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The publication for the personal investment professional


May Budget to ring in super changes By Mike Taylor THE Federal Government is expected to announce a number of key changes in the May Budget aimed at overcoming what are regarded as unintended consequences around the so-called ‘Simpler Super’ regime and the excess contributions tax (ECT). If the Government delivers on the expected changes it will be consistent with lobbying from virtually every major financial services group in circumstances where some clients have inadvertently found themselves in breach of the excess contributions rules – with the result that the amount was taxed at an accumulative rate of 93 per cent. The changes will also reflect concerns expressed by the Commissioner for Taxation, Michael D’Ascenzo, who made clear to the industry that the ability of the Australian

Michael D’Ascenzo

Fiduciary duty nothing new By Caroline Munro

CARE needs to be taken in mandating a ‘best interest’ or fiduciary-like duty, because it would imply that one did not already exist, according to Argyle Lawyers principal Peter Bobbin. “To introduce a best interest or fiduciary duty as a new standard implies that it didn’t exist before. This would be a surprise to the many professional financial planners who always considered it to be the standard that applied to them, and the standard that they applied to client servicing,” said Bobbin. “And to the extent that it is a new standard, there will be two client/planner relationships pre and post implementation. How is the cross over of the new standard to be applied?” The Treasury and the Future of Financial Advice Peak Consultation Group is currently mulling over two possible approaches to a proposed

best interests duty: one that is outcomes based and considered by some to be closer to a fiduciary-like duty, and another that is processbased. Bobbin said that whichever route Treasury and the consultation group took, consideration needed to be taken regarding what standards financial planners were currently operating under and what kind of relationship already existed between planners and their clients. Argyle Lawyers associate and member of its financial services team, Lisa Chambers, said Treasury’s fiduciary-like duty option was problematic in the financial planning context because it would “almost certainly be subject to caveats and qualifications”. “This would dilute the impact and undermine what should be the true intent of facilitating better advisory outcomes for clients, as licensees and advisers grapple with Continued on page 3

Taxation Office (ATO) to exercise full discretion on inadvertent breaches was limited. “The law places strict limits on the application of the discretion which may only be applied where there are special circumstances and the decision is consistent with the objectives of the relevant tax laws,” D’Ascenzo told an industry conference. While the Government is not expected to accede to calls by organisations such as the Self-Managed Superannuation Fund Professionals’ Association of Australia (SPAA) to return contribution caps to pre-2009 levels, it is expected to tidy up some of the issues identified by D’Ascenzo and the ATO. The Assistant Treasurer and Minister for Financial Services, Bill Shorten, has re-stated the Government’s intention to restore the $50,000-a-year contribution cap for those aged over 50 and with less than $500,000 in

super assets, starting from the middle of next year, but the SPAA and a number of other organisations have asked the Government to go further. However, in circumstances where the Treasurer, Wayne Swan, has spent most of the past month signalling a tight Budget, most industry lobbyists believe that whatever superannuation-related concessions are delivered on 10 May will be at the margin. They said they would count it as an achievement if the Government tied up the unintended consequences around ECT and perhaps extended the concessional contribution cap arrangements for those over 50 to include people with up to $750,000 in super savings. For a full report, see the SMSF feature on page 12.

Risk advisers defiant of FOFA By Milana Pokrajac WHILE many financial planning practices have moved to the fee-for-service remuneration model in preparation for the introduction of the Future of Financial Advice (FOFA) reforms, most risk-focused advisory businesses are not shying away from commissions as yet. The Association of Financial Advisers (AFA) vice president and risk specialist, Adam Smith, said most risk specialists hadn’t moved to the fee model, which was mostly due to the general optimism within the industry around the government’s reconsideration of insurance products. Australian Securities and Investments Commission (ASIC) commissioner Dr Peter Boxall recently said that the Treasury had acknowledged that insurance was different from investment products and that it was looking to explore concerns about affordability and the potential for underinsurance. “The feel is that risk commissions will remain,” Smith said. “And a lot of that basis is on consumer research conducted by the likes of Zurich around consumer preferences on how they’d rather remu-

Dr Peter Boxall nerate advisers for insurance advice.” Both Smith and Synchron director Don Trapnell also believe the Australian government would not wish to follow in the footsteps of the United Kingdom. “They [United Kingdom] have now reintroduced commissions on the risk side because they were finding that the penetration of protection for families dropped dramatically,” Trapnell said. He added that Synchron, as a risk-focused dealer group, had not moved away from the commissionbased remuneration model. “Certainly, we’ll have some contingency planned, Continued on page 3


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 Managing Editor: Mike Taylor Tel: (02) 9422 2712 News Editor: Chris Kennedy Tel: (02) 9422 2819 Features Editor: Angela Faherty Tel: (02) 9422 2210 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

Longing for stability


inancial planners could be forgiven for suffering reform fatigue – and the release, last week, of Richard St John’s consultation paper, Review of compensation arrangements for consumers of financial services, will only serve to magnify it. While St John has done a thorough job in traversing all the issues, there is little in his consultation paper that planners don’t already know: that the existing compensation arrangements are less than perfect, that professional indemnity insurance is expensive and often impractical, and that the Financial Ombudsman Service arrangements are less than ideal. However, given the importance of the issues raised by St John it is disturbing that the Assistant Treasurer and Minister for Financial Services, Bill Shorten, appears ready to outline the first draft of the Future of Financial Advice (FOFA) changes in advance of industry responses being received with respect to the review of compensation arrangements. While it may be arguable that the responses to the St John consultation paper can be considered with industry responses to the initial FOFA outline, the Government is in danger of unnecessarily complicating an already highly

ADVERTISING Senior Account Manager: Suma Donnelly Tel: (02) 9422 8796 Mob: 0416 815 429 Account Manager: Jimmy Gupta Tel: (02) 9422 2850 Mob: 0421 422 722 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 Sub-Editor: Tim Stewart Sub-Editor: John Golledge 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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The minister will not achieve a sustainable outcome by rushing to impose legislation with the consultative processes left incomplete.

