.55%

Conservative balanced

0.00%

10.77%

8.39%

5.36%

Balanced

0.68%

14.74%

9.97%

5.05%

Balanced growth

1.47%

18.81%

11.47%

4.53%

Growth

2.24%

22.87%

12.97% (*Return per year)

028

WWW.GOODRETURNS.CO.NZ

029

INVESTMENT

{

INVESTMENT

} represents over 25% of the globally traded dairy-market. For certain commodities, such as butter and whole milk powder, we have over 50% market share. New Zealand’s competitive advantage in dairy is our climate. Our rainfall, sunshine hours and narrow temperature-range provide for ideal pasture growth conditions, making feed for the New Zealand dairyherd competitively cheap. Add first-class farming systems to the climatic advantage, and you have a sector that may continue outperforming relative to global peers.

A look at the listed New Zealand dairy sector

e have all witnessed the media-spectacle that the recent Fonterra contaminationscare created, which serves as a crude reminder that there are genuine risks attached to this sector. Notwithstanding these, the broader dairy sector exhibits attractive secular growth prospects that deserve a close look by domestic and international investors alike. In November 2012, we saw the long awaited listing of the Fonterra Shareholders Fund (FSF). This generated phenomenal investor-interest in New Zealand’s dairy sector and this note provides a discussion of our research into the sector and the factors that are important to the profitability of three relevant dairy companies. With the subsequent listing of Synlait Milk (SML), and the emergence of A2 Corporation (ATM) as a significant player in the Australian liquids milk market, we now (for the first time) have a listed dairy sector on the NZX with sufficient liquidity for institutional investor participation.

The Big Picture Before looking at the macro-outlook, it is important to mention the support from the Government for the sector through negotiations of Free Trade Agreements (FTAs) and bilateral trade agreements over the last few years. It is commonly reported that FTAs do not work; and when New Zealand became the first Western nation to sign an FTA with China, some nations frowned upon us. However, New Zealand’s trade balance ought to convince any sceptic that this FTA indeed works. The trade balance troughed in the year New Zealand signed the FTA, and has been rising ever since. As we see it, the dairy sector is a key beneficiary of the FTAs, where tariffs and other import duties are being phasedout across key trading partner countries. Take China as an example, New Zealand

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dairy commodities have largely become duty-free, with the remainder of tariffs on dairy powders being gradually phased out between now and 2020. Looking at the map below, the highlighted areas represent countries with current FTAs (in blue) and with FTAs under negotiation (in yellow). Many of these countries represent key markets for our dairy sector and will therefore be supported by any reductions in trade barriers into these markets. On balance, we believe the Government will continue its campaign to negotiate better trading conditions for our import and export sectors, which represents upside risk to the dairy sector. Further to the FTAs, we believe there are strong secular tailwinds supporting the dairy sector that are likely to last for the medium- to long-term as wealthcreation and population-growth continues across Asia, the Middle-East, Africa and Latin America. Hundreds of millions of people are moving up the income chain across these geographies. Why is this important you may ask? Well, it is important because of a strong positive relationship between income-growth and consumption of

There are a range of other risks, and we would urge investors to have a good look at the sector as a possible portfolio

Understanding the listed sector Although the macro looks good, investors need to do their homework on the listed opportunities in the sector. The three listed securities (FSF, ATM and SML) are subject to the same macro-drivers, but have very different individual characteristics that are likely to result in different patterns of profitability. High commodity prices are good for farmers and to New Zealand’s tradebalance, but are not necessarily good for the profitability of the listed dairy-

companies. Take Fonterra, for example, whose largest cost-of-goods-sold (COGS) is the farm-gate-milk-price (FGMP). And although the profitability of Fonterra is complex, it makes sense that margins will come under pressure when its largest costitem significantly increases. The offset to this is Fonterra’s ability to pass on this cost to customers, and investors need to assess the sensitivities of this pass-through and the time it may take to normalise earnings after cost-push events. Synlait is different in that it does not have its own consumer goods business, but the FGMP is also Synlait’s largest COGS. Synlait does not currently produce all the commodities that comprise the FGMP and is therefore at risk of margin-contraction should the FGMP increase more than its commodity-basket. However, plantflexibility, product-optimisation and highly customised products may be sufficient to offset cost increases. A2 Milk is the most unique of the three, with very little in-house processing capacity and therefore has limited exposure to the manufacturing margins of the other two. A2 is very much a consumer brands business with margins determined by selling price-points over commodity prices. It is therefore important to understand the risks and strengths of its brand and

the ability of the company to market this into new jurisdictions (U.K. and China in particular).

Understanding the risks Overall, the dairy sector has strong secular tailwinds for the long-term, and we are delighted to see the emergence of a credible dairy-sector listed on the NZX. However, as we have seen on a number of occasions, being part of the global foodsupply chain comes with big risks attached to food-safety and the image attached to New Zealand’s dairy products. There are a range of other risks, and we would urge investors to have a good look at the sector as a possible portfolio inclusion, but it is critical to understand the risks and rewards profile of the investmentopportunity. Oyvinn Rimer is an Investment Analyst at Harbour Asset Management: a leading fund manager with extensive professional investment experience managing funds for government institutions, corporate superannuation funds, multi-nationals, charities, banks and insurance companies. The information and analysis in this commentary is for general information purposes only. It does not take into account any person’s particular financial situation or goals and accordingly does not constitute personalised financial advice. Please see the full disclaimer on our website www.harbourasset.co.nz

dairy products. This relationship is particularly strong at lower levels of income (USD-terms) and given our view that this wealth-creation will continue, the potential demand-growth for the dairy sector is significant. Supply, however, is more constrained. According to Goldman Sachs, the global arable land availability has more than halved since the 1960’s. Further, the OECD-FAO reports that China has experienced a similar trend, and has only half the cultivated land-area per capita relative to the global average and one-third of the OECD average. Given the water-intensity of dairy farming, it is difficult to envisage a supply response sufficiently large to satisfy the expected demand growth. Combining these macro-drivers, we believe the dairy sector has the fundamental support to sustain volume growth and price increases over the longer term.

