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Vol.25 No.13 | April 14, 2011 | $6.95 INC GST
The publication for the personal investment professional
PLANNERS WON’T NOTICE AMP/AXA MERGER: Page 5 | RESEARCH HOUSE ROUND-UP: Page 22
Reforms could overburden planners By Milana Pokrajac THE number of legislative and regulatory changes for the financial planning industry coming through in the next couple of years could be too burdensome and distracting for advisers if the transition period is not applied properly, according to Association of Financial Advisers (AFA) chief Richard Klipin. His comments followed the release of the Australian Securities and Investments Commission’s (ASIC’s) consultation paper on the new assessment and professional development framework for financial advisers, as well as the Treasury’s arrangements regarding financial planners providing tax advice. The new consultation paper on licensing arrangements released by ASIC, CP153, proposes all new and existing planners be subject to a national exam to ensure they possess the necessary competencies. The proposed framework also includes a mandatory professional year for all new advisers, as well as a knowledge update review requirement that would be completed every three years.
Richard Klipin According to the Treasury’s announcement released last week, planners will also need to gain an additional form of registration to provide tax advice within the context of providing financial advice. “To attain these competencies financial planners would be required to have certain tax-related qualifications to ensure that quality advice is provided and consumers can rely on that advice,” Treasury stated in
Licensees warned on client files By Mike Taylor
FINANCIAL planning licensees may have to curtail the practice of allowing authorised representatives to take both clients and client files with them when they move to new licensees. At the very least, licensees have been told they will need to tighten their arrangements around authorised representatives and client files or risk finding themselves in breach of their licensing obligations. That is one of the key warnings contained in a guidance note issued to subscriber firms by Paragem Dealer Services, based on increased activity levels by the Australian Securities and Investments Commission (ASIC). The compliance note, written by Paragem head of compliance Michael Rowles, reminds firms that it is a condition of the licence that licensees retain client files for seven years after the advice has been provided to the client. “In practice, many licensees operate through authorised representatives and typically allow the authorised representative on termination to take
the clients to the new licensee. Consequently, the files remain with the authorised representative,” the guidance note said. “This would appear to be an immediate breach of the licensee’s obligation and equally, it poses a costly challenge for all licensees to maintain their records on file,” it said. Rowles said that licensees had sought to address the situation through commercial arrangements with their former authorised representatives and the new licensee, aimed at ensuring the files would continue to be available. However he said the effectiveness of this arrangement was now questionable because of the number of licensees for whom an authorised representative might work inside the statutory seven-year period. Rowles said Paragem had a licensee client that had followed this commercial approach but, when confronted by an ASIC requisition for particular files, the authorised representative could not Continued on page 3
its announcement of the new regulatory framework. Klipin agreed that planners should continually develop their skills: “Having competency tests, the professional year under supervision, knowledge updates and continuing professional development will certainly drive the profession to greater heights and greater standards and the AFA certainly supports that.” But Klipin added that these requirements, combined with changes flowing from other Future of Financial Advice proposals including the opt-in arrangement, had the potential to overburden small businesses. “The greater concern we have across all of these changes is the quantity of change coming through and the pressure it will put on small businesses to adjust and to change,” he said. According to Klipin, the cost, time and effort involved in adjusting to change of such proportions would certainly add distraction. “We need to ensure collectively that implementation is effective so that it doesn’t disrupt what the focus of the profession is which is serving their clients and providing outcomes,” he added.
The Financial Planning Association (FPA) chief, Mark Rantall, said there was a big risk of change overlay. “I think that any changes need to be well thought through to make sure they’re necessary and that they’re able to be logically put in place by financial planners with minimised disruption to their business and the service they provide to clients,” Rantall said. Mercer financial planning partner JoAnne Bloch said the moves were a mixed blessing, with the higher educational requirements being welcome but the extra burden being placed on financial planners being problematic. “It is a lot of change, but we do support lifting educational standards,” she said. ASIC is considering a three-year transition period to be introduced for all existing advisers and a shorter phase-in period for new advisers “to minimise disruption to industry”. The regulator stated that industry participants could provide feedback and comments on the proposed requirements relating to professional development and assessment until 1 July, 2011.
Explosive growth EXCHANGE-traded funds (ETFs) have been the success story of recent years, with increased popularity and intense competition stimulating growth in the sector. Predictions by industry experts also suggest this growth is likely to continue, with forecasts that the total value of funds under management in the sector will skyrocket by more than $1.5 billion by the end of the year. However, that explosive surge in popularity may also be stimulating the growth of teething problems in the sector. Increased competition, a proliferation of new products and a need to differentiate is pushing product providers to develop more niche ETFs that are riskier, more expensive, and narrowly defined – threatening the original attraction of low-cost, transparent ETFs. While growth in the sector is encouraged, industry experts are beginning to worry that increased complexity in the sector could lead to problems further down the line. FULL REPORT PAGE 16
Reed Business Information Tower 2, 475 Victoria Avenue Chatswood NSW 2067 Mail: Locked Bag 2999 Chatswood Delivery Centre Chatswood NSW 2067 Tel: (02) 9422 2999 Fax: (02) 9422 2822 Publisher: Jayson Forrest Tel: (02) 9422 2906 email@example.com Managing Editor: Mike Taylor Tel: (02) 9422 2712 firstname.lastname@example.org News Editor: Chris Kennedy Tel: (02) 9422 2819 email@example.com Features Editor: Angela Faherty Tel: (02) 9422 2210 firstname.lastname@example.org Senior Journalist: Caroline Munro Tel: (02) 9422 2898 Journalist: Milana Pokrajac Tel: (02) 9422 2080 Journalist: Ashleigh McIntyre Tel: (02) 9422 2815 Melbourne Correspondent: Benjamin Levy Tel: (03) 9509 7825 ADVERTISING Senior Account Manager: Suma Donnelly Tel: (02) 9422 8796 Mob: 0416 815 429 email@example.com Account Manager: Jimmy Gupta Tel: (02) 9422 2850 Mob: 0421 422 722 firstname.lastname@example.org Adelaide Agent: Sue Hoffman Tel: (08) 8379 9522 Fax: (08) 8379 9735 Queensland Agent: Peter Scruby Tel: (07) 3391 6633 Fax: (07) 3891 5602 PRODUCTION Junior Designer/Production Co-ordinator – Print: Andrew Lim Tel: (02) 9422 2816 email@example.com Sub-Editor: Tim Stewart Graphic Designer: Ben Young Subscription enquiries: 1300 360 126 Money Management is printed by Geon – Sydney, NSW. Published every week, recommended retail price $6.95 Subscription rates: 1 year A$280 incl GST. Overseas prices apply. All Money Management material is copyright. Reproduction in whole or in part is not allowed without written permission from the Editor. © 2011. Supplied images © 2011 Shutterstock. Opinions expressed in Money Management are not necessarily those of Money Management or Reed Business Information.
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‘Yes’ to professionalism
ith the major institutions and dealer groups having actively encouraged their financial planners to vote ‘yes’ to the Financial Planning Association’s (FPA’s) constitutional changes, the outcome should always have been a foregone conclusion. At the time of Money Management going to press, there seemed little doubt that the board of the FPA would succeed in getting majority member support for the key changes which it said would result in ‘professional recognition’ for financial planners and restrict membership for individual practitioners only. The degree to which the big end of town has been backing the FPA changes was evidenced by AMP Limited chief executive, Craig Dunn, who last week told journalists his organisation had been actively encouraging its planners to endorse the direction being proposed by the FPA. The chief executive of DKN, Phil Butter wor th, and the general manager of Professional Investment Services (PIS), Grahame Evans, had earlier indicated their companies were encouraging planners to act similarly. Allied to this corporate support, the FPA’s strategy has been backed by the
Financial Services Council (FSC), while the Association of Financial Advisers (AFA) has been anything but critical of the move. In short, there has been no lack of support for the FPA becoming a professional association.
planners “mustFinancial accept that the price of professionalism is a diminution of their relative financial muscle.
But as challenging as the campaign around the FPA’s constitutional changes may have been, it is arguable that the organisation’s real challenges will emerge over the next 24 months as it seeks to establish a viable commercial model in a world where the revenues attaching to the principal member category no longer exist. By becoming an organisation of individual practitioners, the FPA becomes reliant on a constituency dominated by
people running small to medium-sized businesses with the hope that the larger players who may have previously been ‘principal members’ will opt to ante up to become ‘professional partners’. On all the available evidence, most of the big players will, indeed, ante up to become FPA ‘professional partners’ but they will be doing so in the knowledge that they are primarily supporting their planners rather than because they have any voting rights. It follows that when organisations such as AMP, DKN and PIS are seeking to have their voices heard in Canberra, they will direct their support and their money to an organisation within which they have a vote. While it can be expected that the FSC and the FPA will agree on many of the major issues to be raised with Canberra, financial planners must accept that the price of professionalism is a diminution of their relative financial muscle. Big pharmaceutical companies have always had more financial muscle than general practitioners, but this has never diminished the voice of the Australian Medical Association. – Mike Taylor
3'(2 8$ 1 3'1$$ -$6 " 3$&.1($2 !$23 #5$13(2$,$-3 , 1*$3(-& 3$ , 8.4-& "'($5$1 The annual Money Management Fund Manager of the Year Awards recognises excellence in the funds management industry. This year’s awards will also incorporate the Business Development Manager of the Year Awards as well as three new categories - Best Advertisement; Marketing Team and Young Achiever. Go to www.moneymanagement.com.au/FMOTY to view the full entry criteria.
For more information contact Heather Lawson on (02) 9422 2791 or email firstname.lastname@example.org 2 — Money Management April 14, 2011 www.moneymanagement.com.au
Aberdeen upgraded in equities review By Mike Taylor ABERDEEN Asset Management has emerged as a winner in the latest Lonsec Global Equity Sector Review, with the company’s Wholesale International Equity Fund being upgraded to become one of just nine funds to gain the coveted ‘highly recommended’ rating. The other funds to gain the rating were Goldman Sachs JB Were International Fund, the MFS Global Equity Trust, the T Rowe Price Global Equity Fund, the Walter Scott Global Equity Fund, the Zurich Investments Global Thematic Share Fund, the IFP Global Franchise Fund, the Templeton Global Equities Fund and the Arrowstreet Global Equity Fund. Commenting on the sector, the Lonsec analysis said that last year managers had
mirrored the companies they invested in and had sought to control costs, but this was beginning to change. It said that in response to the changing global growth dynamics, managers had been flagging their intention to beef up their Asian coverage either through relocations from European or US offices or new regional appointments. “This will be an interesting dynamic to watch, particularly as investment banks are also seeking to increase their presence in emerging markets, such as the Asia region, to capture their share of the advisory and transaction fees on offer and compete with buy-side firms for talent,” the Lonsec analysis said. The analysis also pointed to the different attitudes of mangers depending upon their geographic locations, with US managers last
year tending to be more positive than their counterparts in London and Edinburgh. “This year, however, most managers tended to be mildly positive on the outlook for global markets,” the analysis said. However, it said that notwithstanding this more positive outlook, “the Edinburghbased Scots again stood out for their generally cautious tone”. “UK-based managers observed that the local population was relatively positive and appeared to be largely deaf to the impending fiscal austerity that loomed in the UK over the near term,” the analysis said. It said managers were mostly constructive on the ‘emerging Asia’ region, believing that these markets as a whole were exhibiting favourable demographics and governments had learned valuable lessons from the 1997 Asian financial crisis.
Licensees warned on client files Continued from page 1
be contacted and a licence breach was deemed to have occurred. The Paragem guidance note points out that the ASIC regulations do not specify how files should be retained, and that licensees can address the problem by keeping either hard or electronic copies of the files.
It suggests that given the storage problems associated with hard copy files, licensees should move toward electronic files using web-based financial planning software. “You should also provide representatives with a file naming regime and specify scanning requirements for all files,” the guidance note said.
‘Yes’ to FPA plan By Caroline Munro
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VOTING members of the Financial Planning Association (FPA) have approved of the association’s new three-year strategic plan that will raise professional standards and increase education requirements. FPA chair Matthew Rowe said the new plan was supported by 94 per cent of votes at an extraordinary general meeting in Melbourne last Thursday, Matthew Rowe enabling transformational change and giving the FPA the mandate to aggressively pursue its vision of a genuinely professional association for members. “This is the long-awaited beginning for our members to rebuild trust in their community that professional financial planners take utmost responsibility for delivering on a core promise of professional and ethical behaviour,” said Rowe. “This requires all FPA members to not only act in the public interest, but be seen to do so. It also means we as a professional body will set upward education requirements, endorse higher standards and adhere to a strict code of professional practice.” FPA chief executive Mark Rantall said the new strategic direction would provide financial planners with a consistent voice and build the reputation of the profession as a whole. The meeting also saw the approval of the FPA’s intention to remove the principal membership category, which received 87 per cent of principal members’ votes. As a result, only individual planning professionals will have the right to vote.
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www.moneymanagement.com.au April 14, 2011 Money Management — 3
Churning sends the wrong signal, planners warned By Mike Taylor AUSTRALIAN insurers and financial planners need to address the issue of ‘churn’, according to the chief executive of Suncorp Life, Geoff Summerhayes. Summerhayes has told the Financial Services Council (FSC) annual Life Insurance Conference in Sydney that, until recently, one in six new business applications for life insurance had been churned from one provider to another, primarily
under advice from a planner. “Today that figure may be as high as one in three,” he said. Summerhayes warned that such a model was not sustainable and sent a negative signal to Australian consumers. “Surely, the viability of our sector rests in making our products an services appealing to the 45 per cent of Australians with no life cover, rather than churning and cannibalising our existing customer base,” he said.
Summerhayes also referred to the work being done by the FSC to explain to the Federal Government the position of the life insurance sector with respect to the Future of Financial Advice (FOFA) proposals. He said there had been significant industry efforts to explain to the Assistant Treasurer, Bill Shorten, that a ban on adviser commissions for life insurance would make advice unaffordable for many Australians “with the obvious consequence for underinsurance”.