complex legislative exercise. St John was originally handed his task by the former Minister for Financial Services, Chris Bowen, and the wide-ranging nature of his brief always meant that it was a task that could not, and should not, be rushed. As well as assessing the effectiveness or otherwise of the existing Australian regime, his consultation paper has examined the


systems that exist in other countries and jurisdictions. If the Government is to introduce legislation around the FOFA changes then it is imperative that it encompasses not only the recommendations that flow from St John’s comprehensive and well-researched consultation process, but also the shortcomings his analysis has already identified. Indeed, rather than getting too focused on FOFA as an end in itself, the Government needs to reflect upon the fact that it is actually embarking on a substantial update of the Financial Services Reform Act – and that it is an exercise that must ultimately not only be equitable, but durable. The financial planning sector and, indeed, the entire financial services sector is being put through a good deal of pain and cost by the Government’s FOFA exercise, and it behoves Shorten to make sure he achieves an appropriate outcome. The minister will not achieve a sustainable outcome by rushing to impose legislation with the consultative processes left incomplete. The minister would be wise not to leave a rushed patchwork as his legislative legacy to financial services. – Mike Taylor

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National Australia Bank declines stake in PIS: Page 4


Technology driving industry innovation: Page 18

Planners accept the inevitable By Mike Taylor

Graph: Adviser Sentiment

Mobility the next technology frontier By Caroline Munro

IMPROVING online capability is only the start of technological innovation in the financial services sector, with the next milestone being mobile capacity, according to technology leaders in the industry. The financial services industry is nearing a mature phase in terms of online capability and the next big mountain to climb is mobility, according to AXA Australia’s general manager for digital business, Cam Cimino. “For our industry, mobility is in its infancy,” he said. “I haven’t seen many applications that I think are of great value to the user at this point. I think there are great opportunities in that space and as the devices become easier to use in a business format rather than in an end-user format, we expect














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AUSTRALIAN financial advisers appear to have shrugged off at least some of the gloom that saw sentiment descend to lower levels between April and August this year. The latestWealth Insights adviser sentiment snapshot for September has seen sentiment returning to levels similar to those recorded at the close of last year, but still well below the peak achieved in late January and early February and less than half that recorded at the peak of the market in February 2008. The new Wealth Insights data, released exclusively to Money Management, appears to reflect planners’ acceptance of the realities flowing from the Federal Election and a growing confidence in their ability to adapt to a new fee-for-service environment. The degree to which planners are accepting the inevitability of the move to fee-forservice has also been reflected in data compiled by Colonial First State (CFS) from flows into its FirstChoice platform.

Source: Wealth Insights

Announcing last week that FirstChoice had grown to become the largest platform in the space, CFS chief executive Brian Bissaker also pointed to data indicating that fewer planners were utilising those elements of the platform delivering commissions.

He said the flow to what was regarded as the fee-for-service options now stood at around 60 per cent. Wealth Insights managing director Vanessa McMahon said the data around the flows on the FirstChoice platform tended to

confirm the feedback provided by planners during focus groups conducted by Wealth Insights. She said planners had accepted the inevitability of the need to shift to a fee-forservice model and were adjusting their commercial models accordingly. McMahon said the focus groups had also revealed the degree to which planners were conscious of the pressure on fees and were acting to keep them contained. “But they recognise that there are only two areas they can act on fees – platforms and the member expense ratio [MER],” she said. “There has not been a lot of relief with respect to platform costs, so the focus has been on MER,” McMahon said. “That explains recent adviser preference for indexed funds, exchange traded funds and direct shares. “Putting aside the performance of indexed funds, the recent preference exhibited by planners has also had a lot to do with fees,” she said.


Software sector headed for change THE financial planning software market is headed for some major adjustments, with product innovation and simplification the likely results of recent market upheaval. Following a sustained period of regulatory review and market uncertainty as a result of the global financial crisis (GFC), the financial planning software sector is now in a state of transition, according to market players. While the market remains dominated by larger players such as Coin and Iress, smaller players are keen to seize their share of the market and address the growing needs of planners looking to transform their businesses. However, with many practices reluctant to change their planning software because of legacy and business planning issues, gaining ground may not be that simple. Full report page 18

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Super members expect cheaper advice By Caroline Munro THERE is a massive disconnect between the demand for financial advice among super fund members and their willingness to pay for it, according to Investment Trends research. “One of the key themes that came out of the research was that people recognise that they could do with some advice, but they have no real understanding of either the value of the advice or its cost,” said Investment Trends chief operating officer Tim Cobb. The survey covered 1,090 Australians from all sectors of the population, and revealed that while there was an appetite for advice, both comprehensive and limited, there was a lack of understanding as to what it actually cost. And a substantial proportion expected super advice to be free, Cobb noted. “On the retail side there seems to be more of

an awareness that advice is something that you need to pay for, whereas on the industry fund side there is a much higher proportion saying that they should get it for nothing,” he said, adding that this attitude was likely a result of the messages coming out of industry super fund advertisements over the years. The research revealed that 60 per of investors wanted to know about the sort of advice their super fund could offer. “The challenge is that they would only be willing to pay about $270 for a comprehensive consultation on average,” Cobb said. About 60 per cent of respondents were also keen on limited advice, although they were only willing to pay about $100, he added. Cobb said there was also a trend across the market of people moving away from paying commissions deducted from their super fund, to paying a fee or hourly rate, also likely due to the

industry fund advertising campaigns. However, he said, it was interesting to note that some comments from respondents revealed concerns as to whether super fund advisers were the right people to be giving them advice regarding their super fund account in the first place. A few stated that they would rather pay for advice from an adviser completely disconnected from the super fund to give them confidence that the advice would be completely independent, said Cobb. Over half of respondents felt it was appropriate for financial planners, accountants and some bank advisers to provide limited scoped advice. Respondents also felt it would be appropriate to broaden the scope of limited advice to include transition-to-retirement, specific investments within super funds, nominating beneficiaries, Centrelink, and retirement planning in general. Tim Cobb

Fiduciary duty nothing new Continued from page 1

implementing processes and policy frameworks to ensure they can safely navigate the obligation,” she said. “Imposing a best interest standard and then watering it down seems somewhat redundant.” Chambers felt that the second option was more client-focused, facilitated a quality of advice approach, could be effectively implemented at the practice level, and recognised the subjectivity of financial advice and the complexities imposed by the advisory

relationship. Bobbin said his own frustration with reform in this area lay in the fact that the courts had only just come to grips with the financial planning standards imposed by the Financial Services Reform legislation, and would now have to reassess them all over again. “By necessity, courts will always be four to six years behind new legislation because it takes that length of time before an issue is brought before a court to be dealt with under the new Government views expressed in new legislation,” he explained.