New Zealand’s opportunity New Zealand has a unique position in the global dairy market and currently

031

ASSET ADVISER

For more information visit www.morningstar.co.nz

{ MANAGED FUND PERFORMANCE TABLES } Name

Latest 1 Yr 3 Yr 5 Yr Size Morningstar Transaction Return Return Rating Return $M Overall Exit Price %

New Zealand Insurance Fund Cash AMP KiwiSaver Cash Fund 1.3117 2.82 2.99 3.56 AMP Prem PSS OnePath NZ Cash 1.4158 2.93 3.10 3.49 AMP PSS Select Cash 1.3449 2.63 2.77 3.10 ANZ KiwiSaver-Cash 1.1672 2.81 3.00 3.12 Aon KiwiSaver OnePath Cash 13.7323 2.61 2.74 3.21 Aon KiwiSaver Tyndall Cash 12.6317 3.56 3.40 3.88 ASB KiwiSaver Scheme's NZ Cash 1.2595 2.83 2.66 3.11 Asteron Rtrmnt Savings Plan Deposit 9.7505 3.76 3.36 3.68 Asteron Super Yield Deposit Fund 9.7741 3.76 3.36 3.68 Asteron Superplan 2000 Capital Fund 2.0483 3.67 3.39 3.86 Asteron Superplan Capital Fund 2.457 3.15 2.87 3.38 FC KiwiSaver Scheme's NZ Cash 1.2583 2.82 2.64 3.10 Grosvenor KiwiSaver Enhanced 1.3368 3.26 3.97 Income Fund Mercer KiwiSaver Cash -3.04 3.34 3.31 Mercer Super Trust KiwiSaver Cash -3.04 3.25 3.13 OnePath KiwiSaver-Cash Fund 1.2545 2.86 3.09 3.36 SIL 60s + Sup Cash Fund 1.9721 2.36 2.54 2.98 SIL Cash Plus 1.9721 2.36 2.54 2.98 SIL KiwiSaver-Cash Fund 1.2172 2.67 2.84 2.98 Staples Rodway KiwiSaver Conservative -3.06 3.06 3.15 TOWER KiwiSaver Preservation 2523.21891 3.45 3.17 3.60 Westpac KiwiSaver-Cash Fund 1.2244 2.96 2.87 3.14 TOWER KiwiSaver Preservation 2516.21926 3.61 3.20 3.82 Westpac KiwiSaver-Cash Fund 1.2208 2.91 2.85 3.31 New Zealand Insurance Fund Cash Non-PIE Fidelity Life Cash Portfolio 3.0827 1.83 1.77 -New Zealand Insurance Fund Equity Region Asia Pacific Asteron Superplan 2000 Far East Fund 1.0525 5.19 -2.08 -10.32 Asteron Superplan Far East Fund 1.5452 4.37 -2.83 -7.26 SIL 60s + Sup Pacific Basin Share 1.7028 6.86 3.50 0.32 SIL P/R Pacific Basin Fund 1.7028 6.86 3.50 0.32 New Zealand Insurance Fund Equity Region Australasia Aon KiwiSaver Milford 1.9962 25.45 15.77 -Asteron Superplan 2000 Trans Tasman 2.6778 26.18 12.74 6.91 Fund Asteron Superplan Trans Tasman Fund 3.4322 25.44 12.03 6.20 Grosvenor KiwiSaver Socially Responsible 1.2164 15.33 6.55 -Grosvenor KiwiSaver Trs-Tasm Sm 1.0932 5.45 1.41 -Coms Shr Mercer Super Trust KiwiSaver Shares -24.08 11.15 6.35 Mercer Super Trust KiwiSaver -30.18 14.42 5.55 TransTasman Milford Active Growth KiwiSaver 2.0002 25.72 15.85 13.37 NZ Guardian Trust GIFs - Small Companies 3.8769 23.88 8.46 6.14 SIL KiwiSaver-Australasian Share 1.0867 28.04 15.20 7.99 Smartshares Smartkiwi Growth Fund 0.8754 21.50 8.86 2.78 New Zealand Insurance Fund Equity Region Emerging Markets Asteron Superplan 2000 Emerging Mkt Fd 1.3409 -0.25 -2.08 -5.24 Asteron Superplan Emerging Markets 1.1203 -1.07 -2.83 -5.97 Fund TOWER FreedomPlan-Emerging Markets 2.19992 6.87 -3.17 -3.95 TOWER FuturePlan-Emerging Markets 2.19992 6.87 -3.17 -3.95 New Zealand Insurance Fund Equity Region Europe Asteron Superplan 2000 European Fund 1.8209 33.67 9.04 1.99 Asteron Superplan European Fund 2.1679 32.81 8.28 1.27 New Zealand Insurance Fund Equity Region North America Asteron Superplan 2000 Nth Amrn Fd 1.7217 26.38 12.12 4.56 Asteron Superplan North American Fund 2.4687 25.57 11.36 3.83 New Zealand Insurance Fund Equity Region NZ AMP Prem PSS OnePath NZ Shares 1.5214 24.48 14.43 8.37 Asteron Rtrmnt Savings Plan NZ Equity 2.5295 26.70 12.98 7.07 Asteron Superplan 2000 NZ Shares Fund 2.1464 26.28 12.78 6.95 Asteron Superplan 2000 NZ Smaller 3.3262 23.47 8.77 6.42 Compns Asteron Superplan NZ Shares Fund 1.9454 25.41 11.99 6.42 Asteron Superplan NZ Smaller Compns Fd 3.0127 22.67 8.05 5.77 SIL 60s + Sup NZ Share Fund 3.4642 28.56 15.47 8.28 New Zealand Insurance Fund Equity Region NZ Non-PIE Fidelity Life NZ Shares Portfolio 4.1213 15.39 5.84 3.60 New Zealand Insurance Fund Equity Region World AMP Prem PSS FD Intl Share Fund 1 Value 0.8736 26.70 7.08 -2.49 AMP Prem PSS FD Intl Share Fund 0.92 24.35 8.45 -1.96 3 Growth Asteron Rtrmnt Savings Plan Intl Eqty 1.9592 24.74 8.56 2.22 Asteron Superplan 2000 Aggressive Fund 1.5104 13.81 5.44 0.12 Asteron Superplan 2000 Global Fund 1.5984 24.17 8.40 1.63 Asteron Superplan Aggressive Fund 1.4378 12.98 4.78 -0.56

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40.99 4.68 2.07 147.62 3.05 1.25 235.69 3.68 5.20 3.86 29.60 8.85