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4 — Money Management April 14, 2011 www.moneymanagement.com.au
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Employer confidence up By Angela Faherty
FOLLOWING two consecutive quarters of declining employer confidence, the financial services sector is back on track with employers reporting an increase in hiring intentions in the second quarter of 2011, according to recruitment services company Hudson. According to its recent Hudson Report: Employment Expectations survey of 5,072 employers Australia-wide, a net 33.6 per cent of financial services employers expect to increase permanent headcount over Q2 2011. This is an increase of 0.9 percentage points over figures recorded last quarter. Dean Davidson, national practice director at Hudson Accounting and Finance, said the strong momentum in the Australian economy coupled with the low unemployment rate have worked together to boost confidence among financial services employers. “Last quarter we saw a renewed caution among financial services employers due to the continued stress in European markets,” he said. “Organisations watched these changes carefully and although caution remains this quarter, we are certainly seeing a new sense of optimism among employers as the Australian economy builds momentum.” Davidson added that employer sentiment in the financial services arena continued to be affected by project opportunities and corporate governance work as domestic banks made improvements to core infrastructure and risk management processes.
Planners will barely notice merger, claims AMP/AXA By Mike Taylor
FOFA must be policed By Caroline Munro SHADFORTH Financial Group chief executive Tony Fenning believes the implementation of the Future of Financial Advice (FOFA) reforms is likely to entail a lot of work with little benefit to advisers and clients. Fenning said the group was supportive of the overarching intentions of FOFA, but there remained a massive list of questions about how the reforms would work and whether they would actually benefit anyone. Shadforth is still researching various options that will result in the dealer group repositioning itself in the value chain, such as potentially becoming a trustee or responsible entity of the funds that it uses for its core client investments. Fenning said while the group was confident that there were enough options out there for Shadforth to adapt to change, the messages coming from Government with regards to product and services were confusing. “It looks a bit like they want the industry funds, large banks and insurance companies to be the only ones able to be product manufacturers, and that doesn’t really sit well with a highly competitive industry, in our minds,” said Fenning. He said the group would prefer to see the Government take another direction and actually improve oversight and policing across the industry, encompassing large, middle and small financial planning dealer groups and independents. “We’ve got a very prescriptive and massively complex regulatory regime already, but it’s only enforced selectively,” he said.
AMP Limited has acknowledged the possibility it may lose some planners as it presses ahead with its merger with AXA, but has made clear most advisers will not even notice because it will be maintaining the existing branding and multi-advice branding. In a briefing provided to industry journalists, AMP chief
executive Craig Dunn together with AMP Financial Services managing director Craig Meller said that life for planners in both groups would be ver y much business as usual. “Ninety-eight per cent of our team will be doing what they’ve always done,” Meller said. Dunn said a key immediate focus would be identifying and retaining the best talent from the
two mergers. However he confirmed that the merger would result in some job losses where duplication was found to exist between the two organisations. So far as was possible, the company would look to achieve its objectives via natural attrition and voluntary redundancies. Both Dunn and Meller said the only branding issues with respect
to financial planning would occur when AMP’s entitlement to continue using the AXA brand expired in two years’ time – something that would affect AXA Financial Planning. However they said consultations would be held with those working in the AXA Financial Planning area to determine what they wanted to do with respect to future branding.
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ING Investment Management Limited ABN 23 003 731 959 AFSL 233793 (INGIM) is the responsible entity of the ING Wholesale Global Property Securities Fund (Fund) ARSN 115 202 358. This document has been prepared without taking into account any person’s objectives, financial situation or needs. Investors should refer to the latest offer document for the Fund before making any investment decision. Standard & Poor’s Rating: Standard & Poor’s Information Services (Australia) Pty Ltd (ABN: 17 096 167 556, Australian Financial Services Licence Number: 258896) (“Standard & Poor’s) Fund Awards are determined using proprietary methodologies. Fund Awards and ratings are solely statements of opinion and do not represent recommendations to purchase, hold, or sell any securities or make any other investment decisions. Ratings are subject to change. For the latest ratings information please visit www.standardandpoors.com.au. Lonsec Rating: The Lonsec Limited (“Lonsec”) ABN 56 061 751 102 rating (assigned November 2010) for the ING Wholesale Global Property Securities Fund) presented in this document is limited to “General Advice” and based solely on consideration of the investment merits of the financial products. They are not a recommendation to purchase, sell or hold the relevant products, and you should seek independent financial advice before investing in these products. The ratings are subject to change without notice and Lonsec assumes no obligation to update these documents following publication. Lonsec receives a fee from the fund manager for rating the products using comprehensive and objective criteria. Zenith Rating: The Zenith Investment Partners (“Zenith”) ABN 60 322 047 314 rating (Recommended February 2010) for the ING Wholesale Global Property Securities Fund referred to in this document is limited to “General Advice” (as defined by section 766B of Corporations Act 2001) and based solely on the assessment of the investment merits of these financial products on this basis. It is not a specific recommendation to purchase, sell or hold the relevant products, and Zenith advises that individual investors should seek their own independent financial advice before investing in these products. The rating is subject to change without notice and Zenith has no obligation to update these documents following publication. Zenith usually receives a fee for rating the fund manager and products against accepted criteria considered comprehensive and objective.
www.moneymanagement.com.au April 14, 2011 Money Management — 5 4/04/2011 10:53:03 AM
Treasury proposes standardising ‘flood’ definition By Caroline Munro TREASURY has proposed a standard definition of flood cover across the insurance industry. The Queensland floods revealed the extent to which people were not covered for certain types of flooding or water damage. Treasury noted that the insurance industry took different approaches to coverage, and that recent natural disasters highlighted a lack of consumer understanding about
insurance policies. Assistant Treasurer Bill Shorten said some policies used terms like ‘accidental flood’ or ‘flash flooding’ to describe what was covered, yet excluded cover where a flood was caused by a river bursting its banks. As such, the Treasury’s Reforming Flood Insurance: Clearing the Waters consultation paper has proposed a standard definition of flood cover as well as the requirement that short, simple, key facts summaries for insurance policies be made
available to consumers. Shorten said that clearer definitions would mean consumers understood what they were covered for, while the single page key facts statement would allow consumers to see at a glance what was covered and what was not. “If you have an insurance policy, you should be able to tell, at a glance, what that insurance policy covers you for. And yet, as we’ve seen all too often after the recent floods, that simply isn’t the case for many Australians,” said Shorten.
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Younger workers cashing in By Mike Taylor
What can a bike mechanic teach us about life insurance? A bike might simply be a frame and two wheels, but if you talk to a bike mechanic, they’ll tell you there are countless ways of customising it to suit the rider. It can depend on your size, what you want it for and obviously, what you’re willing to spend. We’ve applied the same philosophy to our new BT Protection Plans by offering fully featured, market-leading insurance products you can tailor to meet your clients’ exact and unique requirements. BT Protection Plans are now available stand-alone and on BT Wrap. To ﬁnd out more and to see Rafael’s story, visit bt.com.au/lifelessons
The Insurer of BT Protection Plans is Westpac Life Insurance Services Limited ABN 31 003 149 157. BT Portfolio Services Ltd ABN 73 095 055 208 operates Wrap. Before making a decision about BT Protection Plans or Wrap, you should consider the BT Protection Plans Product Disclosure Statement and Policy Document or the Wrap IDPS Guide, which are available from your adviser. You should consider whether BT Protection Plans or Wrap is appropriate for you.
6 — Money Management April 14, 2011 www.moneymanagement.com.au
AUSTRALIAN employers are prepared to deliver higher pay rises to their youngest employees, according to new data released by Mercer. The latest Mercer Market Issues Survey revealed those in the 18-24 year old age group received the highest median pay rise of 8.8 per cent, compared to a nation median of 4.8 per cent. In fact, the survey showed that salary increases slowed as age increased, with those aged 25 to 39 receiving a 5 per cent salary increase, compared to 4 per cent for those aged 40 to 50 and 3.9 per cent for those aged 51 to 65. Commenting on the findings, the principal of the Mercer human capital business, Martin Turner, said Australian organisations were acutely aware of the risks associated with an ageing workforce, and recognised that harnessing young talent and differentiating rewards across the workforce was vital to future success. “Graduate and entry-level roles are attracting the bigger salary increases,” he said. “As unemployment falls and the economy recovers, a skills shortages is looming, so organisations are investing in retaining people and roles with a strong career stream and development opportunities.” Turner said that the workforce was getting older and it was important to encourage baby boomers to remain in the workforce for as long as possible, but the reality was they were retiring and organisations were being left with talent shortages – and some shortages could be filled with Generation Ys.
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The above chart shows fees for retail personal super funds at various account balances and compares fees for the FirstChoice Wholesale Balanced option, that has 70% growth assets, to fees for an average retail fund calculated using the included funds’ multi manager option with a 61-80% allocation to growth assets. Source: Chant West Pty Ltd. The funds included in the calculation of fees for the average retail personal superannuation fund are the funds in the top 10 retail superannuation products either by assets under management or ﬂows. Total fees include administration and investment fees but exclude standard commissions paid to ﬁnancial advisers. The fees for retail funds do not include contribution fees which may be payable in addition to the fees shown above. Fees are at December 2010 and are gross of income tax of 15%. FirstChoice Wholesale Personal Super investment minimums are as at March 2011. The investment fees include the performance fees for the most recent period over which they were disclosed. Transaction fees have not been included in the comparison. For further information on this comparison visit colonialﬁrststate.com.au/lowerfees.
The Chant West data is based on information provided by third parties that is believed accurate at December 2010. Your objectives, financial situation and needs have not been taken into account by Chant West and you should consider the appropriateness of this information having regard to your objectives, financial situation and needs, and read the relevant Product Disclosure Statement, before making any decisions. Chant West’s Financial Services Guide is available at www.chantwest.com.au. Different fees and costs apply to other investment options. Fees and costs may change. Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (Colonial First State) is the issuer of interests in FirstChoice Wholesale Personal Super offered through the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557. Avanteos Investments Limited ABN 20 096 259 979, AFSL 245531 (Avanteos) is the issuer of interests in FirstWrap Plus and FirstWrap offered through the Avanteos Superannuation Trust ABN 38 876 896 681. This is general information only and does not take into account any individual objectives, financial situation or needs. Investors should consider the PDS available from Colonial First State before making an investment decision. Colonial First State and Avanteos are owned ultimately by Commonwealth Bank of Australia ABN 48 123 123 124 through the Colonial First State group of companies. Commonwealth Bank of Australia and its subsidiaries do not guarantee performance or the repayment of capital of Colonial First State or Avanteos. CFS1997/FPC/MM
FOFA creates opportunities By Chris Kennedy
THE Government’s Future of Financial Advice (FOFA) reforms may actually be a time bomb, according to Synchron independent chair Michael Harrison. “The Government’s view is that FOFA is going to reform the industry, it’s going to improve trust and confidence that Australia’s retail investors have in financial planning,” he said. “In my view it’s just another opportunity for good advisers. What we’ll see is those advisers who adapt well will really make some money out of this.” Synchron is a risk-focused licensee, and currently about 80 per cent of its 195 authorised representatives are risk writers, according to the
group’s director Don Trapnell. Probably the most contentious part of FOFA is the proposed opt-in legislation, Harrison said. Whether it happens or not really doesn’t matter, according to Harrison, because we live in a country where only 4 per cent of people are adequately insured. “That creates 96 per cent of the population that is an opportunity for us,” he added. “Our job is to make sure that Synchron’s advisers prosper through this legislation.” Synchron is teaching people that they can sell insurance and financial planning no matter what, and is aiming to continue to grow in numbers through the next regulatory phase, up to 280 by July 2013, Harrison said.
Synchron launches mentoring program By Caroline Munro SYNCHRON has launched a mentoring program and a webcast portal with information for both advisers and consumers. Synchron director Don Trapnell said the initiatives were designed to make it easier for Synchron advisers to do business. The mentoring program, which will be coordinated by Synchron director John Prossor,
would bring together experienced advisers and new entrants who could learn from one another, said Prossor. “Many of our experienced advisers possess untapped knowledge of the industry and excellent sales skills developed over many years, yet often have a lack of computer skills and minimal appreciation of the benefits of the Internet,” he said. “We believe our mentor ing program will help each party
learn from the other.” Synchron TV, which will be available via a link on the Synchron website from next month, will provide closed content for advisers as well as infor mative content for consumers. “We looked around the industry and saw that material was being presented to advisers and the general public in very tired, old-fashioned ways,” said newly appointed independent chair Michael
Harrison. “We believe that many people prefer to communicate visually today – not everyone wants to listen or read – and so the concept for Synchron TV was born.” Content for advisers would include technical and soft skills training, regulation updates, and information on new products; while content for the general public would educate consumers about how financial advice could help them, said Harrison.
PIS launches interactive client seminars WHILE the benefits of limited advice are being touted as the new way forward, Professional Investment Services (PIS) has announced a new series of seminars based on giving clients an ‘all-of-life’ outlook on their financial goals. The Clients for Life program incorporates health experts, accountants, lawyers and advisers and has separate sessions aimed at clients aged 30, 40, 50 and 60. The seminars are for both potential and existing clients, and aim to look at all of a person’s life circumstances, not just their finances, according to PIS group founder Robbie Bennetts. He added that it was an opportunity for clients to sit down and be aware of possible future scenarios at various ages, including aspects of estate planning, superannuation, retirement planning and running
Robbie Bennetts their business – as well as their overall health and wellbeing. The seminars could also help clients work on a ‘bucket list’ of goals they wanted to achieve in life, which don’t just relate to financial goals, Bennetts said.
With the attention currently being placed on limited or intra-fund advice, this was an opportunity to help clients without being focused on a single product, providing advice from a holistic point of view, Bennetts said. The sessions should fit in with what the Government was saying about getting fullblown advice, and was a much more comprehensive look into a person’s situation than had been done at the planning level before, he said. The sessions are lengthy and involve clients completing a workbook, while the follow-up from the sessions is up to the people involved. PIS suggests that the adviser acts as a conduit, and puts all the different parties – such as the lawyers, accountants and health experts – together for the client’s benefit.