Risk advisers defiant of FOFA Continued from page 1 but until such time as the legislation comes out, we are not making any changes to our processes on our risk side,” Trapnell said. However, RI Advice had been developing a fee model for insurance advice since late last year, which it said would make advisers ready for alternative outcomes. RI Advice national manager for risk insurance, Col Fullagar, said the dealer group had almost completed the development of its new remuneration model – the introduction of which would depend upon both the government’s and advisers’ decision. “If we have to [remove commissions], we want to be ready,” Fullagar said. “If we don’t have to, but the adviser wants to [move towards fee-for-service] – we want to be ready. If advisers want to stay on commission, then the work we’ve done on the potential fee side would enhance what they do on the commission side anyway,” Fullagar added. AFA’s Smith, who had taken part in government consultation in recent months, said the general feel the industry had received from Treasury was that commissions would remain on insurance at this stage. April 28, 2011 Money Management — 3


NIA opposes legislation of the term ‘financial planner’ By Chris Kennedy THE National Institute of Accountants (NIA) has opposed moves from financial planning bodies to have the use of the terms ‘financial planner’ and ‘financial adviser’ restricted by law. Last week the Financial Planning Association (FPA) proposed that only those belonging to a professional body would be able

to call themselves ‘financial planners’ while the Association of Financial Advisers (AFA) said ‘financial planner/adviser’ should be restricted to those who operate under an Australian Financial Services Licence (AFSL). These moves are nothing more than a cover to exclude other equally qualified advisers such as accountants and lawyers from providing financial advice services,

said NIA chief executive Andrew Conway. “Enshrining ‘financial planner’ in legislation will not improve the standards of advice to everyday Australians, nor will it bring back the millions of dollars lost to Storm or Westpoint,� Conway said. Representatives from both the FPA and AFA say that the NIA may have misinterpreted the intentions of last week’s announcements,

saying that there had been no attempt to exclude other professions such as accountants and lawyers. The FPA’s general manager of policy and government relations, Dante De Gori, said the FPA is not saying the use of the term should be restricted to any one professional body, just that the use of the term ‘financial planner’ should only open to members of a Govern-





ment-approved industry body, which could also include accountants belonging to bodies such as the NIA. The regulators would then decide which bodies qualified, he added. AFA national president Brad Fox said that the AFA’s view remained that a person should operate under an AFSL to provide financial advice, which could include people of multi disciplines, including accountants.





G>R MDS acquires MINC assets Mike Taylor




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PUBLICLY listed MDS Financial Group has acquired the online trading business, national client lists, private client business and advisory assets of the collapsed MINC Financial Services. MDS announced the acquisition to the Australian Securities Exchange last week, confirming that under the terms of the deal with the MINC Financial Services administrator, it would be accommodating MINCâ&#x20AC;&#x2122;s advisers in Townsville, Bunbury, the Gold Coast and Melbourne. MINC moved into voluntary administration nearly a month ago, and MDC Financial chief executive Damian Isbister made clear the acquisition did not include MINCâ&#x20AC;&#x2122;s debts, liabilities or infrastructure. â&#x20AC;&#x153;We believe the assets we are taking on will quickly yield revenue exceeding the costs of the acquisition,â&#x20AC;? he said. He said MDS Financial was working closely with Penson Financial Services Australia to ensure minimal disruption to clients during the transition period. The MDS announcement said clientsâ&#x20AC;&#x2122; securities holdings and cash accounts remained unaffected because they were maintained by the relevant CHESS sponsor, Penson Financial Services Australia, and bank cash management accounts.


FOFA reforms could lead to underinsurance: AFA By Mike Taylor

Richard Klipin

THE Association of Financial Advisers (AFA) has used new research results to urge the Federal Government not to abolish commission-based arrangements around advice relating to insurance products. The research, released last week, found that many Australians would not seek life insurance

advice if they were forced to pay for it via an upfront fee rather than by commissions. The research also suggested the Government’s proposed opt-in arrangements would act as an impediment. The research, conducted by CoreData and sponsored by major insurer, AIA Australia, was based on a survey of corporate superannuation and life insur-

ance clients and revealed that a commission paid by the insurance provider was the most common and preferred method of payment with respect to life insurance. It found that strong evidence existed to support the contention that many people receiving life insurance advice in today’s environment would exit the market if forced to pay a fee for service.

Commenting on the results, AFA chief executive Richard Klipin said it had revealed that people who used a financial adviser for their life insurance needs were more likely to have appropriate cover and be confident they understood what type of cover they had. “Disturbingly, however, many would not pay for it if commissions are abolished,” he said.

Treasury reviews compensation By Milana Pokrajac

CURRENT default compensation arrangements for retail clients rely largely on professional indemnity (PI) insurance, and provide no guarantee that retail clients will be able to recover compensation to which they may be entitled. That is one of the observations made by financial services expert Richard St John in the Government’s newly launched consultation paper on compensation arrangements for retail investors. St John said the problem for consumers arose when a provider did not have recourse to professional indemnity insurance cover and did not have the financial capacity to pay compensation – which may be the case if the provider has ceased to trade or has become insolvent. The consultation drew attention to a number of ways existing compensation arrangements could be strengthened, including the introduction of a more proactive administration of the requirements for PI insurance. The paper acknowledged the shrinkage of the PI insurance sector, and had sought comment from the industry about current conditions and competitiveness of the PI insurance market, including access and price. St John also suggested giving more attention to the financial resources held by a provider, as well as creating a ‘scheme of last resort’ that would provide compensation when a provider was unable to do so. The Treasury has invited consumers, licensees and insurers to participate in the consultation process, which will close on 1 June, 2011. April 28, 2011 Money Management — 5


Higher super balances will hinder life policies By Milana Pokrajac

Higher future savings could hurt insurance take-up.

THE predicted rise in voluntary savings and superannuation in Australian households will come at the expense of life insurance policies, according to IBISWorld chairman Phil Ruthven. Ruthven said that if investors thought their superannuation balances were sufficient to fund them through retirement, they

would be less inclined to take out life insurance policies to bolster that. “People will put more money into savings [and will not] continue to get more life insurance as such,” Ruthven said. His comments followed the release of the latest IBISWorld report, which examined the average household’s expenditure and how much Australians were

spending on particular services over the years. The report found that almost 9 per cent of the total household income went towards financial and insurance services, which included investment advice and tax planning. This figure had been growing at a steady pace from 2 per cent in the 1950s, but Ruthven said he did not believe further significant growth would occur in this field.