-------------

15.98

10.68 1.98 1.49 1.26 1.54 18.78 17.04 22.11 192.59 21.82 184.82

------------

3.37

1.18 10.96 0.22 3.15

   

58.39  2.55



16.37   8.28 3.41



1.34



1.39



145.49  9.40  14.13  17.62  0.48

2.49

2.10 24.11

---

1.70 13.63 1.48 12.63

-----

4.80  1.32  0.54  1.70



1.03 3.48 2.65

  

1.51



5.47



5.40



3.54 0.55 1.41 4.72

   

Name

Latest Transaction Exit Price 1.9063

1 Yr 3 Yr 5 Yr Size Morningstar Return Return Rating Return $M Overall % 23.03 7.52 0.86 17.09 

Asteron Superplan Global Fund FC KiwiSaver Scheme's Active High 1.0208 25.55 8.61 1.34 Growth FC KiwiSaver Scheme's Global Sustain 1.4904 25.69 9.54 7.07 Grosvenor KiwiSaver International Share 1.2437 22.90 6.66 -Mercer Super Trust KiwiSaver Global -21.40 9.60 5.87 NZ Guardian Trust GIFs - Global Equity 1.4362 24.48 9.17 2.34 SIL 60s + Sup International Share Fund 2.1429 27.32 10.70 4.56 SIL International Share 2.1429 27.32 10.70 4.56 SIL KiwiSaver-International Share 1.1081 28.03 11.25 4.97 SIL KiwiSaver-Sustainable Growth Fund 1.1499 19.74 7.21 2.98 TOWER FreedomPlan - Int'l Companies 2.17998 19.15 7.76 1.52 TOWER FuturePlan - Intl Companies 2.17998 19.15 7.76 1.52 TOWER KiwiSaver Equity 2857.85929 18.89 7.89 2.54 New Zealand Insurance Fund Equity Region World Non-PIE Fidelity Life Aggressive 2.4217 15.16 1.49 1.23 Fidelity Life International 1.7871 20.86 4.11 0.24 New Zealand Insurance Fund Equity Sector Global - Real Estate Mercer Super Trust KiwiSaver Real Assets -12.37 8.96 3.95 SIL KiwiSaver-International Property 0.9515 11.79 13.78 4.08 New Zealand Insurance Fund Equity Sector NZ - Real Estate MFL Property Fund 2.6739 19.95 16.88 8.35 SIL KiwiSaver-Australasian Property 1.1709 17.75 17.68 8.82 New Zealand Insurance Fund Global Bond AMP Prem PSS Blackrock Global Fixed Int 1.6054 2.44 4.71 6.27 AMP Prem PSS PIMCO Global Fixed 1.8266 2.87 7.38 8.74 Interest AMP Prem PSS SSgA Global Fixed 1.606 2.78 4.90 6.28 Int Index Asteron Rtrmnt Savings Plan Intl Fx Int 2.7771 2.61 4.95 6.05 Asteron Superplan 2000 Global Bond Fund 2.4942 2.10 4.72 6.10 Asteron Superplan Global Bond Fund 2.3589 2.02 4.71 6.08 Mercer Super Trust KiwiSaver Fixed Intr -4.17 4.51 5.22 SIL KiwiSaver-International Fixed Int 1.3908 1.47 4.60 6.44 New Zealand Insurance Fund Miscellaneous Fidelity KiwiSaver-Options Kiwi Fund 4.77397 9.71 5.57 6.36 Westpac KiwiSaver-Capital Protect Plan 1 1.5 24.24 11.23 -Westpac KiwiSaver-Capital Protect Plan 2 1.3464 24.23 11.22 -New Zealand Insurance Fund Miscellaneous Non-PIE Fidelity Life Options Portfolio 3.7748 7.13 4.10 4.21 New Zealand Insurance Fund Mortgages Non-PIE Fidelity Life Mortgage 3.5706 3.17 2.76 3.29 New Zealand Insurance Fund Multisector - Aggressive AMP KiwiSaver LS Aggressive Fund 1.0517 19.27 9.35 3.19 AMP PSS DynamicMkts Growth 1.357 17.00 8.82 2.31 AMP PSS Select Growth 1.2756 17.05 8.87 2.41 Aon KiwiSaver Russell Lifepoints 2045 5.6004 26.74 11.99 6.01 Brook Professional KiwiSaver Growth 1.3726 18.85 8.46 5.21 Fund Brook Professional KiwiSaver Growth 1.3726 18.85 8.46 5.21 Fund Fidelity KiwiSaver-Aggressive Kiwi Fund 3.23963 16.98 7.33 4.93 Fisher Funds Growth KiwiSaver Fund 1.3385 22.35 10.10 8.71 Grosvenor KiwiSaver Geared Growth Fund 1.3308 17.09 6.00 -Grosvenor KiwiSaver High Growth Fund 1.0491 17.20 6.09 2.44 Mercer KiwiSaver High Growth -18.47 9.28 4.69 Mercer Super Trust KiwiSaver High -18.56 9.24 6.47 Growth TOWER FreedomPlan - Growth 2.05531 15.48 6.53 2.77 TOWER FuturePlan - Growth 2.05531 15.48 6.53 2.77 TOWER KiwiSaver Growth 1.18007 17.32 9.00 5.06 New Zealand Insurance Fund Multisector - Aggressive Non-PIE AMP PRP Dynamic 1.5868 16.37 7.22 1.04 New Zealand Insurance Fund Multisector - Balanced AMP KiwiSaver LS Balanced Fund 1.216 13.20 8.14 4.85 AMP KiwiSaver LS Moderate Balanced 1.2299 11.30 7.28 4.60 Fund AMP KiwiSaver TOWER Balanced Fund 1.2594 12.36 7.28 5.13 AMP PSS DynamicMkts Balanced 1.4523 11.50 7.43 4.00 AMP PSS Lifesteps Consolidation 1.4165 9.73 6.61 3.79 AMP PSS Lifesteps Progression 1.4657 11.64 7.49 4.08 AMP PSS Select Balanced 1.4046 11.59 7.48 4.00 ANZ KiwiSaver-Balanced 1.2817 14.74 9.97 6.96 Aon KiwiSaver OnePath Balanced 17.6198 14.56 10.53 8.61 Aon KiwiSaver Russell Lifepoints 2025 6.3461 17.42 10.16 7.23 Aon KiwiSaver Russell Lifepoints Bal 6.1642 19.99 10.70 7.20 ASB KiwiSaver Scheme's Balanced 1.2162 14.29 8.86 5.59 Asteron Rtrmnt Savings Plan Mgd Neutral 2.3805 15.08 8.73 5.10 Asteron Super Yield Managed Fund 12.0369 16.05 8.75 5.19 Asteron Superplan 2000 Balanced Fund 1.9011 14.82 8.24 4.33