K2 AM appoints Bell to lead new Perth business By Milana Pokrajac
K2 ASSET Management has expanded its business for the second time this year and opened a Perth-based office, appointing Steven Bell as regional manager. The move followed the opening of the company’s Sydney branch in Januar y
2011. K2 Asset Management head of distribution Andrew Hall said the fund manager decided to target the Wester n Australian market due to the state’s general wealth as a result of the mining boom. “We are excited about the new opportunities with financial planners and the take up
of our products through a number of dealer groups; we see that there are extensive opportunities in Perth at the moment,” Hall said. Bell, who has been appointed to lead the WA business, has 15 years of financial services experience and was most recently a partner in the boutique finan-
8 — Money Management April 14, 2011 www.moneymanagement.com.au
cial planning firm Vantage Wealth Management. Prior to this, he held senior business development and state manager roles with BT Financial Group. Hall said the main focus of K2 Asset Management would be an expansion into the broader financial planning network and dealer groups.
Another blow for ASX/SGX merger By Ashleigh McIntyre
THE proposed merger of the Australian Securities Exchange (ASX) and its Singapore counterpart looks unlikely, after the Federal Treasurer Wayne Swan said he believed it was not in the national interest. The Foreign Investment Review Board (FIRB) notified the Singapore Exchange (SGX) that Swan was inclined to reject the $8 billion offer, but that both parties still had the opportunity to respond. Swan said a final decision had not been made, and that he was “still open to further representations or information from the parties”. But he added that he had serious concerns about the proposal, and that subject to further consideration, he intended to accept the FIRB’s advice that the takeover would not be in the national interest. The ASX stated that if the merger were rejected, it would continue dialogue with SGX about other forms of combination and cooperation.
Wingate finances consumer play By Benjamin Levy WINGATE Group’s Capital Solutions team has financed a $40 million expansion for a major consumer goods business. Wingate negotiated with an unnamed financial institution to partner with the company and provide growth capital for the expansion. The owners of the business will remain controlling shareholders. Wingate head of advisory Franco Dogliotti was responsible for the transaction. The new partnership will enable the owners to refinance the business on considerably improved terms and optimise the ownership structure, according to Wingate. The consumer goods business faced a number of future growth opportunities, Dogliotti said. Wingate recently formed a joint venture with South African investment company Safika Holdings, Winsaf, with the new venture forming part of Wingate’s Capital Solutions division.
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Russell’s Asia research backs India, rejects Thailand By Chris Kennedy INDIA was the most preferred Asian market and Thailand the least, in a somewhat bearish Asian markets outlook released by Russell Investments.
India was favoured due to lower valuations following a long period of underperformance, said Russell chief investment strategist for Asia Pacific Andrew Pease, presenting Russell’s March 2011 Asia Market Commentary.
Thailand’s high dependence on oil meant the nation was more susceptible to fluctuating oil prices, and the upcoming general elections had the potential to lead to further political unrest, according to Russell. Asian markets in general were facing increasing headwinds of inflation and rising valuations, and were likely to lag US markets, Pease said, whereas global developed markets did not seem particularly expensive and were probably on
the ‘okay’ side of fair value. China was another market that was still preferred despite inflation pressures and the likelihood of further tightening, and Korea also seemed likely to continue its recent good performance despite inflation risks, the Russell research stated. Indonesia was another less preferred market due to high valuations, although its growth outlook remained positive and valuations had improved somewhat recently.
Russell had a neutral outlook on Singapore, Taiwan, Malaysia and Hong Kong. Volatility is likely to be an ongoing theme in 2011 generated by government debt concerns, shifting views about monetary policy, and by global political events, the report stated. The challenge for investors for this year will again be to maintain discipline amid potential large swings in market sentiment, Russell said.
BCS targets Aussie equities NZ company exits UK pensions By Caroline Munro BCS CAPITAL, in partnership with investment advisers Brookvine, has launched a unique Australian equities investment approach that identifies a company’s fundamental profit drivers. BCS was established in 2007 with a team of former Barclays Global Investors fund managers, former McKinsey & Company industrial strategists and leading applied econometricians. It began managing investment funds last year. BCS chief investment officer Justin Herlihy said BCS was able to identify each company’s
By Mike Taylor
fundamental profit drivers “using the best insights of industrial economics and business strategy”. “Thereafter the ability to process a mass of data on a real time basis into information about changes in share price enables BCS to capture alpha from timely and active investment decisions,” he said. Brookvine represents BCS and will assist with its fund raising and investor relations, BCS stated. Brookvine chief executive Steven Hall said his company was attracted to BCS because of its “very distinctive and unconventional investment approach”.
12 — Money Management April 14, 2011 www.moneymanagement.com.au
A NEW Zealand company dealing with pension arrangements under the UK’s Qualifying Recognised Overseas Pension Scheme (QROPS) has written a letter to clients and distributors announcing its intention to “withdraw from the international QROPS” marketplace, citing uncertainty about the future of the system. The company, Southern Star Administration Limited, which had been promoting the Southern Star Retirement Fund, said the decision had been taken after a review of the scheme’s recent member expectations and the value proposition the company offered.
“The directors also believe there is considerable uncertainty regarding the future of the present QROPS transfer system, and have an expectation of changes being put in place by regulators which are likely to strengthen the retention requirements for members of New Zealand retirement schemes,” the letter stated. The decision by the New Zealand company follow reports that the UK Government is contemplating tightening the rules regarding QROPS arrangements – something that could affect the operations of financial advisers in both New Zealand and Australia.
AFA calls for one set of rules for all CFS adds to By Milana Pokrajac THE Association of Financial Advisers (AFA) has reiterated its calls for a level playing field for all who provide financial advice to retail clients – including the industry super funds. AFA national president Brad Fox noted the industry super funds had a class order exemption from the obligation to know the financial situation of the member they were advising. “We believe that any rules and obligations that apply to financial advisers operating outside the industry fund environment should apply equally to those operating within it,” Fox said. Fox’s comments came amid the launch of the AFA’s Future of Financial Advice
Brad Fox (FOFA) pack for its members, which the association said would help advisers understand the timeframes and impacts of the proposed reforms. The eight-page pack contains descriptions of different Government proposals, such as fiduciary duty, intra-fund advice,
opt-in, volume payments and commissions ban – along with the outline of the AFA’s position on these issues. Fox said the AFA had firmly held the line against various proposed reforms, such as the banning of commissions on risk products and opt-in. “We firmly believe that any reforms that make it more difficult to access advice in relation to building and protecting the wealth of everyday Australians make for bad policy,” Fox said. The pack also contains the legislative timetable, outlining details of when the FOFA legislation will be released, tabled and implemented. The AFA chief executive, Richard Klipin, said now was the time for members to reposition their businesses and be “FOFA-ready”.
AMP Capital launches new debt fund By Ashleigh McIntyre AMP Capital Investors has introduced a new wholesale infrastructure debt fund that has raised an initial €240 million and secured 12 institutional investors in Japan, Hong Kong and Australia. The first investment for the AMP Capital Infrastructure Debt Fund was securing a £40 million high yielding loan to a leading UK based rolling stock company, specialising in leasing passenger and freight trains. AMP Capital global head of infrastructure debt Andrew Jones said AMP would take advantage of its role as a key provider of
subordinated debt to the infrastructure sector. “We expect to take a lead arranging role in the majority of transactions, with our focus on adding value through originating, structuring and leading pricing and terms discussions,” he said. The portfolio will consist of investments in the subordinated debt of 10 to 15 companies headquartered in Organisation for Economic Co-Operation and Development countries in the services of water, gas, electricity, transport and hospitals. It will target defensive assets with high barriers to entry, a regulated environment, highly visible cash flows and strong industry positions.
Alan Kenny By Mike Taylor
COLONIAL First State(CFS) has added nine new investment options to its FirstChoice platform. Announcing the additional offerings last week, CFS general manger product and investment services Alan Kenny said the additions expanded the investment range. He said that effective from 11 April, the new investment choices would include Magellan Global, Realindex Emerging Markets, Colonial First State Global Soft Commodity, Zurich Investment Global Thematic Share, Blackrock Asset Allocation Alpha, AMP Capital Global Property Securities, Ironbark Karara Australian Share, Solaris Core Australian and FirstRate Investment deposits. The additional options takes the number on offer on the FirstChoice platform to 115 and 119 for FirstChoice Wholesale.
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This advertisement has been prepared by Perpetual Investment Management Limited (PIML) ABN 18 000 866 535, AFSL 234426. It is general information only and is not intended to provide you with ﬁnancial advice. The relevant product disclosure statement (PDS), issued by PIML and available from our website, should be considered before deciding whether to acquire or hold units in Perpetual’s Industrial Share Fund (ISF). Past performance is not indicative of future performance. *The ISF (now marketed as Perpetual’s Wealthfocus Investments Industrial Share Fund) was ﬁrst made publicly available in 1976 and its benchmark is the S&P/ASX 300 Industrials Accumulation Index. www.moneymanagement.com.au April 14, 2011 Money Management — 13
Rise in mental health disclosures By Chris Kennedy THERE has been an increase in the number of financial planning clients disclosing their mental health history, according to AMP. The AMP Planner Protection Poll found 71 per cent of 189 financial planners surveyed said there had been an increase in the number of clients who disclose a personal history of mental illness. Planners are taking the impact of mental illness into account when applying for income protection cover, including in their approach to client disclosure of these illnesses, according to AMP director of wealth protection products Michael Paff. “Financial planners need to be flexible in engaging with their clients during the process of completing a personal health statement. This includes being able to recognise how comfortable the client is with personally disclosing potentially sensitive health history and looking at other options for the client where available,” Paff said. “For example, AMP’s ‘easywrite tele’ service allows planners to offer clients the option of discussing their health history directly with AMP if they do not feel comfortable disclosing this with their planner,” he said. More than half of planners polled said that early access to the
Michael Paff underwriter to discuss the client’s situation was most likely to make a difference in a client’s application for income protection cover. “Talking to the underwriter before lodging an application for income protection cover allows planners to ensure they have gathered all the required information, directly or indirectly, and can improve the client’s experience of the underwriting process,” Paff said. However, despite increased disclosure, only just over a third of planners polled are seeing clients with a history of mental illness gain access to income protection cover.
Wall Street salaries New head for advice centre taking off again By Mike Taylor
THE Wall Street gravy train appears to be picking up steam again following the global financial crisis (GFC), with Bloomberg having reported that Goldman Sachs chief executive Lloyd Blankfein has been delivered a doubling in his salary this year – despite the company reporting a 38 per cent decline in profits. However, the Bloomberg report suggests the gravy train has a fair way to go before it returns Blankfein to his peak pre-GFC salary of US$68 million. According to a report out of the US, Blankfein received share awards of US$12.6 million on top of a US$5.4 million performance-related cash bonus, and a salary of US$600,000.
By Caroline Munro RUSSELL Investments has announced the appointment of a head of its Advice Centre, which the company said signalled its commitment to the delivery of limited advice. Steve Wright joins Russell from Sunsuper, where he worked as a senior financial adviser. Russell stated that the appointment was a result of significant changes to its member administration
model, which saw it bring in-house over 75 roles previously outsourced to IBM. Wright will be responsible for providing advice to superannuation members on investment choice, contribution strategies and transition-to-retirement strategies. His appointment demonstrates Russell’s commitment to the delivery of limited advice, according to director of administration and consulting services, Siva Sivakumaran. “We firmly believe all members should have access to financial advice through superannuation and that Steve’s background and experience is a perfect fit for our model,” he said. Russell also announced that AvSuper was the first to go live with Russell’s new administration platform, while Prime Super appointed Russell to deliver administration services to its 150,000 members – a partnership that will begin in January 2012.
Mortgage fund redeptions slow REDEMPTIONS from mortgage funds have slowed and may plateau in the next few months, allowing fund managers to focus on building liquidity and investments, according to Australian Unity. “Redemptions have freed up, the investors who wanted to get out are mostly out and the ones still there are the ones who want to be there,” said Australian Unity’s general manager of property, mortgages, and capital markets Mark Pratt. The flood of redemption requests resulted from a liquidity squeeze in mortgage funds during the global financial crisis and was exacerbated by the Government’s bank guarantee, but some liquidity was coming back into the sector and the bank guarantee is due to expire in October this year, Pratt said. “Redemptions are still greater than inflows, but we are hoping that will stabilise in the next few months and we’ll get back to a point where inflows are greater than outflows,” he said. The manager was aiming to get to a level of 3 per cent liquidity in its mortgage fund in order to be able to pay all redemption requests as they arrived, he said. This would also mean advisers and investors would have more confidence putting money into a mortgage fund, and wouldn’t be rushing to redeem funds in the event of another liquidity crisis, Pratt said. Mortgage funds were still competing with elevated bank term deposit rates of around 6.5 per cent, but with global funding agreements due to expire soon and the cost of funding likely to increase it would be interesting to see how this affects term deposit rates, Pratt said. “We imagine they will settle down to the low 6 per cent range, which would work in our favour,” he said.
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14 — Money Management April 14, 2011 www.moneymanagement.com.au
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Playing with a stacked deck? Perceptions exist that the industry funds have succeeded in having the Government stack the cards against financial planners. Mike Taylor writes it is up to the Assistant Treasurer, Bill Shorten, to prove them wrong.
ustralia’s industry superannuation funds are unique. No other country possesses a similarly influential grouping of not-for-profit pension funds. According to the latest data published by the Australian Prudential Regulation Authority (APRA) covering the December quarter of 2010, industry superannuation funds account for $246.7 billion of Australia’s $1.32 trillion in superannuation assets. The only faster-growing sector of the superannuation industry is self-managed superannuation funds, which account for around $420 billion. These facts then need to be considered alongside the reality that a significant number of Australia’s industry superannuation funds choose to belong to and fund one of the most tightly-knit industry groups in the nation – the Industry Super Network (ISN). The ISN, for its part, can then be held responsible for the highly successful television advertising campaigns built around the slogans ‘compare the pair’ and ‘from little things, big things grow’ – as well as the vigorous political lobbying campaigns around superannuation and financial advice. It is a measure of the success of the ISN that industry funds were the unquestioned winners when it came to gaining and retaining members following the introduction of choice of superannuation fund, and the Government’s introduction of regulatory dispensations to enable an intra-fund advice regime. Now, with the Assistant Treasurer, Bill Shorten, expected to make a key announcement on the Government’s intentions with respect to the Future of Financial Advice (FOFA) reforms within the next few weeks, questions are being asked about the power and influence of the industry funds – including the prosecution of a broader political/economic agenda.