ASIC wins injunction against Hubb

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“Most of the growth has come through already, particularly over the last 20 years,” he said. “It may edge up a little bit further, but I don’t see it going beyond 10 per cent of household incomes any time in the foreseeable future.” But savings, which currently hold a smaller percentage of total household income than in the 1950s, were predicted to grow significantly, according to IBISWorld.

By Caroline Munro

PERMANENT injunctions have been secured against The Hubb Organisation’s Safety in the Market training courses and trading software, preventing it from making misleading or deceptive representations about its trading methodology. Investigations by the Australian Securities and Investments Commission (ASIC) have revealed that despite Safety in the Market’s claims, there was no evidence that its Smarter Starter Pack, which is sold within its Active Trader Program, taught or otherwise provided a proven methodology for profitable trading in financial products. “Licensees who offer financial products need to ensure that in making statements about performance or returns they do not mislead or deceive financial consumers,” said ASIC commissioner Peter Boxall. “ASIC will continue to actively monitor the marketing material for these products and will take action where it believes the law has been breached.” ASIC obtained orders in the Federal Court of Australia in Sydney preventing The Hubb Organisation from making or publishing misleading or deceptive representations about its Safety in the Market trading methodology. The Court order required that Safety in the Market send notices to all those who purchased the Active Trader Program, informing them of the basis of the court orders and the option available to them should they believe that they have suffered a financial loss as a result of the company’s representations.

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Potential debt funding role for super By Ashleigh McIntyre SUPERANNUATION funds could soon be seen as an alternative source of institutional-grade debt funding, following the decision by UniSuper to invest in Australian commercial mortgage-backed securities (CMBS). The first investment of UniSuper’s new CMBS portfolio, which is managed by Colonial First State Global Asset Management, will be committing $250 million to the Charter Hall Retail Real Estate Investment Trust (REIT). UniSuper’s chief investment officer John Pearce said the transaction would offer significant benefits for members. “Given our experience, investment strategy and horizon, UniSuper is well

placed to capitalise on investment opportunities such as this, and we remain open to investing in similar opportunities in future,” he said. The existing Charter Hall Retail REIT CMBS facility will be refinanced by a placement of notes for a four-year term, ending in September 2015. The AAA-rated note includes a margin of 1.8 per cent over the benchmark interest rate. It will be backed by a large collateral pool of sub-regional shopping centres and freestanding supermarkets valued at over $737 million and representing a loan-to-value ratio of 33.9 per cent. The transaction remains subject to completing documentation and rating agency confirmation.

Plan B forms SMSF alliance with Heffron By Chris Kennedy

PLAN B Group Holdings has entered into a partnership with self-managed super fund (SMSF) service provider Heffron, enabling Plan B to provide SMSF services to its clients and advisers. Plan B executive chairman Bryan Taylor said the partnership was a strategic fit for Plan B and its clients, as well as Heffron. The service would provide clients with greater diversity and flexibility of investments, he said. Heffron managing director Martin Heffron said both businesses shared the same fundamental values and client-focused philosophies, and added that the partnership would provide additional opportunities.

John Pearce

Software vendors vie for super market By Mike Taylor

COMPETITION is heating up between financial planning software vendors in a bid to gain mandates from superannuation funds. The level of competition has been evidenced by software firm Decimal, which has issued a statement warning fund trustees to be cautious in selecting outsource partners and software vendors. Commenting on his company’s success in delivering a financial advice solution to AvSuper, Decimal chief executive

Jan Kolbusz claimed the financial planning software arena was “littered with any number of potential outsource partners and software vendors promising great expertise in certain areas”. Among the points made by Kolbusz was that superannuation funds would need to make decisions about their future involvement in financial advice and whether they would simply offer limited advice or become “the central financial ‘hub’ for their members’ lives”. “Superannuation lives in a fluid, post-Cooper, post-GFC, post-Ripoll world,” the Decimal statement said. “So what happens when these worlds collide?”

Challenger posts strong AUM growth CHALLENGER’S assets under management grew by more than one-fifth over the past 12 months, to $27 billion at 31 March 2011, boosted by strong boutique inflows and retail life sales, the group has announced. Retail life sales for the previous quarter of $740 million were more than double the previous corresponding period, and incorporated the impact of the conversion of the High Yield Fund in February 2011, Challenger stated.

Institutional life sales of $31 million brought total life sales to $771 million for the quarter, while total life AUM was up 24 per cent for the past 12 months, to $8.3 billion. Boutique funds under management increased by $1.1 billion for the quarter to $13.8 billion due to both inflows and market performance, Challenger stated. Net funds management flows of $85 million for the quarter were negatively impacted by the High Yield Fund

conversion, but inflows across other funds were strong. “We have seen a continuation of trends across our business with strong flows to our boutique partnerships and record life sales,” Challenger chief executive Dominic Stevens said. The group remains on track to meet its financial year retail life sales guidance, which has been upgraded to in excess of $1.8 billion following the conversion of the High Yield Fund, he said.

Financial hub tendering process begins

Bill Shorten

THE Federal Government’s election promise to turn Australia into a financial services hub is starting to take shape, with the tender process beginning for the Centre for International Finance and Regulation. Assistant Treasurer Bill Shorten is inviting Australian universities to tender for $12.1 million in funding from the Commonwealth to host the centre. “The creation of the Centre for International Finance and Regulation is a key part of the Gillard Government’s work to promote Australia as a financial

ser vices hub in Asia,” Shorten said. The centre was proposed as part of the Rudd Government’s 2010 budget, with promises of $25 million over the next four years to be put towards funding. A working group, which will be chaired by Paul Costello, has been established to oversee the tender process and select the host university. The group includes private sector participants with significant financial services experience, as well as representatives from the departments of Treasury, Prime

8 — Money Management April 28, 2011

Minister and Cabinet, as well as Employment and Workplace Relations. “The Centre will focus on regional engagement, innovation and regulation. It will improve understanding of global financial markets, their interconnectedness, and their influence on national economies,” Shorten said. “It will represent a strategic link between academia, financial regulators, Government and the finance industry.” Shor ten said it was expected that the wor k would be completed by mid to late 2011.