2.64



5.06 3.62 1.43 6.04 0.83 10.94 21.36 1.63 2.95 27.52 30.59

          

1.67  0.68  0.85 5.12

 

437.00  8.43  2.27



2.55  8.17



1.22 0.99 1.45 1.25 2.07

    

64.76 10.20 8.73

----

23.26

2.91

140.27  3.41  31.31  6.45  6.39  6.39  16.38  588.64  2.95  68.74  34.94  7.89  7.58  75.36  100.41  102.25



239.21  224.08  14.06  2.65  7.79  3.89  48.80  515.37  11.90  7.74  33.64  323.05  14.10  18.73  8.24 

Latest 1 Yr 3 Yr 5 Yr Size Morningstar Transaction Return Return Rating Return $M Overall Exit Price % Asteron Superplan Balanced Fund 2.4525 13.98 7.42 3.58 61.30  Brook Professional KiwiSaver Balanced Fd 1.3255 13.73 6.52 4.23 1.73  Brook Professional KiwiSaver Balanced Fd 1.3255 13.73 6.52 4.23 1.73  FC KiwiSaver Scheme's Active Balanced 1.1893 14.57 7.65 5.10 24.41  Fidelity KiwiSaver-Balanced Kiwi Fund 6.70844 12.62 6.99 5.66 100.72  Fidelity KiwiSaver-Ethical Kiwi 2.63652 14.40 8.05 5.01 9.96  FirstChoice KiwiSaver Scheme's Balanced 1.2136 14.29 8.85 5.59 23.22  Grosvenor KiwiSaver Balanced Fund 1.2772 8.73 5.78 4.61 100.59  Mercer Super Trust KiwiSaver Moderate -11.80 7.19 5.73 31.54  Milford KiwiSaver Balanced 1.3532 20.26 11.95 -- 18.80  OnePath KiwiSaver-Balanced 1.2286 12.03 9.05 6.10 14.77  SIL KiwiSaver-Balanced 1.2942 14.83 9.99 7.11 226.54   Smartshares Smartkiwi Balanced Fund 1.04127 13.27 6.45 3.13 6.33 TOWER FreedomPlan - Balanced Fund 2.95688 10.99 6.63 4.11 12.12  TOWER FuturePlan - Balanced 2.95688 10.99 6.63 4.11 136.49  TOWER KiwiSaver Balanced 3478.46896 12.04 7.43 5.20 310.03  Westpac KiwiSaver-Balanced Fund 1.2319 14.55 9.26 6.29 474.61  Westpac Retirement Plan - Balanced Port 2.6763 13.18 7.91 4.39 93.53  New Zealand Insurance Fund Multisector - Balanced Non-PIE Fidelity Life Balanced 3.4048 10.48 5.32 4.28 27.54  Fidelity Life Ethical Portfolio 2.4211 12.27 5.74 -- 0.45  New Zealand Insurance Fund Multisector - Conservative AMP KiwiSaver Default Fund 1.2841 6.34 4.95 4.22 485.45  AMP PSS Select Income 1.5311 0.90 4.33 5.79 2.98  ANZ KiwiSaver-Conservative 1.3085 6.82 6.62 6.02 275.13  Aon KiwiSaver Russell Lifepoints Cnsrv 7.178 10.33 8.66 8.34 52.54  ASB KiwiSaver Scheme's Cnsrv (Default) 1.3266 6.01 5.63 5.42 1647.72  Fidelity KiwiSaver-Capital Guarant Kiwi 2.52367 5.53 4.68 4.55 35.29  FirstChoice KiwiSaver Scheme's Conserv 1.3244 5.99 5.61 5.42 78.93  Fisher Funds Conservative KiwiSaver Fund 1.2153 8.40 6.46 -- 196.02  Mercer KiwiSaver Conservative (Default) -7.77 5.90 5.53 712.71  OnePath KiwiSaver-Conservative (Default) 1.3219 6.01 6.64 6.08 670.90  SIL KiwiSaver-Conservative 1.3208 6.93 6.69 6.14 245.17  Smartshares Smartkiwi Conservative Fund 1.25526 8.87 5.51 4.05 2.81  TOWER FuturePlan - Capital Protected 1.14388 1.62 1.89 2.29 35.50  TOWER KiwiSaver Cash Enhanced 1.32211 5.52 5.67 5.08 461.05  (Default) SIL KiwiSaver-Conservative 1.3073 8.81 7.27 6.29 238.07  Smartshares Smartkiwi Conservative Fund 1.24686 8.50 5.17 3.87 2.92  TOWER FuturePlan - Capital Protected 1.14207 1.71 1.91 2.45 35.82  TOWER KiwiSaver Cash Enhanced 1.31149 7.78 6.21 5.20 457.07  (Default) New Zealand Insurance Fund Multisector - Conservative Non-PIE Fidelity Life Conservative 3.6721 6.09 4.75 4.58 35.88 -New Zealand Insurance Fund Multisector - Growth AMP KiwiSaver LS Growth Fund 1.1059 16.71 8.76 3.66 190.23  AMP KiwiSaver OnePath Balanced 1.3663 18.59 11.22 7.50 58.54  Plus Fund AMP KiwiSaver Tyndall Balanced Fund 1.2092 13.36 8.06 5.10 10.58  AMP PSS Lifesteps Growth 1.3724 14.65 8.24 2.89 1.25  ANZ KiwiSaver-Balanced Growth 1.2531 18.81 11.47 7.23 408.97  ANZ KiwiSaver-Growth 1.2178 22.87 12.97 7.43 767.77  Aon KiwiSaver Russell Lifepoints 2035 5.9816 22.22 11.13 6.65 6.83  Aon KiwiSaver Russell Lifepoints Growth 5.9119 24.50 11.61 6.68 12.52  Aon KiwiSaver Tyndall Balanced 12.3219 13.12 7.86 5.01 3.17  ASB KiwiSaver Scheme's Growth 1.1412 18.86 10.08 5.17 304.88  Asteron Rtrmnt Savings Plan Mgd Growth 2.3159 18.62 9.41 4.90 25.59  Asteron Superplan 2000 Dynamic Fund 1.8244 17.64 8.70 3.98 1.90  Asteron Superplan Dynamic Fund 2.1 17.61 8.09 3.41 17.54  FC KiwiSaver Scheme's Active Growth 1.1248 19.17 8.48 4.81 23.99  Fidelity KiwiSaver-Growth Kiwi Fund 6.44432 15.79 7.69 4.72 44.67  FirstChoice KiwiSaver Scheme's Growth 1.1382 18.87 10.07 5.11 19.44  Forsyth Barr KiwiSaver Balanced Port 1.1811 9.18 5.31 2.90 8.02   Forsyth Barr KiwiSaver Growth Portfolio 1.1078 11.95 5.82 1.76 7.11 Grosvenor KiwiSaver Balanced Growth 1.2054 12.48 5.88 -- 37.10  Mercer KiwiSaver Balanced -13.63 7.84 5.14 43.41  Mercer Super Trust KiwiSaver Active Bal -13.61 7.78 5.27 50.05  Mercer Super Trust KiwiSaver Growth -15.61 8.45 4.89 4.48  OnePath KiwiSaver-Balanced Growth 1.1813 15.28 10.23 6.07 17.29  OnePath KiwiSaver-Growth 1.1348 18.74 11.45 5.91 15.48  SIL 60s + Sup Balanced Fund 2.9441 17.18 10.87 6.86 18.26  SIL Balanced Plus 2.9441 17.18 10.87 6.86 73.97  SIL KiwiSaver-Balanced Growth 1.2678 18.94 11.59 7.42 209.22  SIL KiwiSaver-Growth Fund 1.229 22.95 13.01 7.60 149.23  Staples Rodway KiwiSaver Balanced -16.68 11.28 5.95 15.37  Staples Rodway KiwiSaver Growth -13.48 7.71 4.68 8.39  Westpac KiwiSaver-Growth Fund 1.2079 18.57 10.79 6.61 283.68  Westpac Retirement Plan - Dynamic Port 2.8832 17.29 9.73 4.81 95.76  Staples Rodway KiwiSaver Balanced 0 19.65 11.52 5.24 14.60 