The concerns around the existence of a political/economic agenda go something like this. The industry superannuation funds have evolved out of the same constituency as the Australian Labor Party (ALP) – the trade union movement – and the ALP Government will use the FOFA changes to benefit its natural constituency, which includes the industry funds. The problem for Shorten in countering such assertions is that many of the FOFA changes do, indeed, appear to have the effect of benefiting industry superannuation funds at the expense of independent financial planners, including adopting much of the language utilised by the industry funds in prosecuting their campaign. Further, the minister as a former national secretary of the Australian Workers Union has readily admitted that his union role saw him become a trustee director of one of the industry superannuation funds which ultimately merged to form Australia’s largest industry superannuation fund – AustralianSuper. He would be aware that while the make-up of many industry superannuation fund trustee boards, based on trustees drawn equally from representatives of employees and employers, might be considered to have delivered balance, there are many people who regard industry funds as an extension of the trade union movement. That perception of the industry funds being an extension of the trade unions was not assisted by Shorten himself when, last month, he had no hesitation in using an address to the Conference of Major Superannuation Funds (CMSF) on the Gold Coast to implore industry fund trustees to support his Government’s push for a Mineral Resource Rent Tax (MRRT) because it was linked to the delivery of an increase in the superannuation guarantee from 9 to 12 per cent. The concerns about the existence of a broader industry superannuation fund polit-
ical/economic agenda were reflected by the managing director of Fiducian Financial Services, Indy Singh, who questioned both the amount of money spent by industry funds on advertising campaigns undermining the value of advice and their motivations for doing so. Participating in a Money Management roundtable last week, Singh said he took exception to a lot of the industry fund advertising and he wanted to know how many hundreds of millions of dollars they had spent on advertising “rubbishing financial planning”. “And now they want to do it [financial planning] themselves,” he said. Singh said he was concerned that through “stealth and guile” industry funds would end up controlling the very same business they had ridiculed in the past. “They will own 60 per cent of the industry and they can do what they like,” he said. Singh said he believed it was in the interests of the industry funds to bring the financial planning industry to its knees via issues such as optin or commission structures, which would in turn see more money flow into the industry funds. Singh’s views were not shared by the other participants at the Money Management roundtable, but they did reflect much of the sentiment expressed by planners responding to stories on the Money Management website. While not all of the participants in the roundtable supported Singh’s view, they acknowledged that the industry funds had proved highly successful in prosecuting their agenda which had, in turn, given rise to the proposed FOFA changes. The challenge for Shorten when Treasury ultimately delivers the first draft of the FOFA legislation will be to scotch any conspiracy theories by ensuring that it does not unduly favour one side over another.
WIF Lunchtime Forums: Financial Products Series Event 20 April, 2011 Savings & Loans Boardroom, 52 Flinders Street, Adelaide www.finsia.com
Fee for Service with Jim Stackpool 20 April, 2011 Cliftons Brisbane, Level 3, 288 Edward Street, Brisbane www.fpa.asn.au
Small Firms Forum 2011 for Accounting Professionals 2-4 May, 2011 Bayview Eden, 6 Queens Road, Melbourne www.fmrcsmithink.com
AIST’s Fund Governance Conference 4 May, 2011 Swissotel, Sydney www.aist.asn.au/fundgov_ overview.aspx
Money Management Fund Manager of the Year Awards 26 May, 2011 Sheraton on the Park, Sydney www.moneymanagement.com.au/ FMOTY
www.moneymanagement.com.au April 14, 2011 Money Management — 15
Playing with fire Exchange-traded funds have been the success story of recent years, with growth levels continuing to soar. But could the sector’s success also lead to its undoing? Benjamin Levy reports. THE last two years have been boom times for exchange-traded funds (ETFs). The total value of funds under management in the sector is expected to skyrocket by more than $1.5 billion by the end of the year, and new products are coming out as fast as you can stick a label on them. However, the explosive surge in popularity may also be creating some teething problems. As the sector begins to burst around the edges with competition, product providers will be pushed to develop more niche ETFs: ones that are riskier, more expensive, and narrowly defined. That expansion could begin to threaten the original attraction of low-cost, transparent ETFs – and advisers and investors could easily get into trouble with products that are no longer so easy to manage. If the industry is going to fend off that scenario, then more education and advertising is needed to attract advisers.
The ETF sector is almost growing too quickly for its own good. Russell Investments has foreseen the launch of at least three new ETF providers in Australia in 2011, along with 15 new ETF products. The industry is set to surge to $6 billion by the end of the year – a jump of almost $2 billion, according to the Russell’s recent analysis of ETF market trends. Vanguard and Blackrock’s iShares Australia business launched five new ETFs in a single month last year, while more growth is expected off the back of the Stronger Super reforms. The sector has also begun to diversify its product range, moving into new areas such as currency and futures contracts. But the runaway growth of the sector may be generating problems for itself. As new ETF products continue to be rapidly developed, it will generate a bewildering level of complexity, and the original drawcards of ETFs (low cost and simple structures) will start to be threatened, according to Zenith senior investment analyst Dugald Higgins. “The biggest issue will be that product
Key points •
ETFs are growing at a dramatic rate in Australia, with increasingly complex products being unveiled. Overseas, ETF growth is led by institutions; in Australia, retail demand is the driving force. There is an urgent need to educate advisers about the role ETFs can play in their clients’ portfolios. Fixed-income ETFs appear to be the next product to experience significant growth.
evolution and increasing complexity driven by managers trying to differentiate themselves from the herd will undermine the original proposition of simple structures, transparency and low costs that were ETF hallmarks,” Higgins says. In its analysis of the sector, Russell gave the industry a warning about the imminent proliferation of different ETF products. Options, bonds, swaps, and new narrow subsector equity ETFs are all on the agenda for the coming year, the company stated. State Street Global Advisors (SSgA), one of the biggest providers of ETFs to Australian investors, is also racing to exploit near-unexplored areas and sub-sectors of the market. SSgA recently announced plans to launch three new ETFs this month: one in the financials sector excluding real estate investment trusts, one in resources, and one in immature small-cap companies. As the number of products increase, especially among the once broad equity market ETFs, advisers and investors may become confused about the changing nature and function of these once easy-to-understand products. “Because we know this market is going to evolve very quickly and products will come that are not traditional ETFs, it is almost a certainty that some people will go into some of these newer offerings thinking that they’re
16 — Money Management April 14, 2011 www.moneymanagement.com.au
a standard ETF play – and they won’t be,” Higgins says.
The overseas ETF sector is far more developed than in Australia, and can provide good insights into what to expect a year or two down the track. The equities sector there has become sliced into different segments. ETFs have evolved into a multitude of different products that often include increasingly quirky and high-risk investments. These ‘flavour of the month’ ETFs have multiplied like mushrooms, often for no other reason than that the market appetite for them seems insatiable. Advisers should tread carefully and learn from some of the potholes explored by markets overseas, Higgins says. The ETF overseas sector is primarily led by institutions. Informal data provided by industry experts in Australia suggests that institutions make up to 60 per cent of ETF investments in the US, with retail taking up the other 40 per cent. In Europe, the demarcation is even more pronounced, with the institutional sector holding up to 80 per cent of ETF assets. However, the ETF sector in Australia is led by retail investors. Retail investors are responsible for 70 per cent of funds under management in BetaShares’ new currency ETF. So any ETF products imported from overseas may need to be altered before they are introduced to the market. Russell Investment director of ETF product development, Amanda Skelly, says
complex ETF products have evolved overseas in response to the way institutions and large brokerages are using ETFs in their portfolios, and they may not always be suitable for retail investors. “Some of these complex ETFs might handle well for an institution, but probably don’t have a role for my mum who lives around the corner,” Skelly says. ETF strategies that are imported from the US as well may not be as relevant for Australian investors, she says. However, some fund managers are taking a more relaxed approach to the emergence of new ETF strategies. Blackrock head of research and implementation strategy, Deborah Fuhr, recently pointed out that investors are more interested in using broadmarket based ETFs as a core investment rather than new niche alternatives. No single stock or sector would consistently outperform its peers, while holding broad-market indices would help reduce volatility and achieve competitive returns, according to Fuhr. Securitor planning practice Kearney Group only uses ETFs for exposure to global markets. “Generally, the international sector seems to be the one that clients have chosen to use them in,” says practice principal Paul Kearney. It is more straightforward to gain exposure to global markets through ETFs than through managed funds, Kearney says. Advisers would do well to take note of the
ETFs major markets where product evolution has outpaced demand,” Higgins says. “Advisers don’t want to go back to their clients and say: ‘This fund that we’ve just put an allocation of your money into has just disappeared.’ Client’s don’t like that,” he says. The rapid expansion of ETF products could be resulting in some advisers becoming too reliant on ETF products and taking over full responsibility for asset allocation. Previously, an adviser had to choose between 25 or more fund managers on an Approved Product List before he could allocate his client’s assets, a time-consuming process. Now, the adviser can simply choose to allocate sector weights based on a few ETF products, with added bonus of lowering costs and keeping the investment decisions more under their control. It is a tempting proposition, but a dangerous one. “Most advisers didn’t hire their planner to be a macro-economic manager, and you don’t really know how skilful these individuals are,” Morningstar global head of funds research Don Phillips said recently. “There’s a segment of adviser who have probably gone overboard with the thrill of this new toolkit. I can see some people running amok with this, and you can do as much harm as good,” he said.
that advisers need answered, Skelly says. “Advisers shouldn’t be scared of ETFs. In the end, it’s just another way to access a particular type of investment strategy,” she adds. One characteristic of an ETF that isn’t promoted as often is that the assets are held in trusts on behalf of clients, meaning the assets can’t be diverted by fund managers. “There’s a bit of mistrust over the last couple of years with fund managers, and that mistrust has raised a lot of questions. But with ETFs, everything is held on the benefit of the end investor,” Skelly says. Because of that the ETF sector has been able to remain largely free of trust issues surrounding investments, Skelly believes.
Making education a priority
way that Zenith is approaching the ETF sector. Even though the research house only launched its ETF rating capability late last year, it is taking a cautious approach to the sector. “Some are filtered out due to concerns around issues such as product longevity, manager stability, trading strength or other
key issues,” Higgins says. Some ETFs are bound to be withdrawn because managers will be unable to sustain demand, resulting in a possible loss of capital for the investors who have invested in newer products. “This has been an issue in all the other
That harm is exacerbated when the knowledge of the way ETFs work fails to keep pace with their development. “There’s a lot more work the industry needs to do to help educate advisers on how they can use ETFs and where they might be appropriate for clients. That’s been a major hurdle in seeing advisers really embracing ETFs,” Skelly says. The underlying structure of most ETFs is a managed fund, which advisers are already familiar with. However, understanding the mechanics of the way that managed fund starts to trade on the Australian Stock Exchange (ASX) is something that advisers haven’t quite grasped. Russell Investments has started educating advisers on that front. How ETFs work, their benefits, and how they fit in a client portfolio are all questions
Don Phillips Zenith Investments is seeing a lot of advisers who still don’t quite understand how ETFs work and are thus hesitant to try them, despite their interest. “A lot of people think of ETFs as a totally different investment type, they don’t necessarily translate it back to being a very passive index fund – that is, if the market tanks, you’re going to tank too,” Higgins says. Advisers are also under the misconception that ETFs can provide extra portfolio diversification even if they are already heavily allocated to equities. That rudimentary misunderstanding can Continued on page 18
BETASHARES US DOLLAR ETF
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Contact your adviser or online broker www.betashares.com.au
BetaShares Capital Ltd (ACN 139 566 868 AFS License 341181) (“BetaShares”) is the product issuer. A product disclosure statement (“PDS”) is available at www.betashares.com.au. You should read the PDS for the BetaShares US Dollar ETF and consider your individual objectives, ﬁnancial situation and needs and obtain ﬁnancial advice before deciding to invest. You can purchase units in the ETF on the ASX. Past performance is not an indicator of future performance. USD_MM01
www.moneymanagement.com.au April 14, 2011 Money Management — 17
ETFs Continued from page 17 be dangerous. It’s easy for advisers to choose the wrong ETF structure. When inverse ETFs were introduced overseas, investors flocked to the product because its basic premise was that if the market went down by 1 per cent, the value of your ETF would go up by 1 per cent, and vice versa. Investors believed they would be able to use them to prop up their returns when markets were sliding. But because the pricing of an inverse ETF is done on a daily basis, not yearly, those investors ended up worse off than before. “We’ve seen that happen in the US and other places overseas, it will happen here, it’s almost guaranteed. And investors and advisers need to be really careful that they understand how the ETF they’ve chosen works, and is suitable for what they’re after,” Higgins says. However, drawing on the experience of ETFs overseas as an indication of what will happen here isn’t a fair comparison, according to BetaShares head of product strategy Drew Corbett. “I think it’s easy to look overseas and get ahead of yourself. You’re talking about much
Dugald Higgins more developed markets over there as it relates to the products being around for 10 years,” he says. “I think the ASX and the ETF industry as a whole have doing a great job getting on the front foot and getting out there and trying to educate the market,” Corbett says. Once investors understand the benefits, ETFs prove to be highly successful and popular – so advisers should take the opportunity to get ahead of the ETF curve by educating themselves about the products, Corbett says. The ASX in particular has just launched an ETF roadshow for investors that will run through the next few weeks around the country, and many ETF providers are involved. “The ETF industry as a whole is very keen on getting advisers up to speed so they can be in front of growth in this industry,” Corbett says.