Phil Galagher

Diversification vital in SMSFs By Caroline Munro THE severe problems caused by the Trio Capital collapse shows why diversification in selfmanaged super funds (SMSFs) is so important, according to head of wealth management at Equity Trustees Limited, Phil Galagher. The Government’s recent announcement that excluded SMSF trustees from compensation was further evidence why SMSF trustees needed to be careful of where they invested their money, he added. “No SMSF should be so exposed to any one collective investment or asset manager that a collapse or complete lack of performance will cause major financial problems for the trustees, such as the loss of the major part of their savings,” he said. Galagher said there was little anyone could do to prevent a major collapse of a total asset class, but no SMSF or investor should have hugely significant amounts with one fund manager or any one investment unless they fully understood all the risks. Galagher felt that any SMSF trustee recommended to invest more than 10 per cent of total capital with any one asset manager or managed fund should get a second opinion. “This doesn’t mean that an SMSF shouldn’t have a large amount invested in a particular asset class such as equities, but it shouldn’t be all in one fund or tied up in one stock,” he said “Diversification is still the best protection against major losses of retirement savings,” he said.


Natural disasters cause skills shortage By Chris Kennedy AUSTRALIAN financial services professionals are reluctant to explore job opportunities following a series of local and overseas natural disasters, leading to skillstightening in the sector. This is according to the latest Clarius Skills Index, which found that employees from the wealth management, insurance and retail banking sectors are increasingly hesitant to re-enter the employment market due to renewed uncertainty in this industry since the beginning of the year. This has led to a supply shortage of around 10 to 15 per cent in the financial services industry, according to the executive

Paul Barbaro general manager of Alliance Recruitment, Paul Barbaro. “In uncertain global times, candidates within the Financial Services sector are

more inclined to stay with their existing employer and ride it out before commencing a job search,” he said. “There is a high level of job dissatisfaction, but many will wait until global markets show sustained improvements before jumping ship.” The institutional sector is also experiencing a shortage of skilled workers due to global pressures with demand increasing by up to 15 per cent, he said. Barbaro added that wage pressures remained in those positions, and were likely to increase in the long term. The Queensland floods have also made employers cautious about recruiting staff, doubling the average leadtime from six to 12 weeks, he said.

Tower shareholders approve Dai-Ichi takeover TOWER Australia’s non-Dai-Ichi Life shareholders have voted overwhelmingly in favour of a scheme of arrangement whereby Dai-Ichi would acquire all ordinary shares in Tower Australia that it does not already own. In a statement to the Australian Securities Exchange (ASX), Tower stated that it would apply to the Federal Court for approval of the scheme. Subject to that approval, non-Dai-Ichi Life shareholders would then be entitled to $4 cash per share, expected to be paid on 11 May, Tower stated. This represents a premium of 46.5 per cent to the ASX closing price of Tower Australia shares on 24 December 2010, the

last day of trading before the Dai-Ichi Life offer was announced, according to Tower. More than 97 per cent of non-Dai-Ichi Life shareholders and 99.78 per cent of total shareholders voted in favour of the resolution, according to Tower. The proposed ownership change would add to the strength of the company, expanding services to customers and providing more opportunities for the business and its staff, said Tower chairman Rob Thomas. Dai-Ichi Life intends that the Tower board remain unchanged, although Dai-Ichi Life may add one of its own directors to the board, he said.

FirstChoice partners with XPLAN By Milana Pokrajac COLONIAL First State’s FirstChoice platform has embarked on a joint development with IRESS’ XPLAN software, which the two companies said would reduce application turnaround time for advisers. With the new deal between IRESS and CFS, financial planners can automate the production of FirstChoice applications which, when submitted to CFS, will generate real-time account numbers linked immediately to clients in XPLAN. Following adviser demands in recent years, major financial planning software developers have been focusing on speeding up application processes and reducing paperwork for financial advisers when it comes to servicing clients. “This solution provides advisers with a more efficient process that removes duplication of data entry and can significantly reduce the risks associated with manual handling of paperwork,” CFS general manager product and investment services, Alan Kenny said. According to IRESS managing director, Andrew Walsh, the main benefit of this integration was the ability to open investment and superannuation accounts much faster. “This integration with Colonial First State allows advisers to speed up the investment application process by supporting real-time submission of prevalidated application data,” Walsh said. “The loop is closed in the advice platform by automatically linking the account number to the client record,” he added.

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Fundies uncertain about fee structures By Milana Pokrajac CERTAIN fund managers appear to be unclear about all the intricacies of their own fee structures, making it difficult for both advisers and investors to ensure they are in line with investment goals, according to Morningstar. The researcher assessed 82 investment strategies during its recent review of large-cap Australian share funds, 18 of which employed some form of additional performancerelated charge. Only two of these 18 funds employ the same formula for measuring performance fees. According to Morningstar’s Best Practice in Managed Fund Performance Fees report, the lack of consistency in performance fee structures stems from the corresponding lack of “any

clear regulatory guidelines as to how the complex components of the performance fee structure should be displayed”. This, in turn, made it much more difficult for investors to compare funds, the researcher stated. Morningstar broke down a typical performance fee into its essential components and

calculated the impact of different fee structures on investors’ funds over a decade. “One of the highest impacts was the benchmark used. So if you’re using an absolute benchmark, if you’re saying ‘any positive performance – we will take a performance fee’, that is obviously the biggest performance fee,” said investment analyst

Tom Whitelaw. If the performance fee of 20 per cent was used on $100,000 over the decade, the difference between absolute and indexlinked benchmarks could be up to $46,000 over 10 years. “A number of fund managers also appear not to fully understand all the implications of their performance fee structures,” the report stated. In order to avoid being overcharged, advisers and investors need to ensure that any performance fee is benchmarked to an appropriate index, and look for a low base fee – as it is a constant cost regardless of performance, according to Morningstar’s report. “Ensure that the fund manager has to beat a reasonable hurdle before starting to accumulate performance fees,” the researcher suggested.