Name

Latest 1 Yr 3 Yr 5 Yr Size Morningstar Transaction Return Return Rating Return $M Overall Exit Price % Staples Rodway KiwiSaver Growth 0 15.45 8.09 3.95 8.08  Westpac KiwiSaver-Growth Fund 1.1766 20.05 10.72 5.62 264.05  Westpac Retirement Plan - Dynamic Port 2.8107 18.78 9.66 4.00 94.01  New Zealand Insurance Fund Multisector - Growth Non-PIE Fidelity Life Growth 3.1164 14.26 5.59 3.27 8.54  New Zealand Insurance Fund Multisector - Moderate AMP KiwiSaver LS Conservative Fund 1.3742 6.32 5.91 5.61 108.95  AMP KiwiSaver LS Moderate Fund 1.2852 8.88 6.60 4.90 152.83  AMP PSS DynamicMkts Conservative 1.5112 5.11 5.09 4.70 0.80  AMP PSS Lifesteps Maturity 1.4413 5.20 5.14 4.72 2.64  AMP PSS Lifesteps Stability 1.4718 7.46 5.92 4.25 4.44  AMP PSS Select Conservative 1.501 5.16 5.11 4.75 10.46  ANZ KiwiSaver-Conservative Balanced 1.3007 10.77 8.39 6.57 275.09  Aon KiwiSaver Russell Lifepoints 2015 6.8201 12.09 9.05 7.90 4.00  Aon KiwiSaver Russell Lifepoints Mod 6.7414 14.95 9.68 7.87 8.66  ASB KiwiSaver Scheme's Moderate 1.2812 9.42 7.26 5.67 440.04  Asteron Rtrmnt Savings Plan Mgd Conserv 2.3908 9.30 7.37 5.98 2.13  Asteron Superplan 2000 Conservative Fund 1.9584 8.78 6.93 5.33 2.32  Asteron Superplan Conservative Fund 2.1969 8.05 6.08 4.61 5.44  FC KiwiSaver Scheme's Active Cnsrv 1.296 9.50 6.44 5.79 6.48  Fidelity KiwiSaver-Conservative Kiwi Fd 6.81354 8.36 6.57 5.67 43.67  FirstChoice KiwiSaver Scheme's 1.271 9.42 7.25 5.60 18.68  Moderate Grosvenor KiwiSaver Conservative Fund 1.3221 4.27 5.70 5.34 35.68  Mercer Super Trust KiwiSaver Conserv -7.83 5.61 5.29 2.25  OnePath KiwiSaver-Conservative 1.2789 8.91 7.90 6.14 5.35  Balanced SIL KiwiSaver-Conservative Balanced 1.3134 10.90 8.47 6.72 81.11  TOWER KiwiSaver Conservative 1.36266 6.86 6.24 5.61 71.81  Westpac KiwiSaver-Conservative Fund 1.294 7.60 6.76 5.71 1031.31  Westpac KiwiSaver-Conservative Fund 1.2804 9.97 7.37 5.78 968.43  New Zealand Insurance Fund NZ Bonds AMP Prem PSS OnePath NZ Fixed Interest 1.5725 -0.35 5.72 6.12 2.31  Asteron Rtrmnt Savings Plan NZ Fixed Int 2.6855 2.64 6.53 7.02 1.27  Asteron Superplan 2000 NZ Bond Fund 2.3273 2.13 6.05 6.29 1.61  Asteron Superplan NZ Bond Fund 2.9712 2.13 6.08 6.32 7.17  SIL 60s + Sup Capital Stable 2.4589 -0.50 5.24 5.21 4.10  SIL KiwiSaver-New Zealand Fixed Interest 1.3679 0.00 5.71 5.65 5.74  SIL NZ Fixed Interest 2.4589 -0.50 5.24 5.21 7.06  Westpac Retirement Plan - Accum Port 2.9375 1.24 2.75 3.22 20.94  New Zealand Insurance Fund NZ Bonds Non-PIE Fidelity Life NZ Fixed Interest 3.5021 2.59 3.56 4.18 0.56  New Zealand Insurance Fund Unlisted and Direct Property - NZ Asteron Rtrmnt Savings Plan NZ Property 3.4113 ---- 0.92 -Asteron Superplan 2000 Property Fund 1.8381 12.04 14.22 1.17 1.16 -Asteron Superplan Property Fund 1.6247 11.30 13.10 0.12 1.76 -TOWER FreedomPlan - Property Fund 3.58575 9.40 4.36 3.81 0.93 -TOWER FuturePlan - Property 3.58575 9.40 4.36 3.81 7.48 -New Zealand Insurance Fund Unlisted and Direct Property - NZ Non-PIE Fidelity Life Property Portfolio 3.9251 12.48 10.15 6.89 0.75 -New Zealand OE Cash AMP Capital Cash Advantage Fund 1.28134 3.44 3.57 3.90 244.49 -AMP Capital NZ Cash Fund 1.60241 3.26 3.46 3.97 3232.14 -AMP Prem PUT OnePath NZ Cash 1.2563 2.85 2.99 3.39 4.50 -AMP PUT Select Cash 1.2122 2.54 2.70 3.02 3.84 -ASB Cash Fund -3.15 3.25 3.56 486.10 -Public Trust Cash Management Fund 1.2099 2.10 2.25 2.76 24.71 -TOWER Cash Fund 1.18 2.42 2.57 3.03 26.84 -Westpac Cash Plus Trust 1.2239 3.04 3.15 3.49 62.83 -New Zealand OE Cash Non-PIE AMP UT NZ Cash 1.7126 1.83 1.88 2.68 2.02 -New Zealand OE Equity Region Asia Pacific Non-PIE AMP UT Asian Shares 1.3644 20.55 1.19 2.97 1.37  New Zealand OE Equity Region Australasia AMP Capital Equity Opportunity 1.52657 21.98 14.36 11.42 23.26  Brook Alpha Fund 3.3459 24.87 7.26 6.03 14.70  Brook Tasman Fund 1.1696 30.40 12.09 8.49 9.31  Devon Alpha Fund 1.1687 25.90 8.25 -- 40.75  Devon Trans-Tasman Fund 2.6534 18.66 8.76 5.02 68.12  Harbour Australasian Equity 1.3327 33.50 13.63 -- 44.78  Milford Active Growth 1.9962 25.45 15.77 13.32 604.68  Milford Trans-Tasman 1.5912 24.39 15.59 12.02 182.89  Mint Australia NZ Active Equity 1.4795 33.32 18.45 11.24 11.06  OnePath Equity Selection Fund 1.5618 23.91 13.86 7.33 14.90  Perpetual Australasian Shares 1.1589 22.81 --- 27.07 -Pie Australasian Growth Fund 2.93 34.28 28.22 28.24 46.54  Tyndall Aggressive Australasian Equity 1.2197 24.96 8.85 7.92 1.52  Tyndall Small Companies Fund 1.3779 24.50 9.58 -- 0.64  Name