Closing the knowledge gap
There are signs that the funds management industry has a way to go with educating advisers about the benefits of ETFs and introducing new products suitable for investors. Some advisers are barely using ETFs, or not at all. Principal of Shadforth Financial Group Ian Heraud believes in following a passive investment approach with his clients, but says ETFs can’t provide the returns he is looking for.
“Our approach to the core of our client’s portfolios involves blending sub-components of the broad index to achieve superior results to the market,” Heraud says. Heraud’s practice has created an individual unit trust, with 40 per cent of its assets in large companies, 40 per cent in companies with a high book-to-market value, and 20 per cent in small companies. He doesn’t know of any similar ‘value company’ ETFs for advisers searching for superior returns, Heraud says. “If you get a Vanguard ETF, you’re going to be getting the ASX300,” he adds. Similarly, Kearney Group have barely dabbled their toes in the ETF industry. Despite the explosive growth in the sector in the last two years, they has been using ETFs for only the past six to 12 months, as a solution for clients who have become tired of managed funds, Kearney says. There are some indications that the ETF sector is too focused on attracting advisers with a narrow set of characteristics – that of cost savings and remuneration. ETFs are often advertised as being a good way of lowering investment fees for clients, which is an attractive argument at a time of growing fee-for-service practices. “The big thing that’s going to spur growth in the ETF sector is advisers moving to a feefor-service model. Because ETFs are low-cost instruments, and in a fee-for-service model they make a lot more sense to advisers,” Corbett says. That advertising angle has also received tacit approval from researchers such as Investment Trends, which said recently that an asset-based fee-for-service model was behind planner’s interests in ETFs. The only flaw in that argument is that advisers can find cost savings in other ways as well. Any easily found index fund offers savings to investors, while core-satellite funds offer savings as well as alpha – and both of them are surely competing for more advisers using the same arguments. Kearney flatly rejects the notion that cost had anything to do with their decision to go with ETFs. “In the conversations we’ve had with clients who have used ETFs, cost hasn’t been a factor,” Kearney says. “They’re looking for a particular result, and an ETF is just expected to target more closely a segment of the market,” he says. Whether you go through an ETF or a plain index fund, costs are very low and very similar, Heraud says. “Costs shouldn’t be the main driver. If you go to a Vanguard index fund or a Vanguard ETF, you’re buying essentially the same thing for essentially the same price,” he adds. An alternative method of advertising ETFs may be by promoting the ‘passive versus active’ debate more vigorously. After all, many ETFs are essentially a passive investment approach anyway. “More and more direct share investors are recognising that it is really difficult for them to consistently beat the market. And most benchmarking that we do with direct share portfolios shows that these investors are underperforming the market,” Heraud says. “Given the sub-optimal they’ve been getting, really they should be having a core of their portfolio more closely aligned with the index, and now they can do that with an ETF,” he says. There’s a certain comfort value in there for a lot of those investors, Heraud says. MM
18 — Money Management April 14, 2011 www.moneymanagement.com.au
Which ETF will be developed next?
The ETF industry is forever eagerly awaiting the development of new products like a kid waiting for a new toy, so the question of which ETF will be introduced next is a big one. Both Russell Investments and BetaShares believe that fixed-income ETFs are next on the agenda. “The market and the planner community want to see fixed-income solutions in the ETF market,” BetaShares head of product strategy Drew Corbett says. All of Russell’s studies of adviser demand points to the desire for fixed-income ETFs. “There’s a lot of equity [ETFs] available today, and advisers are looking for a different way to access fixed income,” Russell Investment director of ETF product development, Amanda Skelly, says. “It’s the number one response,” she says. However, legislation is standing in their way. Most ETFs are currently listed under the ASX AQUA framework, which was introduced to allow the quotation of structured products and managed funds on the exchange. However, AQUA rules do not allow for ETF products that aren’t part of a recognised federation of exchanges. Such products would normally come with clear unit pricing, but fixed income products, like bonds, are over-the-counter (OTC) financial instruments, and cannot be traded on an exchange. The Australian Securities and Investments Commission needs to approve the new AQUA rules before fixed income products can be enabled, and ETF providers are working the regulators and the ASX on resolving the issue. “Overseas they resolved that issue, by making a set time that would be the price of the OTC instruments at that given time,” Corbett says. Corbett believes fixed income ETFs will be introduced later this year. Securitor planning practice Kearney Group principal Paul Kearney gives in-principle support to the idea of fixed income ETFs. While he doesn’t need fixed income ETFs himself, the idea of accessing any market via an ETF has merit, he says. “In the US, where ETF funds are in excess of $1 trillion, approximately 15 per cent of that is made up of fixed income ETFs, so there’s a real market,” says Vanguard ETF product manager Robin Laidlaw. “ETFs offer advisers portfolio building blocks for clients, because they have key benefits of being easy to access, and having liquidity and diversification. What they really need is a full range of asset classes they can access,” Laidlaw says. When the regulations are changed to allow fixed income ETFs like bonds, there will be an “immediate explosion” of those products from issuers, according to Zenith senior investment analyst Dugald Higgins.
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It’s time to ReDeﬁne Dividends. Learn more about RDV, visit www.russell.com.au/etfs or email ETFenquiries@russell.com The Russell High Dividend Australian Shares ETF tracks an index that is weighted towards companies that are expected to deliver dividends higher than the market average, however high dividends cannot be guaranteed. Issued by Russell Investment Management Ltd ABN 53 068 338 974, AFS License 247185 (RIM). This communication provides general information only and has not been prepared having regard to your objectives, ﬁnancial situation or needs. Before making an investment decision, you need to consider whether this information is appropriate to your objectives, ﬁnancial situation and needs. Any potential investor should consider the latest Product Disclosure Statement (PDS) for the Russell High Dividend Australian Shares ETF (RDV) in deciding whether to acquire, or to continue to hold, units in RDV. Only persons who have been authorised as trading participants under the Australian Securities Exchange (ASX) Market Rules can apply for units in RDV through the latest PDS. Investors who are not Authorised Participants looking to acquire units in RDV cannot invest through the PDS but may purchase units on the ASX. Please consult your stockbroker or ﬁnancial adviser.
Casting a critical eye Drew Corbett outlines the rules behind ETF evaluation, and explains that not all ETFs are the same.
Figure 1 The Five Pillars of ETF evaluation
E XC H A N G E - t ra d e d f u n d s (EFTs) are celebrating the 10year anniversary of their first listing on the Australian Securities Exchange (ASX). Now, more than ever, evidence suggests there is growing interest among the financial planning and advisory community in ETFs as Government reforms and public pressure increase demand for low-cost, transparent and simple investment vehicles. With some 47 (and growing) E T F s a n d E TC s ( e xc h a n g e - t ra d e d commodities) available to choose from, how can you decide which products to invest in? One of the most common ways to assess an ETF is to focus on five key criteria, which we call the Five Pillars of ETF evaluation: issuer, structure, liquidity, cost and scale (see figure 1).
Figure 2 Average bid depth comparison
Issuer experience counts
The starting point for evaluating any ETF is the product issuer and the strength and depth of the management team. An experienced team with particular ETF expertise is key. Also look at the experience of the portfolio managers and operations personnel. It is also important to evaluate corporate governance behind an ETF. For example, is the investment manager authorised by the Australian Securities and Investments Commission (ASIC) as a Responsible Entity? It is also worthwhile to check if each ETF is a separate managed investment scheme. All this information should be available in the Product Disclosure Statement.
Figure 3 Comparison of resources ETFs
Structure influences results
Once you’ve determined that the issuer is credible and experienced, the next step involves looking at the structure of the ETF. Currently there are two main structures in the Australian market: d i re c t re p l i c a t i o n E T F s a n d s w a p enhanced ETFs (sometimes called ‘synthetic’ ETFs).
Table 1 Comparing ETF structures Direct replication ETF
Underlying index securities and cash (full or optimised portfolio)
Underlying index securities, cash + swap to match index return (before fees and expenses)
Counterparty exposure limit
Maximum 10 per cent
Other counterparty risk
Yes – can include securities lending, dividend enhancement and derivative exposures to manage cash drag Management fee, fund transaction costs, portfolio drift
Flow through to investor as per index
Flow through to investor as per index
Index franking outcomes
Index franking outcomes
Transparency of underlying basket
No – ETFs assets held by an independent custodian
No – ETFs assets held by an independent custodian
Tracking error Dividends
20 — Money Management April 14, 2011 www.moneymanagement.com.au
Management fee only
Direct replication ETFs aim to track the performance of an index by owning all, or a sample of, the underlying index components. In a direct replication model, when the index changes, the manager of the ETF needs to modify (or rebalance) its portfolio by buying or selling shares to align with the changes. The costs and potential errors associated with those changes may result in investors experiencing ‘tracking error’ ( i e, s o m e v a r i a n c e b e t w e e n t h e performance of the ETF and the performance of the underlying index). Swap-enhanced equity ETFs, like direct replication ETFs, provide direct exposure to an index by investing in the underlying index securities. In addition, they also enter into an agreement with a counterparty (called a swap contract) to ensure the closest possible tracking of the index. Under this structure, the swap counterparty takes on the risk and cost of matching the difference in the performance of the investment portfolio and the index. The performance of each ETF (before fees and expenses) is therefore expected to closely track the performance of the index, and tracking error should be minimal. The first swapenhanced ETF listed on the ASX in December 2010. Table 1 summarises the differences and similarities between the two ETF structures. The swap-enhanced ETFs currently available in Australia directly hold the Australian shares that are part of the underlying index being tracked. Since inception, the value of these shares has never dipped below 99.5 per cent of the net asset value of the fund. The swap agreement (which has not been valued at more than 0.5 per cent of the net asset value of the individual ETF since inception) is used only to account for the difference in performance between these shares and the index. Both the investment portfolio and the net counterparty exposure are readily available on a daily basis.
Liquidity does not only play a role in tight bid/ask spreads but it also affects another factor known as ‘ETF depth’. This can be defined as the volume of the ETF available on the ASX for purchase at any given time. Looking at figure 2, we can see there is, on average, $2 million of units available for purchase on the ASX of a financial sector ETF (orange line), whereas another product had less than $750,000 available (green line). A higher depth level of an ETF ensures investors easy access to the product when buying or selling.
ETFs Another factor to consider when evaluating liquidity is average daily volume (ADV ). This can be analysed by tracking ADV over an extended period of one month or longer to determine the overall turnover of ETF. But while ADV helps analysis, it is less of an issue for ETFs than in normal shares since ETFs benefit from the liquidity of the underlying stocks of the index they are designed to track.
January 2011. Over that period, the resources ETF depicted in the red line traded an average spread of 24 basis points, and is consistent across the sample days. Compare this with another resources ETF over the same period (grey line) which had an average spread of 78 basis points. These are real costs incurred by the investor to buy and sell their ETF on the market, which can be larger than the difference in the management expense ratio (MER) associated with holding the products. Financial advisers looking to use ETFs should be looking at historical bid/ask spreads in their analysis of ETFs and look for consis-
tently tight and even spreads. This way, advisers can be sure the costs incurred to buy and sell ETFs will be predictable for clients. A mathematical way of summing up total cost associated of investing in ETFs is: MER + bid/ask spread + tracking error = Total cost of ETF. The lower the number, the cheaper the ETF.
Scale: bigger is better
This brings us to the final point: scale. The evaluation of scale can be achieved as simply as looking at the funds under management of an ETF. Although there is no hard and fast rule on scale, it’s fair to say the bigger the better when looking at assets
under management. When comparing scale, it is important to compare ETFs that are designed to provide similar outcomes (eg, track the ASX200, provide high dividends or track a sector). While ETFs are growing in popularity due to their simple, transparent structure, it’s important to realise not all ETFs are the same. These five points provide advisers with a valuable framework when evaluating which ETFs are most robust and cost effective for their clients. MM Drew Corbett is head of investment strategy and distribution at BetaShares.
Look beyond headline costs
Costs to investors of ETFs include management fees, tracking error and bid/ask spreads. Management fees are familiar to most advisers, and should be an essential part of any cost analys i s. Ad v i s e r s s h o u l d understand that management fees are not the only cost associated with ETFs. Tracking error is the difference between the performance of the ETF and the performance of the underlying benchmark index or asset class. This can be a cost to investors if the ETFs consistently underperforms the index being tracked (over and above fees). Finally, there are costs associated with the ETFs bid/ask spreads. These costs are those incurred w h e n p u rc h a s i n g a n d selling ETFs and should be a major consideration for advisers when recommending ETFs. Spreads can vary significantly between ETFs and advisers should evaluate these costs and, importantly, e n s u re l ow c o n s i s t e n t spreads prior to investing. To c a l c u l a t e b i d / a s k spreads, advisers should l o o k a t t h e d i f f e re n c e between the ‘bid’ and the ‘offer’ of the ETF during ASX opening hours. If, for example, the bid on the ETF was $10.00 and the offer was $10.02, one calculates the bid/ask s p re a d by t a k i n g t h e difference between the bid and the offer (in this case $0.02), and dividing it by the midpoint of the bid and the offer (in this case $10.01). In our hypot h e t i c a l e x a m p l e, t h e bid/ask spread is 0.20 per cent (0.02/10.01). Figure 3 depicts average bid/ask spreads for two ETFs for a few weeks in www.moneymanagement.com.au April 14, 2011 Money Management — 21
ResearchReview Examining the alternatives PortfolioConstruction Forum, in association with Money Management, asked the research houses the following questions: What asset classes/product types does your firm include under the ‘alternatives’ label? Why? How many strategies/funds do you rate in each? Lonsec
Lonsec considers the alternative Alternative Underlying Funds asset area to include the followproducts rated rated ing three distinct groups: Hedge Funds – Single Manager • Hedge Funds Single Manager – – Managed futures 4 4 Managed futures, global macro, – Event driven 4 4 event drive, multi-strategy and – Commodities 3 3 commodities funds. These funds – Global macro 4 21 are typically uncorrelated or have – Multi strategy 1 1 low correlations to traditional asset Hedge Funds – Long/Short classes. They offer asymmetrical – Australian equities 12 34 returns and downside protection, – Global equities 16 139 employ a flexible investment tool Hedge Funds – multi-asset/multi-manager set (eg, can use short selling, lever– Fund of hedge funds 7 29 age, derivatives, etc), and are rela– Diversified alternatives 3 4 tively unconstrained; Total 53 239 • Hedge Funds Long/Short – Australian equities and global equities funds. These managers employ a flexible investment tool set and the funds offer asymmetrical returns and downside protection; and • Hedge Funds Multi-Asset/Multi-manager – Fund of hedge funds and diversified alternatives. Like the single manager group, these funds are typically uncorrelated or have low correlations to traditional asset classes. They offer asymmetrical returns and downside protection, employ a flexible investment tool set (eg, can use short selling, leverage, derivatives, etc), and are relatively unconstrained.