Super complaints taking too long By Chris Kennedy THE average time for complaints at the Superannuation Complaints Tribunal to be resolved has risen to 302 days in the current financial year, undermining confidence in the nation’s superannuation system, according to the Opposition Spokesman for Financial Ser vices, Mathias Cormann. This is up from an average of 256 days it took to resolve complaints in 2009-2010 and 235 days in 2008-2009, according to information provided by Assistant Treasurer Bill Shorten in response to a question on notice in the Senate. The increase comes despite the total number of complaints lodged with the

Tribunal decreasing during the same time period, Cormann stated. Cormann called on Shorten to fix the delays, as well as the issue with Australians being overtaxed for unintentionally breaching contributions caps. “Superannuation is the cornerstone of Australia’s retirement income policy. Australians must have timely access to any process to resolve their complaints when problems arise. Otherwise they will lose faith in the system,” he said. “These delays in getting a decision are impacting on people’s capacity to plan for their retirement. It is time Bill Shorten started to focus on doing the job he’s got rather than spend all his time chasing the job he wants,” Cormann said.

10 — Money Management April 28, 2011

Mathias Cormann

Insurance sales remain subdued By Caroline Munro INFLOWS into the life insurance risk market grew 12.5 per cent in 2010, although new premium sales continued a pattern of marginal growth, according to Plan for Life research. All companies surveyed experienced increased inflows in 2010 from $8.3 billion to $9.4 billion, with Tower (31.5 per cent), AMP (26.4 per cent), AIA Australia (19.1 per cent), BT/ Westpac (9.7 per cent), OnePath Australia (9.4 per cent) and National Australia Bank/MLC (8.8 per cent) achieving the highest growth rates. However, new premium sales were up just 0.4 per cent over the period, although Tower’s sales were up 30.5 per cent, followed by AMP (13.8 per cent) and AXA Australia (7.7 per cent). The individual risk lump sum market continued to experience steady and solid growth due to unabated growth in the housing market, Plan for Life stated. This sector saw premiums increase by 10.2 per cent year on year, with AIA experiencing growth of 19.9 per cent, followed by Zurich (13.1 per cent), Tower (11.1 per cent) and OnePath (11.0 per cent). However, sales increased by only 3.2 per cent over 2010, with AIA (22.9 per cent), AMP (16.6 per cent), OnePath (11.2 per cent), Suncorp (9.6 per cent) and AXA (8.6 per cent) reporting the highest growth. Inflows for the individual risk income market grew 10 per cent over the year, with BT/Westpac (21.3 per cent), AIA (19.2 per cent), OnePath (15.3 per cent), Zurich (11.5 per cent) and CommInsure (10.6 per cent) the best performers. New risk income premium sales were up slightly by 2.2 per cent year-on-year. AIA (39.5 per cent), Macquarie Life (26.7 per cent), OnePath (13.6 per cent) and AXA (13.0 per cent) reported significant increases, Plan for Life stated. However, it noted that AMP and National Australia Bank/MLC saw a decline in sales of 14.1 per cent and 11.5 per cent respectively.

InFocus HOUSEHOLD SNAPSHOT Australian household expenditure:



Financial and insurance services


Taxes and social contribution

6.6% Savings

Be careful what you wish for…


Some trustees have called for SMSFs to be included in the compensation arrangements relating to the Trio Capital/Astarra collapse but, as Mike Taylor writes, a high price will have to be paid.

12.4% 16.8%


elf-managed superannuation funds (SMSFs) represent the fastest-growing segment of the Australian financial services industry, largely because they are perceived as offering their trustees a greater measure of control over their destinies than would be the case if they remained members of an industry fund or a retail master trust. Among the attractions in establishing SMSFs is that they are allowed to operate under a number of different rules. In addition, SMSFs are regulated by the Australian Taxation Office (ATO), whereas all other funds answer to the Australian Prudential Regulation Authority (APRA). All Australian superannuation funds are covered in broad terms by the Superannuation Industry (Supervision) Act (SIS Act), but as this month’s Federal Government decision with respect to compensation relating to the collapse of Trio Capital has made clear, SMSFs do not enjoy the same standing as APRA-regulated funds where Part 23 of the SIS Act is concerned. The key element separating SMSFs from conventional superannuation funds is that APRA-regulated funds are ‘equitably’ levied to pay for the compensation that will ultimately be delivered as part of the Government’s decision regarding the Trio Capital collapses. Of the 690 direct investors in Trio Capital, 285 are understood to have been SMSFs. However, SMSFs fall outside the compensation scheme because, by their very nature, they are not subject to the annual levies imposed on conventional superannuation funds to cover the likelihood of fund collapses. Indeed, the explanatory documentation relating to the Commonwealth legislation is quite specific. It states: “The Levy Act allows the Commonwealth to set a maximum and minimum levy amount. The minimum and maximum levy amounts were introduced to distribute the levy burden in an equitable manner, whilst ensuring that it is administratively efficient to collect.” It goes without saying, therefore, that in the

absence of SMSFs being appropriately levied, APRA-regulated funds would strongly object to the Assistant Treasurer and Minister for Finance, Bill Shorten, extending the Trio/Astarra compensation arrangements to SMSF trustees. The likely objections of the APRA-regulated funds become more understandable when the amounts levied by the Government are understood. According to the explanatory documentation attaching to the legislation, in the 2002-03 financial year, the Minister for Revenue and Assistant Treasurer, Helen Coonan, made 543 determinations to grant financial assistance under Part 23 of the SIS Act. The documentation said the total amount of financial assistance granted was $22,580,281, with a further 79 determinations, granting $6,419,568 being made in the 2003-04 financial year. It said the Superannuation (Financial Assistance Funding) Levy and Collection Regulations 2005 would recoup these amounts, as well as $3,505,549 of financial assistance granted in 2001-02 but not recouped under the Superannuation (Financial Assistance Funding) Levy Regulations 2003. Thus, if SMSF trustees wished to be compensated in the same manner as those within affected APRA-regulated funds, it is clear that the SMSF sector would be required to embrace the imposition of a levy. In the absence of a levy and consequent inclusion in Part 23 arrangements, SMSF trustees and their advisers were told by Shorten their best course of action would be via the Financial Ombudsman Service. One media outlet quoted Shorten as saying: “If people wish not to operate under those SMSF regulations, they’re free to become members of the APRA funds.” This, however, did not dissuade the SelfManaged Superannuation Professionals’ Association of Australia (SPAA) from calling for SMSFs to be accommodated. Commenting to Money Management last