Latest 1 Yr Transaction Return Exit Price % New Zealand OE Equity Region Australia AMP Capital Australian Share Fund 2.05127 9.57 Devon Australian 1.1028 11.88 Fisher Funds Australian Growth Fund 2.7241 21.11 Fisher Funds Premium Australian Fund 1.1883 21.96 OnePath Australian Share Fund 3.4748 17.30 New Zealand OE Equity Region Australia Non-PIE AMP UT Australian Shares 2.2233 10.60 New Zealand OE Equity Region NZ AMP Capital NZ Shares Fund 1.87131 25.03 AMP Capital Strategic NZ Shares Fund 1.67912 27.17 AMP Prem PUT OnePath NZ Shares 1.5431 24.69 Brook Premium Share 1.3373 33.32 Fisher Funds NZ Growth Fund 4.7412 33.04 Fisher Funds Premium New Zealand Fund 1.1045 32.53 OnePath New Zealand Share Fund 2.6782 28.62 TOWER Trans Tasman Equity Trust 3.1558 26.71 Tyndall Core NZ Equity Fund 1.1971 27.81 New Zealand OE Equity Region NZ Non-PIE AMP UT NZ Shares 2.1988 22.91 New Zealand OE Equity Region World AMP Capital Core Global Shares Fund 0.88607 26.20 AMP Capital Core Hedged Global 0.93322 28.57 Shares Fd AMP Capital Emerging Markets Share 0.82984 7.72 AMP Capital Global Shares Fund 1.74944 26.13 AMP Capital Resp Invest Leaders Gl Sh 1.08462 23.92 AMP Prem PUT FD Intl Share Fund 1 Value 0.9128 26.73 AMP Prem PUT FD Intl Share Fund 0.9482 24.26 3 Growth AMP Prem PUT SSgA Global Shares Index 1.1806 25.94 AMP Prem PUT SSgA Global Shares 1.4831 30.89 IndexHdg ASB EasyFund World Shares Fund 1.0185 24.88 Brook Walter Scott Global Share Fd 1.2215 16.18 Elevation Capital Value Fund 1.2861 23.56 Fisher Funds International Growth Fund 1.2461 16.76 Fisher Funds Premium International Fund 1.2697 16.48 OnePath International Share 1.2781 30.26 TOWER Global Fund 3.729 23.22 New Zealand OE Equity Sector Global - Real Estate AMP Capital Global Propty Securities Fd 1.0987 14.36 ASB EasyFund Global Property Fund 0.9356 10.37 New Zealand OE Equity Sector NZ - Real Estate AMP Capital Listed Property Secs Fd 1.7804 16.56 ASB NZ Property Trust 1.0981 9.04 Mint Australia NZ Real Estate Investment 1.2322 16.20 OnePath Property Securities Fund 2.069 17.44 New Zealand OE Global Bond AMP Capital Hdgd Gbl Fixed Intrst Fund 1.92137 2.90 AMP Prem PUT Blackrock Global Fixed Int 1.4993 2.32 AMP Prem PUT PIMCO Global Fixed 1.8308 3.13 Interest AMP Prem PUT SSgA Global Fixed 1.4928 2.77 Int Index ASB EasyFund World Fixed Interest Trust 1.0034 0.27 TOWER BondPlus Fund 1.7491 2.83 New Zealand OE Miscellaneous Fisher Funds Property and Infrastructure 1.3987 16.02 Pathfinder Commodity Plus Fund 0.9712 -4.41 Tyndall Income Fund 1.1576 5.81 New Zealand OE Mortgages Westpac Home Loan Trust 1 2.30 Westpac Mortgage Investment Fund 1 2.38 New Zealand OE Mortgages Non-PIE AMP PMF - Mortgage Investment 152.697 0.29 New Zealand OE Multisector - Aggressive AMP Capital Growth Fund 1.86667 16.40 AMP PUT DynamicMkts Growth 1.3806 16.72 AMP PUT Select Growth 1.2233 16.81 Public Trust Growth Priority Fund 1.5116 19.11 New Zealand OE Multisector - Aggressive Non-PIE AMP UT Dynamic 1.6686 17.05 New Zealand OE Multisector - Balanced AMP Capital Balanced Fund 1.96675 12.28 AMP PUT DynamicMkts Balanced 1.4387 11.47 AMP PUT Select Balanced 1.3564 11.44 Name