Standard & Poor’s
Standard & Poor’s Fund Services (S&P) has three main categories for alternatives – Alternative Equity, Alternative Futures, and MultiAsset – and each has sub-peer groups. Alternative Equity Strategies includes funds that vary from those that may use simple derivative strategies to preserve income, to absolute-return funds that may use large amounts of leverage. S&P considers these types of funds to be using alternative strategies around the traditional equity assets. All of the strategies are actively managed. There are three peer groups: • Beta variable including: – Diversified – Absolute-return equity strategies with a global focus. – Regional – Absolute-return equity strategies with a specific regional focus. – Sectoral – Absolute-return equity strategies with a specific industry focus. – Income – Equity income-focused strategies, usually incorporating buy-write option strategies. • Market Exposure – Market extension strategies, also referred to as 130/30, with an overall market beta exposure target of one; and, • Market Neutral – Equity strategies that aim to minimise overall market beta exposure – ie, have an overall market beta exposure target of zero. S&P currently rates two special events funds that aim for broader market neutrality in this way. Alternative Futures funds are specialist products that use non-traditional investment strategies, most notably within commodity and financial futures markets. Offerings can be either index-enhanced
products or absolute return strategies. These funds should not be grouped as hedge funds or even absolute-return funds, but should be viewed as investments that offer explicit access to alternative strategies not included in the average retail portfolio. There are four peer groups: • Commodity; • Commodity trading advisers; • Global Macro; and • Fixed income trading strategies. Alternatives Multi-Asset funds use multiple alternative investments strategies across one or more asset classes. This can be through the fund of hedge fund format that invests in multiple managers or through a single manager using a multi-strategy approach. There are two peer groups: • Multiple-manager – fund of fund and multiple manager funds; and, • Single-manager – use more than one asset class and use of alternative strategies including shorting, derivatives, commodities and/or options.
Standard & Poor’s Alternative
Capabilities rated Equity beta variable 27 Equity market exposure 11 Equity market neutral 2 Fixed 1 Futures commodity trading 4 Futures macro 3 Futures systematic CTA 3 Multi-asset diversified multi-manager 8 Multi-asset multi-strategy 9 Total 68
22 — Money Management April 14, 2011 www.moneymanagement.com.au
Funds rated 43 19 3 1 4 4 3 11 18 106
Mercer’s definition of alternatives covers alternative approaches to traditional assets (eg, long/short equity) and traditional approaches to alternative assets (eg, infrastructure). Thus alternatives would include everything other than equities, fixed income and real estate/property. Mercer broadly classify alternatives into Alpha (hedge funds) and Beta (private equity, commodities, infrastructure, timberland and ‘other’). Each of these falls into the alternatives category for one of two reasons: • The asset class is an alternative approach to traditional assets (eg, long/short equity); and • They are a traditional approach to non-traditional assets. (eg, infrastructure). While this question does not ask about the characteristics of alternative investments, alternatives typically show different risk/return profiles than traditional asset classes and also have different correlations with traditional asset classes that can serve to increase the diversification of a multi-sector portfolio.
Zenith Investment Partners
Zenith considers alternative assets to include all investments that cannot be easily benchmarked to traditional assets and therefore the alternatives area includes: • Direct assets including water (wet) and shipping – Demonstrate a very low correlation to traditional asset classes; • Commodities – Provide a pure method to capture growing emerging market demand for essential commodities (food, energies and metal) without exposure to management, gearing, franchise benefits or detractions that are contained within equities; • Currencies – Capture flows of capital in and out of emerging markets, providing the opportunity of capturing elements of emerging market growth and simultaneously capturing some returns when the inevitable cyclical capital flows capitulate, or concentrates on capturing returns when movements become extreme; • Agriculture – Provides an opportunity to capture emerging market growth without the associated geo-political risks of investing directly; • Private equity and secondaries; • Fund of private equity; • Insurance and CAT bonds – Provide strong returns with bond like returns from assuming insurance risk on catastrophes, life insurance and automobile
Mercer Alternative Alpha – Currency (active) – Directional long/short equity – Credit opportunity – Global TAA / Global macro – Hedge fund of funds – Multi-strategy hedge funds – Long-only equity absolute return – Equity market neutral – Distressed debt – Other hedge funds Beta – Private equity – fund of funds – Private equity – directly invested – Private equity – secondaries funds – Commodities – Infrastructure – Timber – Other Total
Strategies Funds rated rated 4 8 0 14 10 3 2 8 0 5
5 19 2 21 55 6 2 15 0 15
15 0 1 1 21 1 3 96
20 7 1 3 29 2 7 209
Zenith Investment Partners Alternative Direct assets Commodities Currencies Agriculture Private equity and secondaries Fund of private equity Insurance and CAT bonds Hedge funds Fund of hedge funds Total
Strategies rated 2 1 1 1 2 1 1 8 2 19
Funds rated 2 4 2 2 4 1 3 81 8 107
insurance.; • Hedge funds – Can be combined to reduce risk inside portfolios, while enhancing returns. Importantly, it is the risk constraint that they bring to a portfolio that allows the investor to better match future liabilities with assets. Trend-following strategies, commodity trading advisers are included in this broad hedge fund group as they provide a positive carry while buying portfolio insurance and are attractive for defensive purposes. Domestic market neutral and long short equity managers are among the world’s most consistent generators of risk-adjusted alpha. Some fixed income strategies, including inflation-linked funds, provide low inflation risks while having some exposure to emerging markets; and • Fund of hedge funds.
Morningstar is generally hesitant to use the term alternatives with clients, since it is often interpreted differently by different people. Morningstar considers investments with genuinely non-traditional market exposures as alternative. Broadly, this includes hedge fund of funds, long/short (market neutral or variable beta), global macro, managed futures, commodity trading advisers, multistrategy, and pure commodities. Morningstar does not include infrastructure, private equity or commodity shares as alternatives as we view these as merely derivations of some form of traditional market exposure. Morningstar is currently in the middle of a review where it is looking at more than a dozen unique investment strategies. Currently, Morningstar rates 11 alternative strategies equating to 36 funds.
Van Eyk believes that, by definition, alternatives should deliver uncorrelated return streams compared to traditional risk assets such as equities. When added to a diversified portfolio, alternatives should help lower return volatility and maintain or increase the expected return of the portfolio. Van Eyk divides the alternatives asset class into two groups – absolute return strategies (multistrategy and single strategy hedge funds) and real assets. Absolute return strategies are designed to deliver value add in a range of market conditions while controlling the risk exposures of the strategy. Multi-strategy hedge funds are highly diversified strategies seek to exploit a broad range of sources of return (risk premium) while controlling the risk exposures to individual managers. The single strategy hedge fund area includes: • Global macro – Seek to exploit market inefficiencies created by uneconomic market participants as well as the formation of global imbalances; • Fixed income macro – Target asset mispricing in a range of fixed income markets (eg, government bonds, high-grade and high-yield corporate bonds, loans, structured securities) as well as global currencies markets; • Event driven – Seek to profit from arbitrage opportunities related to specific corporate or market events. Examples include mergers, acquisitions, restructurings, asset sales, recapitalisations, spinoffs, periods of regulatory and legisla-
tive change, and litigation; • Equity market neutral – Target a market beta of zero, usually by assuming a combination of long and short positions in share markets designed to eliminate systematic risk. These strategies attempt to mitigate risk by neutralising exposure to broad groupings (sector, industry, market capitalisation, country, or region, for example), which then permits the flexibility to exploit specific investment opportunities as they arise; and, • Insurance-linked investments – Returns are dependent on the performance of a pool or index of insurance risks. The most common form is catastrophe bonds, used by insurance companies to hedge risks in a similar way to reinsurance contracts. Insurance-linked investments offer good diversification benefits as returns are not correlated to market or economic factors. Real asset strategies generally offer a good hedge against future inflation and are usually backed by physical or tangible goods. There is an intrinsic value to real assets due to their utility or commercial application. The return of real assets is expected to be a combination of capital appreciation, income return and illiquidity risk premium. • Commodities (long only, long/short, shares) – Raw materials extracted through mining activities. The changes in commodity prices are expected to be heavily linked to the well being of the global economy (expected demand), investment demand, output from mining and agricultural activities (expected supply) as well as seasonal or political factors. Investments
Van Eyk Alternative Absolute return assets/strategies – Fund of Hedge Funds – Global macro – Fixed income macro – Event driven – Equity market neutral – Insurance-linked investments Real assets – Commodities – Precious metals – Direct property* Total
Strategies rated 16 11 10 1 3 0 6 3 16 66
Source: Through affiliate partner Adviser Edge
through exchange-traded contracts may earn a roll yield; • Precious metals (shares and commodities) – Precious metals, such as gold, differ to other broader commodities in that they are frequently viewed as a safe haven assets or as an alternative store of value to financial assets against future inflation. User consumption is driven by a combination of industrial or investment demand. Traditionally, supply is sourced from mining production, metal recycling and selling by central banks; and • Direct property – Rental income from property investments are usually indexed to inflation (CPI), making property investments a more effective hedge against inflation.
In association with
www.moneymanagement.com.au April 14, 2011 Money Management — 23
ResearchReview out at well over 5 per cent per annum. And they will invest to achieve that level of growth. If actual growth in the economy turns out to be more like 2 per cent per annum, much of that investment will be wasted. Similarly, some adventures into emerging markets will be successful, but many will also fail expensively. Finally, US profits as a share of GDP are close to all time highs – typically, profitability falls from these levels. It’s reasonable to expect the trend from here to be down to more usual levels over the next decade.
Is this a traditional recovery?
The falling dollar kicker
PortfolioConstruction Forum asks, is this the time to be buying or selling international equities? Tim Farrelly outlines some likely future scenarios.
s solid data has come out of the United States, and the European debt crisis fears seem to have eased, many commentators are coming to the view that the recovery in the developed world may be much stronger and more sustainable than had previously been anticipated. This is in complete contrast to my own view that this recovery is not sustainable and that economic growth in much of the developed world will remain weak for many years. Which path the developed world takes is a critical question for those considering their international equity exposures. In our view, international equities are expensive at present. According to our forecasting techniques, international equities will produce lower returns over the next 10 years than those available from term deposits. If you accept this view, you would make no new investments in international equities and would, in fact, look to reduce your current international equities exposures to zero within 18 months to two years. On the other hand, if you accept what can be described as the emerging sustainability consensus, you could increase our current forecast 10-year returns for international equities from 6.6 per cent per annum by an extra 2 per cent per annum on the basis that earnings per share growth will increase by around that much. This would take our forecast returns for international equities above those of term deposits, and the need for action would be much less.
International equities: making the case
The case for solid returns from international equities can be broadly summarised along four themes: • The recovery will be much more sustained than has been expected. Despite fears about deleveraging and debt, this will be a classic ‘V’ shaped recovery – just look at the improving numbers. The recovery will keep
feeding on itself as confidence returns; • Developed market companies will profit from the huge expansion of the emerging market middle class. Even if developed market growth is not quite as fast as usual, the overall global economy is still growing at a very fast pace; • US companies in particular are cashed up, highly profitable and poised to take advantage of that expansion; and • The strong Australian dollar means we are buying at bargain prices.
The recovery in developed markets
So far, this has looked like a normal, if somewhat sluggish, recovery. And so it should have because, to date, it has been a recovery driven by the normal factors, including low interest rates, stimulus from increased deficit spending from governments, inventory rebuilding, and a gradual return of consumer confidence. If that was all there was to it, this would be a classic recovery. However, our concerns about the sustainability of the recovery in developed markets are driven by the huge and escalating levels of government debt throughout much of the developed world – and, in particular, the impact that will have on growth when governments, eventually, move to address the issue. The problem – as described in the Bank of International Settlements Working Paper No. 300: The future of public debt, prospects and implications – is that if current taxing and spending policies continue for the next 30 years, government debt in the US, the UK and Japan will be 440 per cent, 550 per cent and 600 per cent of gross domestic product (GDP), respectively. Needless to say, debt levels like these will not happen. If, for example, a country had debt of 400 per cent of GDP, interest payments would chew up 20 per cent of GDP if the country in question could get away with paying debtors 5 per
24 — Money Management April 14, 2011 www.moneymanagement.com.au
cent per annum interest. At a more likely 10 per cent interest cost, it would require 40 per cent of GDP to meet interest payments, meaning taxes – generally 25 per cent to 40 per cent of GDP – would be completely consumed by interest payments. So it’s reasonable to expect that such debt levels will not be reached. Instead, these countries will have to make huge cuts in spending, or huge increases in taxes or, most likely, both. To date, we have not seen any of these measures introduced in the US or Japan, which is why it feels like a traditional, if sluggish, recovery. But when they are introduced, major slowdowns in economic growth are likely. In the UK, a partial austerity program has just begun. This makes for a fascinating test case for the rest of the world. Within a year, we should have a clear idea of the impact of these types of measures but the early signs are that they will, in fact, stall the economy. How long austerity measures can be deferred will be equally fascinating. But they are coming. It is a question of when not if.