week, SPAA chairman Sharyn Long acknowledged that SMSF investors had more control than those in large super funds, but argued that should not mean they were forced to “turn to a potentially protracted and expensive court process to seek redress in cases of fraud”. Similarly, Small Independent Superannuation Funds Association (SISFA) director Andrew Cullinan said he felt disappointed by the decision to exclude SMSFs from compensation. “The basis for exclusion seems to be because they have a direct control over their investment base,” he said. “It’s splitting hairs. People have to invest their superannuation somewhere, whether it is a mainstream fund or a SMSF, so that’s the choice you have to make.” He said that if the Government made a decision to compensate, it should cover all those involved, regardless of the vehicle they were investing through. However, in the absence of SMSFs trustees agreeing to be subjected to the same levies as APRA-regulated funds, the Government seems highly unlikely to be moved by pleas for equal treatment. Long said that the SPAA had used its submission to the Cooper Review to argue for SMSF trustees to be subject to the same industryfunded financial assistance available to APRAregulated super funds. The SPAA submission acknowledged that if SMSFs were going to participate in such a scheme, SMSFs would need to participate in an appropriate portion of the funding. While neither the Cooper Review findings nor the Government have seen fit to specifically respond to the SPAA proposal, it seems that the price of accessing Part 23 compensation arrangements might add significantly to the fixed costs of running an SMSF. The anecdotal evidence suggests that many SMSF trustees would back themselves as being smart enough to avoid the likes of Trio and Astarra.

Capital related



27.7% Other

Source: IBISWorld

What’s on Successfully Selling Fee for Service 9 May 190-200 George St, Sydney Investor Roadshow – SMSFs 10 May–8 June National calendar.htm Money Management Fund Manager of the Year Awards 26 May Sheraton on the Park, Sydney au/FMOTY Financial Ombudsman Service National Conference 2 June Melbourne Convention and Exhibition Centre FINSIA – A blueprint for ESG 17 May Blake Dawson Level 36, Grosvenor Place 225 George Street, Sydney April 28, 2011 Money Management — 11


Going to excess Continuous tinkering with the rules relating to self-managed super funds (SMSFs) and superannuation in general is causing serious concerns for advisers and inflicting draconian penalties on investors, writes Caroline Munro. Key points • Many clients are being caught out by the

excess contributions tax (ECT). • Industry figures believe the ECT targets

the wrong people and is unnecessarily punitive. • Those who breach their caps are advised to appeal to the ATO for discretion. • The industry is urging the Government to review the legislation around the ECT. SELF-MANAGED superannuation fund (SMSF) advisers are faced with a number of concerning issues, but the excess contributions tax (ECT ) has been causing the worst headaches for a couple of years now. The issue has become more prominent in the media in recent months, as the number of breaches has dramatically jumped since the lowering of the contributions caps and the 46.5 per cent tax penalty has become more commonplace. While the ECT potentially affects all super members as well as SMSF trustees, it has been argued that SMSFs are more at risk because trustees and members are more engaged with their super and are more likely to take advantage of opportunities to boost their retirement savings through contributing. National technical director of the SelfManaged Super Funds Professionals’ Association of Australia (SPAA), Peter Burgess, says the ECT is the most significant issue faced by the super and SMSF sector, exacerbated by the halving last year of the contributions caps. He says the SPAA believes that not only are the contributions caps too low, but the complexity of the contributions rules are leading to many people inadvertently breaching the caps and incurring significant ECT bills. Burgess adds that the severity of the tax penalties do not fit the crime. Cavendish Superannuation SMSF specialist executive David Busoli thinks that the ECT penalties are targeting the wrong people, and describes the penalty regime and its implementation as “appalling”. Busoli says the Treasury is trying to diminish the significance of the issue when in fact the strict ECT penalties are affecting members and trustees across the superannuation and SMSF sector. “And for those that are hit, many of them are hit unbelievably hard for what is a relatively minor transgression,” he says. BT Financial Group senior manager of technical consulting, Bryan Ashenden, says the number of excess contributions notices sent out by the Australian Taxation Office (ATO) in the 2009-2010 financial year was 65,733 – up from 28,291 in

the previous financial year. However, Ashenden says it is interesting to note that the average amount by which people had breached their caps had actually fallen. “The quantum of each breach is about 40-45 per cent lower,” he says, assuming that the reason may be because the breaches are more likely inadvertent or beyond the trustee or super member’s control. He suggests that it may simply

12 — Money Management April 28, 2011

come down to timing issues whereby the employers may contribute at different times in the year, perhaps triggering a breach by making two contributions in one financial year. Burgess says the sheer number of breaches is concerning, and yet the ATO is very limited in its ability to show discretion. While there are no available statistics to quantify how much people

have actually been taxed as a result of ECT, he says a conservative guess would be about $20 million. “It’s just the sheer number of assessments that we’re seeing,” he says. “And in most cases we’re not talking about a few dollars – the amount of tax concern runs into thousands of dollars.” Aside from the loss of retirement savings through the ECT, the lowered

SMSFs contributions caps alone have resulted in an incredible loss of money to the SMSF sector, according to the Russell Investments/SPAA inaugural annual SMSF study, conducted by CoreData/brandmanagement. The survey found that the lowered concessional contributions caps have resulted in a loss of $15.1 billion, as around half of SMSF trustees surveyed stated they would have contributed on average $72,704 each to their SMSF if the contributions caps were raised.

Lack of discretion

Burgess says although those that inadvertently breach their caps have the avenue to apply to the ATO for discretion, in the majority of cases the ATO is not able to do so. Tax Commissioner Michael D’Ascenzo, speaking at SPAA’s recent annual conference, admitted that the gap for the ATO showing discretion was very narrow. He said the ATO’s hands were tied and it was now an issue for Treasury. Ashenden says as a general rule the ATO will show discretion if the excess contribution results in something that the super member or trustee does not have any control over. However, Busoli felt that the ATO actually did so in a very small number of cases. In certain cases where it was obvious the contributions breaches were beyond the trustee or super member’s control, the ATO was adamant that it would not show discretion, says Busoli. One of the examples he gives is that of a doctor who works for three hospitals and gets $100,000 from each employer and a superannuation guarantee contribution of $9,000 from each hospital. In this case, the employer contributions would be $2,000 over the current cap. Busoli explains that neither the doctor nor the hospitals can contract out of that agreement, and yet the ATO made it clear they would not be able to exercise discretion in this instance. “Pretty much the only situation where I’ve seen the ATO exercise discretion is where you have an account being rolled over from the UK, which is subject to the non-concessional caps and there has been a currency fluctuation in the process,” he says. D’Ascenzo noted at the SPAA conference that only 8 per cent of trustees who had breached the caps and received an assessment notice had applied to the commissioner for discretion. Ashenden says it may be because when people got a tax bill they simply paid it because they thought they had no choice and did not realise they could apply for discretion. “A large part of it is because people aren’t advised,” he says. However, Busoli believes that the low