3 Yr 5 Yr Size Morningstar Rating Return Return $M Overall 4.63 -10.59 11.00 5.68

2.35 -8.50 8.82 4.28

45.61 29.98 78.88 56.76 35.25

 -  

4.29

1.94

1.81



14.05 12.86 14.45 -20.76 20.89 15.56 12.41 13.21

7.29 7.06 8.40 -9.64 10.30 8.15 6.97 --

453.97  420.02  2.49  3.04 -108.86  38.82  32.93  38.05  6.48 

11.54 5.13 8.45

2.53



0.62 330.12 

14.83 2.63 556.51  1.86 11.68 10.18 6.76

-0.25 3.37 3.55 -2.49

90.27  158.14  25.79   2.24

8.25 -1.98 1.84



9.25



2.26

2.97

14.33 6.08

4.34 

10.40 7.34 7.27 3.16 3.35 13.31 8.00

128.94  34.86  11.47  14.34  25.53  37.61  75.23 

3.25 --4.81 5.18 6.86 4.73

15.78 6.09 142.23  10.81 2.79 54.89  17.19 -- 21.57   7.03 -6.59 2.66 15.75 7.80 25.92  17.44 8.80 65.90  4.94 4.54

7.41 189.83  6.19 1.45 

7.41

8.73

3.33 

4.90

6.25

4.05

-7.66

-- 21.86 -8.04 170.05 

7.58 0.46 7.01

-- 11.94 -- 39.97 7.65 4.73

----

2.36 2.43

2.79 123.16 2.86 238.06

---

-0.76 -0.10 4.64



9.17 8.72 8.76 10.14

2.75 4.78  2.32 3.09  2.28 11.71  5.65 8.06 

8.45

2.02

8.18 7.34 7.38

4.63 43.19  3.87 3.65  3.94 29.91 

8.96



Latest 1 Yr 3 Yr Transaction Return Return Exit Price % ANZ Mdg Invmt Fds Balanced 1.2674 14.60 9.60 ASB EasyFund Balanced 1.1459 13.65 8.19 Milford Balanced 1.3507 20.01 11.88 Public Trust Balanced Fund 1.6982 11.95 8.01 Public Trust Balanced Growth Fund 1.4718 14.63 8.51 Public Trust Moderate Growth Fund 1.474 12.44 7.73 Westpac Active Balanced Trust 1.574 14.47 8.54 New Zealand OE Multisector - Balanced Non-PIE AMP UT Balanced 1.828 11.52 7.11 AMP UT Balanced - Other 1.5837 11.45 7.09 New Zealand OE Multisector - Conservative AMP PUT Select Income 1.4283 0.81 4.29 ANZ Mdg Invmt Fds Conservative 1.2013 6.68 6.39 ASB EasyFund Defensive 1.276 5.37 4.98 Public Trust Defensive Fund 1.478 5.49 5.43 New Zealand OE Multisector - Growth ANZ Mdg Invmt Fds Balanced Growth 1.306 18.78 11.31 ANZ Mdg Invmt Fds Growth 1.3291 22.55 12.55 ASB EasyFund Growth 1.0641 18.18 9.34 Diversified Wealth Management Balanced 1.1077 6.74 1.40 OnePath Balanced Fund 2.1007 17.21 11.04 Public Trust Capital Growth Fund 1.7284 16.71 9.42 TOWER Multi Sector Fund 2.3626 12.98 7.93 Westpac Active Growth Trust 1.4665 18.26 10.03 TOWER Multi Sector Fund 2.3234 17.96 8.42 Westpac Active Growth Trust 1.4284 19.78 9.92 New Zealand OE Multisector - Growth Non-PIE AMP PMF - Active Growth 1.8285 10.02 4.94 AMP UT Legg Mason Balanced 1.3863 10.14 5.34 New Zealand OE Multisector - Moderate AMP Capital Conservative Fund NZ 1.96306 5.50 5.64 AMP PUT DynamicMkts Conservative 1.4719 5.10 5.04 AMP PUT Select Conservative 1.4799 5.12 5.07 ANZ Mdg Invmt Fds Conservative 1.2364 10.36 8.01 Balanced ASB EasyFund Conservative 1.2341 6.60 5.71 ASB EasyFund Moderate 1.2127 8.83 6.62 Brook Income 1.0627 11.00 -Milford Income 1.2562 17.21 13.24 Public Trust Conservative Fund 1.4785 9.89 6.99 Westpac Active Conservative Trust 1.5044 6.75 5.71 New Zealand OE Multisector - Moderate Non-PIE AMP PMF - Balanced 2.1552 7.11 4.50 AMP UT Conservative 1.8369 5.05 4.78 New Zealand OE NZ Bonds AMP Capital NZ Fixed Interest Fund 1.55583 1.03 5.97 AMP Capital NZ Short Duration 1.1957 3.68 3.93 AMP Prem PUT OnePath NZ Fixed Interest 1.4721 -0.41 5.63 Harbour NZ Corporate Bond 1.0283 4.42 5.53 OnePath Secure Income Accumulated 1.3801 -0.59 5.12 Public Trust NZ Bond Fund 1.6188 -0.08 5.02 Tyndall Corporate Bond Fund 1.0895 4.77 6.64 New Zealand OE NZ Bonds Non-PIE AMP UT NZ Fixed Interest 1.711 0.34 3.86 New Zealand OE Unlisted and Direct Property - NZ AMP Capital NZ Property Fund 1.58482 9.06 4.91 New Zealand OE Unlisted and Direct Property - NZ Non-PIE AMP UT NZ Property 1.3254 8.27 4.12