Emerging markets to the rescue
Will developed market companies be dragged along by the emerging markets growth? It’s a nice idea. But if it was absolutely reliable, Japanese companies should have been able to shrug off the impact of the slow domestic economy after 1990 and take advantage of Japan’s strong market position in the rest of the world. What actually happened was that profits fell by 50 per cent over the next decade. While this does not mean the same fate awaits US and European companies, it is a warning nonetheless. Even if successful in emerging markets, there is a long way to go for most companies. Only 5 per cent of S&P500 companies currently generate more than 20 per cent of their sales in emerging markets – not much of a base. Exposure to emerging markets will help developed market companies, but it won’t be enough.
Cashed up and highly profitable
Being cashed up is a good thing. But what will they do with the cash? If you surveyed all US companies today and asked what their ambitions for domestic growth were in the coming decade, they would probably average
Farrelly’s believes the Australian dollar will weaken over the next decade – but that impact is already factored into our forecasts which assume that currency gains will add 1.9 per cent per annum to the returns from international equities over the next decade. This is consistent with the Australian dollar falling to around US$0.82 by 2021. That may actually happen in a much shorter time, which would give a quick and large boost to returns. Or, it may take much longer. If you believe that the resource boom will continue for some time and that the next move in interest rates is up, you probably should also believe that the Australian dollar is going higher, in the medium term at least. It would not be surprising to see the Australian dollar at US$1.20 over the next year or two. That is not a prediction, merely an indication of the amount of short-term uncertainty there is with respect to currency gyrations, as we would also not be surprised to see it at US$0.80. In other words, those investing with high confidence of a medium-term currency kicker may end up being very, very disappointed.
Portfolio construction implications
If you accept the low developed world growth argument, it is time to move to the exits – slowly. Set a target weight in international equities, preferably at zero, and plan to be completely sold down within 18 to 24 months. If you see your clients half yearly, you may choose to sell 20 per cent of their holdings now and then another 20 per cent each six months for the next two years. If you see your clients annually, you could sell one-third now, one third in a year’s time and one-third in two years’ time. There is no particular urgency. This is not a matter of timing, as we have no sense of when a downturn will occur. From past experience, it could be anywhere from a month to five years away. If markets come back to better value before you have completed your sales program, simply stop selling. Finally, don’t invest new money in international equities. By all means, make an allocation to international equities – but leave that in cash until better buying opportunities arrive. They will, we just don’t know when. And, of course, if you accept ‘the world recovery will just keep rolling’ thesis, there is nothing to do but to sit back and enjoy the ride. Tim Farrelly is principal of specialist asset allocation research house, farrelly’s, available exclusively through PortfolioConstruction.com.au
Research round-up PorfolioConstruction Forum asks the major research houses about their most recent projects and appointments. Lonsec
• Lonsec has released its updated Preset Model Portfolios, which are available on Asgard e-Wrap, BT Wrap, Macquarie Wrap, Colonial First State FirstChoice and Navigator Personal Investment Plan. Each comes with six model portfolios – one for each Lonsec Risk Profile, ranging from ‘secure’ through to ‘high growth’. • In its review of the investment implications of Japan’s earthquake and tsunami disaster, Lonsec predicts that Japan’s economy (the world’s third largest, representing around 9 per cent of the global economy) is likely to move into recession in the first two quarters of 2011 which will detract 0.2 per cent to 0.5 per cent from global economic growth in 2011. The International Monetary Fund had expected the global economy to grow by 4.4 per cent in 2011, so in Lonsec’s view a Japan recession could reduce global growth to around 4 per cent, as most of the growth in the global economy is being driven by the US, Asia (ex Japan) and Europe. • The best long-term returns from direct property are likely to be delivered on commercial property assets carrying a higher level of risk, according to Lonsec in its recent update on the hybrid property sector. The Australian listed property market looks to be the best value bet in terms of gaining exposure to commercial property, while global property securities appear less attractive than Australian real estate investment trusts (A-REITs) from a valuation point of view.
• Mercer has added to its investment consulting team. Environmental, social and governance specialist Dr Richard Fuller has joined Mercer from the Hesta Super Fund. JP Crowley joins Mercer as an investment consultant from Ibbotson Associates. Mercer now has more than 100 investment consulting staff in Australia and New Zealand. • There are new realities investors should consider in 2011, according to Mercer. The status of sovereign debt as a safe haven investment has been challenged, and “in a world where the cost of borrowing for Microsoft is cheaper than the cost of borrow-
ing for many sovereign developed countries, the whole approach to bond investing may need to be revisited”. In addition, the “inexorable rise of China” raises fundamental questions about changing world hegemony and economic might, and the risks inherent in the reform of the US and European financial system, Mercer warns.
• Australia’s managed funds industry scored a below-average ‘C’ grade in the second Morningstar Global Fund Investor Experience report. The study compared investment experiences in 22 different countries based on criteria set by Morningstar, including disclosure, fees and expenses, investor protection and taxation. Australia’s C grade is unchanged from the prior study in 2009. • Morningstar has promoted existing team members John Valtwies, Tom Whitelaw and Tim Wong to the senior research analyst positions. Alison Stauss has joined as an associate analyst from Morningstar’s graduate program.
Standard & Poor’s
• Standard & Poor’s Fund Services (S&P) has appointed Aniket Das, a CFA Level 3 candidate, to the position of research analyst. Tara Bell has rejoined S&P as associate director, while James Gunn and Andrew Yap have been promoted to associate director positions. Gunn will head Australian equities funds research and Andrew Yap takes up the position of inaugural head for multi-sector funds. • In its latest Musical Chairs: Fund Managers on the Move report, S&P identified just three key fund manager departures in Q4 2010, significantly fewer than all prior quarters of the year. Of the 40 key departures in 2010 across 27 organisations, 90 per cent were from mainstream managers, and just 10 per cent were from boutiques, the report noted. • Australian property securities funds are on the road to recovery, according to S&P Fund Services’ sector report. “The AREIT sector has moved to a more conservative footing after a period of transition,” S&P noted, adding that the legacy of the
Lonsec predicts that “Japan’s economy (the world’s third largest, representing around 9 per cent of the global economy) is likely to move into recession in the first two quarters of 2011.
global financial crisis was still apparent in the three- and five-year returns of funds in the sector.
• Van Eyk has made four new appointments to its research team. Varun Venkatraman and Nimalan Govender have joined as investment analysts focused on equity fund research. Govender was previously with Investec in South Africa as lead sell-side analyst, and Venkatraman was most recently a sell-side
analyst with securities firm, Linwar. Alex Dore and Victoria Yates have joined van Eyk as research associates from van Eyk’s new graduate program. • Financial planners and fund managers remain wary of the global economy and its likely impact on their clients’ investment portfolios, according to van Eyk in a survey of delegates at its annual conference in March. A solid majority of delegates believe there remains a possibility of a hard landing for the global economy given China’s slowing economy, the aftermath of Japan’s tragic natural disaster and the sovereign credit crisis in Europe.
Zenith Investment Partners
• The median active Australian large cap fund manager underperformed both the Australian market by a “fair margin” as well as its global peers in 2010, according to Zenith. The underperformance is attributable to the strong outperformance of the materials sector and the failure of investors to differentiate between the growth prospects of companies, “as exemplified by the compression of price-to-earnings relatives in the market, making active stock picking tough”. There are reasons to be optimistic, however. The market is relatively cheap, Australian corporations are healthy and economic growth prospects remain strong, according to Zenith.
Reports released in March:
• Lonsec – Month in Review • Lonsec – Large Cap Australian Equity Funds review • Lonsec – Small Cap Australian Equity Funds review • Mercer – Global Equities sector review • Morningstar – Global Infrastructure funds review • Morningstar – Global Property funds review • S&P – Monthly Economic & Market Report • S&P – International Equities Growth/GARP funds review • S&P – Australian Listed Property sector report • S&P – The pros and cons of investing in international small cap funds • van Eyk – What to look for in ETFs • van Eyk – Fixed Income Macro sector overview • van Eyk – March 2011 Investment Outlook Report • van Eyk – Australian Equities sector review • van Eyk – Australian Equities Concentrated sector review • Zenith – Monthly Economic Report • Zenith – Asset Class Forecast Report • Zenith – Australian Large Cap Sector Review
Upcoming in April:
• Lonsec – Alternative Income funds review • Lonsec – Global Equities funds review • Lonsec – Institutional investment in Agribusiness review • S&P – International Equities (Large/Small) funds report • S&P – Alternative Strategies (Multi-Asset) funds report • S&P – Mortgage funds report • S&P – Australian Fixed Interest funds report
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Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (Colonial First State) is the issuer of interests in FirstChoice Wholesale Personal Super offered through the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557. Avanteos Investments Limited ABN 20 096 259 979, AFSL 245531 (Avanteos) is the issuer of interests in FirstWrap Plus and FirstWrap offered through the Avanteos Superannuation Trust ABN 38 876 896 681. This is general information only and does not take into account any individual objectives, financial situation or needs. Investors should consider the PDS available from Colonial First State before making an investment decision. Colonial First State and Avanteos are owned ultimately by Commonwealth Bank of Australia ABN 48 123 123 124 through the Colonial First State group of companies. Commonwealth Bank of Australia and its subsidiaries do not guarantee performance or the repayment of capital of Colonial First State or Avanteos. CFS2001/STRIP www.moneymanagement.com.au April 14, 2011 Money Management — 25
Toolbox Adjusting to tax reforms David Shirlow takes a look at the Government’s concessional contribution changes and what they mean for clients.
ast May, the Federal Government announced that from 1 July 2012 it will allow individuals aged 50 and over with total super balances below $500,000 to make up to $50,000 in concessional contributions (CCs) a year. Treasury recently released a paper canvassing issues for implementing this measure. Resolving the issues involves juggling difficult tensions between budgetary savings, fairness and administrative complexity. The $500,000 threshold is essentially a means test on the CC cap, which limits the Government’s budgetary cost of providing tax concessions. It takes no account of individual lifetime contribution patterns and the nature of past contributions (ie, whether they were concessional or not), and it won’t be indexed so its real value will be eroded over time. It involves a lot of tinkering, will add to the cost of super administration and is at odds with other recent Government efforts to avoid this.
In addressing the issue of withdrawals generally, Treasury has put forward three possible options. Option 1: Allow people who have withdrawn benefits to be eligible for the higher cap, but count withdrawn benefits towards the threshold. Under this approach, withdrawals would be indexed in line with average weekly ordinary time earnings (notwithstanding that the $500,000 itself will not be indexed). Funds would need to report all benefits (except financial hardship ones and rollovers, including spouse contribution and family law splits) to the Australian Taxation Office (ATO) annually and maintain lifetime cumulative indexed drawdowns. As for the date from which withdrawals would count, a date earlier than 1 July 2012 may cause problems for large funds because it is unlikely they could report useful historical benefit payment data before then. This option is attracting widespread industry opposition on the basis that it is akin to a smaller reasonable benefit limits (RBL) system, combining much of the administrative downside of RBLs without much of the equity upside. Option 2: Allow people who have withdrawn benefits to be eligible for the higher cap but don’t count withdrawn benefits towards the threshold. The policy weakness with this approach in its pure form is that it would leave scope to exploit it with a recontribution strategy for those aged 55 and over. On the other hand, it is administratively
reserves can “serveSMSF a range of different purposes and those purposes can vary considerably from fund to fund depending on the terms of the fund’s governing rules.
simpler and perhaps this advantage outweighs the budgetary (Government revenue cost) and fairness issues it raises. Option 3: Disqualify people who have withdrawn benefits from the higher cap. This option is simpler than option 1, but it would become necessary to identify and report any relevant withdrawal. As with option 1, if it were adopted there will be a question about the date from which withdrawals will be counted. From a communications, administrative and planning perspective a later date (such as 1 July, 2012) may be desirable – notwithstanding that it would enable clients to withdraw in the meantime and potentially qualify. Clients who had commenced pensions before the test date would need to discontinue receipt of pension payments before that date to qualify for the higher cap, unless the Government accepted that ongoing payments from pension scommenced before the test date should not disqualify them from the higher cap. This would seem to defeat the policy purpose of transition to retirement pensions. Treasury noted that option 3 would potentially unfairly prevent a person who had never had an account balance of $500,000 or more but had withdrawn a benefit from qualifying for the higher cap.
Who makes the assessment?
Treasury has canvassed the following options. • Self-assessment – A key risk would be that clients would get this wrong under any of the options, effectively aggravating the excess contributions saga; and • The ATO could provide an online super balance prior to the start of the relevant year, which each client could rely on. Clearly there would be a ‘race against time’ to get this service up and running.
When is the assessment made?
Treasury has canvassed the following options.
26 — Money Management April 14, 2011 www.moneymanagement.com.au
• 30 June immediately preceding the contribution year – The problem with this is that the ATO wouldn’t receive information in time to provide the online solution referred to above; and • 30 June one year earlier than that (eg, 30 June 2011 for the 2012-2013 contribution year) – While this would be more likely to work in the long term it’s hard to imagine it would be ready in time and it raises some fairness issues.
How is the assessment calculated?
The value of all super interests would be added together, including all accumulation and defined benefit interests, interests in untaxed and constitutionally protected schemes, and an SMSF member's share of any fund reserves. The value would be based on either: • The withdrawal benefit used for the purposes of member contributions statement reporting to the ATO, except for non-account-based pensions, for which family law methodology would be used (if pensioners qualify given earlier options); or • Family law methodology for all relevant accounts. For self-managed superannuation fund (SMSF) clients, account values would need to be based on net market value otherwise they would be disqualified from a higher cap. This obviously raises valuation cost issues for assets such as real property. SMSF reserves can serve a range of different purposes and those purposes can vary considerably from fund to fund depending on the terms of the fund’s governing rules. Any kind of simple apportionment of reserves between members (eg, on the basis of member account size) would disregard the contingent, nonvested nature of reserves. Obtaining any kind of legal or actuarial assessment for apportionment purposes would be costly and would not in any case guarantee a fair apportionment.