Name

5 Yr Size Morningstar Rating Return $M Overall -- 34.80  4.99 70.94  -- 37.31  6.17 4.69  5.54 9.98  5.67 5.57  4.72 95.03  3.68 15.04  3.67 0.85  5.70 4.38  -- 25.19  4.83 111.02  5.43 9.30  --4.38 2.20 7.14 5.84 5.00 4.99 4.35 4.01

57.38 13.80 18.44 21.68 31.45 3.61 11.32 42.49 11.15 40.95

         

3.41 17.45   2.10 1.71 5.32 13.81  4.64 1.42  4.71 15.10  --

32.87 

4.72 4.97 --5.50 4.18

257.44  100.37  3.01 -463.98  11.04  76.65 

3.56 35.35  4.44 0.90  7.85 4.66 6.03 -5.11 6.93 --

1584.14  76.31  2.83  111.00  7.42  2.77  104.80 

4.90

0.85 

231.64

-7.47 2.17

Returns are calculated to 31/05/13. Returns are calculated before tax and after fees, except for the non-PIE categories, which are after tax and after fees. For more information about this table and the methodology behind the data, contact helpdesk.nz@morningstar.com or go to www.morningstar.co.nz © 2012 Morningstar, Inc. All rights reserved. Neither Morningstar, nor its affiliates nor their content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. To the extent that any of this information constitutes advice, it is not personalised and has been prepared by Morningstar Research Limited (a subsidiary of Morningstar, Inc.) without reference to your objectives, financial situation or needs. You should consider the advice in light of these matters and, if applicable, the relevant Investment Statement before making any decision to invest. Neither Morningstar nor Morningstar’s employees can provide you with personalised financial advice. To obtain advice tailored to your particular circumstances, please contact a professional financial adviser.

033

ASSET ADVISER

{ DATA } ASSET DATA - PIE FUNDS Institution

out now!

FROM DEPOSITRATES.CO.NZ

FundName

Min.

ANZ

Call Fund

$2,000

ASB Bank

Cash Fund

$500

BNZ

Cash PIE

Direct Broking Call Account

Rate.

30%

33%

2.6

2.67

2.79

3.15

3.29

3.44

$1,000

3.3

3.44

3.6

Call Account

2.8

2.92

3.05

Heartland Bank

Call PIE

4.1

4.28

4.48

Kiwibank

PIE Online Call Fund - Base

$2,000

2.4

2.5

2.61

Kiwibank

PIE Online Call Fund - no withdrawals

$2,000

3.15

3.29

3.44

Nelson Building Society

Lifestages PIE

$10,000

3.75

3.9

4.08

RaboDirect

Cash Advantage Fund

$250

3.3

3.44

3.6

SBS Bank

Lifestages

$5,000

3.11

3.28

Spicers

Premium Plus

$5,000

2.75

2.85

2.98

TSB Bank

Cash Fund

3.75

3.9

4.07

Westpac

Online Bonus Saver PIE - (Potential Rate)

$500

4.18

4.37

Westpac

Online Bonus Saver PIE (base)

$500

0.1

0.11

Westpac

Online Saver PIE

$500

3.12

3.26

ANZ

Term Fund

$5,000

3.08

3.22

ASB Bank

Term Fund

$10,000

3.08

3.22

BNZ

Term PIE

$5,000

3.08

3.22

Kiwibank

Term Deposit Fund

$10,000

3.3

3.38

3.53

RaboDirect

Term Advantage Fund

$1,000

3.25

3.34

3.49

Westpac

Term PIE Fund

$10,000

3.09

3.22

BNZ

Term PIE

$5,000

3.5

3.58

3.75

Kiwibank

Term Deposit Fund

$10,000

3.3

3.38

3.53

Westpac

Term PIE Fund

$10,000

3.25

3.34

3.49

BNZ

Term PIE

$5,000

3.3

3.38

3.53

Kiwibank

Term Deposit Fund

$10,000

3.6

3.7

3.86

Westpac

Term PIE Fund

$10,000

3.25

3.34

3.49

ASB Bank

Term Fund

$10,000

3.75

3.85

4.02

BNZ

Term PIE

$5,000

3.8

3.97

4.14

Co-operative Bank

PIE Term Fund

$5,000

4.11

4.3

Kiwibank

Term Deposit Fund

$10,000

3.75

3.85

4.02

RaboDirect

Term Advantage Fund

$1,000

3.85

3.96

4.14

Westpac

Term PIE Fund

$10,000

3.75

3.86

4.03

ASB Bank

Term Fund

$10,000

4.18

4.37

BNZ

Term PIE

$5,000

3.8

3.97

4.14

Westpac

Term PIE Fund

$10,000

3.8

3.9

4.08

ASB Bank

Term Fund

$10,000

4.18

4.37

BNZ

Term PIE

$5,000

4.18

4.37

Heartland Bank

Term Deposit PIE

$1,000

4.35

4.54

4.74

Kiwibank

Term Deposit Fund

$10,000

4.2

4.32

4.51

RaboDirect

Term Advantage Fund

$1,000

4.11

4.3

Westpac

Term PIE Fund

$10,000

3.85

3.96

4.14

CASH FUNDS

Autumn 20

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TERM FUNDS - 18 MONTHS ASB Bank

Term Fund

$10,000

4.1

4.28

4.48

BNZ

Term PIE

$5,000

4.2

4.4

4.59

Westpac

Term PIE Fund

$10,000

4.1

4.2

4.39

ASB Bank

Term Fund

$10,000

4.2

4.4

4.59

BNZ

Term PIE

$5,000

4.4

4.6

4.81

Westpac

Term PIE Fund

$10,000

4.2

4.32

4.51

ASB Bank

Term Fund

$10,000

5.25

5.49

BNZ

Term PIE

$5,000

5.3

5.58

5.83

$12.50 inc gs

stor

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