Treasury’s discussion paper highlights the extent to which the over 50s CC cap measure could add to the complexity of super. Given the potential fallout from the administrative upheaval of this measure, from a political perspective the Government may be tempted to reconsider the broader policy alternatives, such as setting the cap at either $25,000 per annum or $50,000 per annum for all people aged 50 or more. The former might be politically unpalatable, and the latter fiscally unpalatable. However, fiscal matters are often a moveable feast and a universally higher cap ($50,000 indexed, or something similar) could be political winner. It would almost certainly enable a greater proportion of the workforce to accumulate adequate retirement savings. David Shirlow is executive director at Macquarie Adviser Services.
Briefs AXA Australia has updated its AXA Elevate insurance offerings to help address longevity risk. “As we have seen with the development of our North products, the need to address longevity risk is one of the key challenges this industry faces over the next 30 years,” said AXA head of individual life insurance, Stephen Rosengren. Changes to AXA Elevate’s offerings include level premiums on term, TPD, trauma and income protection products to age 70; an increase of the maximum monthly income protection benefit from $30,000 to $60,000; as well as changes to a range of trauma definitions, including melanoma and carcinoma. Rosengren also announced an increase to the partial benefit payment for the early detection of cancer. He added that payments of up to 20 per cent of the sum insured can now be made, up to a maximum of $100,000. COIN software has launched a new mortgage module for COIN Office, targeting the increasing number of financial advisers offering mortgage broking services to their clients. Macquarie announced the new module included in-built features to help advisers meet the new National Consumer Credit Protection (NCCP) requirements. COIN Mortgage would allow advisers to view up to 10 different products at once and compare loan features, interest rates and fees and conduct a cost analysis based on a client’s loan scenario. The new module also includes a single client data capture point, allowing advisers to integrate mortgage advice into their financial planning businesses. Macquarie also said the new module could fast-track client loan applications by feeding data directly into the lender’s ‘ApplyOnline’ application form. PLATFORM provider netwealth has introduced a foreign-currency investment option that targets United Kingdom residents who are rolling over their superannuation to Australia under the Qualifying Recognised Overseas Pension Scheme. The new feature allows members to retain all or part of their benefits in pounds sterling via netwealth Super Wrap and view it in Australian dollars on the website, which will be updated based on the daily exchange rate. “They can actually then decide at which point they’ll start to convert parts or all of their funds into Aussie dollars,” netwealth executive director Matt Heine added. Heine said the new investment option was driven by adviser concerns around moving their clients’ existing pension funds from the UK to Australia at a time of a perceived unfavourable exchange rate. Heine added that netwealth was also considering the addition of other currencies to this feature.
Please send your appointments to: email@example.com
RUSSELL Investments has announced the appointment of a head of its Advice Centre, which the company said signalled its commitment to the delivery of limited advice. Steve Wright joins Russell from Sunsuper, where he worked as a senior financial adviser. Wright will be responsible for providing advice to superannuation members on investment choice, contribution strategies and transition-to-retirement strategies. His appointment demonstrates Russell’s commitment to the delivery of limited advice, according to director of administration and consulting services, Siva Sivakumaran. “We firmly believe all members should have access to financial advice through superannuation and that Steve’s background and experience is a perfect fit for our model,” he said.
COUNT Financial has signalled its intentions for growth with the appointment of Lee Tonitto to the role of senior executive for business development, marketing and events. Reporting to Count chief executive Andrew Gale, Tonitto will be responsible for implementing growth strategies for the Count network and individual advisory businesses at an important time
in the company’s development. “She will also drive marketing initiatives to enhance Count’s brand and market positioning to attract new clients in targeted areas,” Gale said. Tonitto comes to the role after 15 years with AMP group, most recently as general manager of strategy and direct. She also spent three years at AMP-owned Hillross Financial Services where she assisted with the transition to feefor-service. She also played a leading role in growing planner numbers at AMP through the creation of the AMP Horizons Financial Planning Academy.
ANDREW Grinsell has recently been appointed authorised representative to Matrix Planning Solutions practice, Concept Financial Services. Prior to joining Concept, Grinsell was with Colonial First State as an authorised representative for Financial Wisdom and Advice Essentials. Grinsell recently joined Concept as an associate adviser. His new role will involve focusing on client reviews, paraplanning and new client interviews. “My main focus over the next six to 12 months will be to continue to learn and gain more experience in providing advice to clients
Move of the week WHK Group has appointed John Lombard as its new managing director. Lombard will take over from current director Kevin White when he departs on 30 June. Lombard joins WHK from global business software company SAP,where he held a number of senior roles including senior vice president. Prior to that he was a managing director with KPMG consulting, and was also part of the management consulting practice at PricewaterhouseCoopers. Lombard’s remuneration package includes a base salary of $700,000 per annum including superannuation, with short-term incentives of up to 100 per cent of base salary for achieving agreed objectives, and a longterm incentive of one million WHK shares subject to performance targets. Lombard’s appointment begins on 6 June to allow for a handover period before White departs.
with more comprehensive advice needs,” Grinsell said.
DEBTOR finance group Bibby Financial Services has expanded its presence in Victoria with the appointment of Grant Dickson to state sales manager, while Richard Dyer will take up a business development manager role. Dickson joined Bibby from Bankwest where he was a manager of business development in the commercial finance division. He has also held senior management roles with Promina and Australian Unity. Dyer most recently worked as a business development manager for the past four years with Bibby in the United Kingdom, before
moving to Australia. Dyer said this growth had been a result of the uncertain property market causing concern from the banks over credit limits for businesses. The appointments were made in response to the fast-growing factoring industry, which grew by 17 per cent over the last 12 months in Victoria alone, according to statistics from the Institute for Factors and Discounters.
INVESTMENTmanager Australian Executor Trustees (AET ) has appointed Cari Jackson Lewis as a special counsel for fiduciary services. Located in the Melbourne office, Lewis will be responsible for
Opportunities FINANCIAL PLANNER Location: Sydney Company: ANZ Description: ANZ Financial Planning is looking to recruit a financial planner who will be responsible for the provision of comprehensive financial planning services and advice. You will work on a fee-for-service basis and report to a practice manager. Specifically, you will provide strategies, access to a diversified product range and ongoing services. You are expected to have extensive knowledge of the financial planning industry, with a strong focus on managed investments and insurance strategies. Personally, you display high-level influencing skills, strong business planning skills, exceptional communication, proven client management skills and come with a track record of performance. Academically you will have completed, or made significant progress towards completing a recognised tertiary qualification in a businessrelated field such as business, commerce or accounting. You have also completed ADFS and are progressing towards your CFP qualification. Please send applications on www.anz.com/careers quoting ref number: AUS110934. For a confidential discussion, please call Sue Cusdin on (02) 9226 4567.
BUSINESS ANALYST – FUNDS MANAGEMENT Location: Melbourne
John Lombard identifying and facilitating opportunities for AET to be appointed as a fiduciary for charitable trusts, compensation trusts, trusts for a disabled child and traditional testamentary trusts. Lewis will also work closely with philanthropic and not-for-profit organisations and their investment management, accountancy and adviser services. She joined AET after over two years at the Victoria Law Foundation, where she rose to the position of Grants and Awards Manager. Lewis had previously worked with Fortune 500 companies based in New York, individual high-net-worth clients, financial advisers, insurance brokers, tax professionals and other advisers.
For more information on these jobs and to apply, please go to www.moneymanagement.com.au/jobs
Company: Kaizen Recruitment Description: Our client is a leading funds management business and is currently seeking an experienced business analyst to assist with a back office systems implementation. Reporting to head of operations, you will be responsible for engaging with front office investment teams to assist with the conceptual design of data and reporting requirements with the aim to improve their portfolio reporting capability. The ideal candidate will have previous experience working as a business analyst within a funds management business with a solid understanding of middle office processes and performance calculations for different asset classes. Previous experience with funds management systems HiPortfolio, Charles River or Simcorp Dimensions will be highly desirable. If you are interested in learning more about this opportunity then please contact Kaizen Recruitment on (03) 9095 7157.
HEAD OF CASH MANAGEMENT Location: Melbourne Company: Kaizen Recruitment Description: Our client has created an opportunity for a manager to head up their cash management team. The cash management team deals with FX and cash management trust products.The role is to coach, mentor and lead a team of highly
experienced professionals within an operational context. You will be able to review, understand and clear reconciliation breaks; communicate and manage expectations authoritatively with external clients and internal counterparts; and provide inspiration and leadership to a team of junior staff. The ideal candidate for this role must have a solid understanding of cash management processing and operational flow as well as proven experience leading teams. This role is available immediately so please apply right away by visiting www.moneymanagement.com.au/jobs. If you have any questions please feel free to email firstname.lastname@example.org
SENIOR PARAPLANNER Location: Melbourne Company: Bluefin Resources Description: A highly reputable bank has created a new opportunity for a senior paraplanner who has at least three years of paraplanning experience. The bank offers comprehensive financial advice to a broad spectrum of clients, with a main focus on high-net-wealth clients. We are looking for a senior paraplanner with experience in managed funds, risk, super, SMSF, tax-effective strategies and estate planning. To be considered you will have at least three years paraplanning experience, a completed
Diploma of Financial Planning Certificates I-IV and the ability to work autonomously as well as in a team. COIN software experience will be highly regarded, as well as your strong communication skills. Attractive remuneration package and excellent prospects await the successful candidate. For more information, visit www.moneymanagement.com.ay/jobs
FINANCIAL PLANNER Location: Canberra Company: Bluefin Resources Description: A national bank seeks an experienced financial planner who has proven experience providing face-to-face holistic advice to clients. Ideally, you will have completed a Diploma in Financial Planning I-VI or I-IV as an absolute minimum. The ideal candidate will be very sales driven and excellent at relationship building, bringing in new business and closing deals. Apart from providing financial advice to customers, your role will also involve providing business superannuation advice to small business owners, liaising with underwriters, life insurance administrators, advisor support consultants and other financial institution staff members. To find out more about this opportunity, visit www.moneymanagement.com.au/jobs
www.moneymanagement.com.au April 14, 2011 Money Management — 27
A LIGHT-HEARTED LOOK AT THE OTHER SIDE OF MAKING MONEY
Come together A GOOD deal of Outsider’s youth was spent during the socalled ‘decade of peace and love’ – the decade that spawned communes around Nimbin and gave rise to Woodstock, Glastonbury and, of course, Australia’s Sunbury. That is probably why he was delighted to note the decidedly ecumenical approach evident at the recent Conference of Major Superannuation Funds (CMSF) on the Gold Coast. CMSF is, of course, a product of the Australian Institute of Superannuation Trustees (AIST), which is seen by some as a competitor to the Association of Superannuation Funds of Australia (ASFA). And yet, there was ASFA with a booth at the CMSF and its chief executive,
Pauline Vamos, attending the opening sessions. Vamos was making no effort to hide her presence, and actually asked a question of the Assistant Treasurer, Bill Shorten, after the late-running minister delivered his address to assembled delegates some seven hours later than originally scheduled. If memory serves, the AIST similarly attended last year’s ASFA conference in Melbourne, indicating that while they may be competing for members, the two organisations recognise their common purpose. With ecumenicalism clearly having been the flavour of CMSF, Outsider can only assume that the absence of the major financial planning organisations was owed to their ongoing work in dealing
Out of context
“Accountants are marvellously perceptive at predicting the past.” One of the things Synchron’s
independent chair Michael Harrison
learned from his time in accountancy.
with the Future of Financial Advice changes and their responses to industry funds spruiker, David Whiteley. However Outsider knows that the planning industry has, in its time, also embraced ecumenicalism and well recalls
the very warm welcome received by industry funds stalwart, Garry Weaven, when he addressed an FPA conference. Could 2011 be the dawning of the age of Aquarius, or is Outsider simply living in the fifth dimension?
After presenting the top 10 questions financial advisers are currently asking, OnePath’s Graeme Colley said questions coming from journalists sometimes might appear quite peculiar.
OUTSIDER has always loved his sport. Find a Bledisloe Cup match, or a golf tournament on a sunny afternoon, and he is certain to be watching – or playing, if it’s golf. So he cannot imagine why Money Management’s Melbourne correspondent, who has about as much interest in sport as a piece of wood, and less knowledge, has chosen to live in the heartland of AFL mania. The first time this young pup heard a reference to AFL at a Melbourne industry conference it went straight over his head.
He has since lost count of how many times industry presenters have mentioned their favourite footy team at the outset of every presentation, or introduced other speakers by mocking theirs. It gets worse when most industry representatives meeting with the young correspondent try to break the ice with a comment on a recent AFL game, and are met with polite incomprehension.
The revolving door OUTSIDER never ceases to be amazed by all the comings and goings in the financial services industry – and last week’s Financial Services Council Life Insurance Conference, in Sydney, served to highlight just how many movements have occurred. In the space of just a few short hours of rubbing shoulders with delegates at the conference, Outsider was reminded of the recent changes that had occurred at Zurich, together with consolidation among the income protection players. Among those proving the migratory
“What are journalists asking? Well, I had David Potts ring me up yesterday asking how much money he’ll need for retirement.”
nature of insurance executives has been inveterate golfer, Michael Burke, who has found his way from MetLife to Australian Income Protection and now Windsor Income Protection. Also reflecting the effects of consolidation has been Phil Collins and his team from IUS Life who are now part and parcel of Zurich. Then, of course, there have been the recent departures from Zurich resulting from changes to its marketing and communications arrangements. So far as Outsider is concerned, it gives a whole new meaning to the term ‘churn’.
28 — Money Management April 14, 2011 www.moneymanagement.com.au
Attempted explanations that he doesn’t watch AFL, and would much rather read a good book, leave the rep staring at him as if he suddenly sprouted an extra head. It is becoming obvious that knowledge of the AFL is as important to the Melbourne financial services industry as knowledge of the industry itself. Perhaps Outsider should organise a crash course.
“I trust that you'll find the rest of these presentations ‘fully sick’.” Synchron founder Paul Riegelhuth going all out to prove his group is now the place to be for younger advisers.