numbers are a result of the general realisation that most applications would be unsuccessful. Macquarie Adviser Services technical manager and SPAA director, David Shirlow, says the small number of applications for discretion is surprising considering that a high number of breaches were due to incorrect reporting. “You would expect that in those sorts of cases people would be applying, because it’s not so much a matter of applying for discretion as making sure that the records are corrected,” he says. He adds that although the ATO’s ability to show discretion is very limited, some cases where it has been able to do so have been surprising and he urged people to take a chance and apply anyway. Shirlow and Burgess say that the number of excess contributions assessments issued by the ATO is likely to increase in coming years, especially given that the 2012-2013 financial year will involve a halving of the caps for people aged 50 or more, and for others aged 50 or more there will be a $500,000 threshold. “That in itself is extremely complicated,” says Shirlow. “It will really increase the number of circumstances where people get it wrong.”

Lobbying for change

The SPAA – along with other organisations like the Tax Institute and the National Institute of Accountants – has been active in not only lobbying the Government to increase the contributions caps but to introduce a fair solution to the ECT issue. Burgess says the limited cases in which the ATO can show discretion point to the need for legislative change. The SPAA has put forward submissions to Treasury suggesting a refunding solution that will allow clients, as soon as they’ve realised they’ve gone over the cap, to go to their fund and ask for a refund of the excess, he says. “We’re not suggesting that they get off scot-free – we are suggesting that there will be an interest or penalty rate charged on that excess for the period that it was in the fund. But that penalty rate would be significantly less than what we’ve currently got, which is the 46.5 per cent tax rate,” Burgess explains. He says the suggested penalty would be much more suited to the crime and the penalty would be sufficiently high to deter people from deliberately exceeding the cap. Burgess says there is no way of knowing whether the SPAA’s refunding suggestion is palatable to Government, because the SPAA has not yet received a response from Treasury.

Busoli is pleased that the industry is finally getting traction in the media on an issue that has been of concern for the last couple of years. “Now it is getting some attention and it is time for the politicians, who are no longer in election mode and are getting down to work, to listen to this,” he says.

Peter Burgess

The Government is always talking about how it wants to increase the savings of retirees, yet they are hitting them with this horrendous tax over relatively small situations. - David Busoli

“The Government is always talking about how it wants to increase the savings of retirees, yet they are hitting them with this horrendous tax over relatively small situations. This is a straight tax grab and this hasn’t received the right attention because there have been so many other things that the Government has been

focused on – it deserves their attention and furthermore it should be looked at retrospectively.”

Client understanding of the issue

Fund managers and super providers have attempted to help advisers deal with this issue by developing super contributions trackers and other simple tools to help them compile all the available information needed from clients. But what they can provide in terms of trackers is limited to individual funds, and in most cases the adviser is reliant on the information provided by their clients. Busoli says things like super trackers are essential, even if they only track contributions to a single fund. However, it is also a matter of bringing a client’s thinking in line with the severe reality of the situation, he asserts. Clients may be under the misapprehension that small breaches of a few dollars are insignificant, says Busoli. “If you were a client, how could you think that a $10 mistake could incur a $140,000 tax bill?” he says. “You wouldn’t think that was reasonable and you wouldn’t give it any credence.” Busoli says communication becomes even more difficult between advisers and clients when clients do not realise that certain things even constitute contributions, such as paying an expense of the fund or improving an asset that the fund owns. The Russell survey revealed a knowledge gap in terms of what SMSF trustees could and could not do, and yet 90 per cent of trustees rated their own knowledge highly, according to Russell Investments managing director for retail, Patricia Curtin. “We do have a segment that is very well educated, but there is a knowledge gap in terms of regulatory change,” she says. “Some of the mismatch relates to what are their greatest challenges – advisers see that compliance and adhering to regulatory change are the greatest challenges, whereas trustees would see sourcing good advice as their greatest challenge.” Considering 42 per cent of respondents were unsure of their investment goals, “we need to ensure that there is more science and less art in SMSFs”, she says.

Professional indemnity claims

Relationship building and communication between clients and advisers is therefore essential. But even then, as Ashenden points out, excess contributions may just be a result of timing issues with employers’ contributions Continued on page 15 April 28, 2011 Money Management — 13



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SMSFs Continued from page 13 and it may be a good idea for advisers to recommend leaving a buffer if there is some uncertainty. “If you leave a buffer you reduce the possibility of the client breaching their caps, but they also lose out on opport u n i t y,” h e s a y s. “ T h a t’s re a l l y a cost/benefit analysis, and it is something that advisers should discuss with their clients.” Burgess acknowledged that individuals are increasingly leaving a buffer, but this practice is problematic. “What we are seeing at the moment is that individuals, practitioners as well as clients, are so nervous about breaching the caps and the severity of the penalty that applies that they are deliberately underfunding and staying well b e l ow t h e c a p,” h e s a y s. “ T h a t i s a problem because we’ve got people who are underfunding, and the caps are low enough as they are.” Burgess suggests that advisers take the time to make sure they are aware of the contributions their clients have made in the current financial year as well as the two previous years, going e v e n f u r t h e r b a c k s h o u l d t h e re b e c o n c e r n s a b o u t t h e b r i n g f o r w a rd rules. The whole point of making contributions is to maximise savings, and some have questioned whether leaving a

buffer exposed advisers to the risk of claims if the buffer were ultimately u n n e c e s s a r y. A s h e n d e n s a y s t h e re should be no grounds for claims as long as leaving a buffer was discussed properly between an adviser and client, and agreed upon by the client. In any case, excess contributions have resulted in claims and are an issue that the professional indemnity insurers are paying more attention to, says Busoli. “The professional indemnity insurers will be looking at this one very carefully, because they weren’t expecting this – they’re used to dealing with product type claims,” he says. Busoli adds that this different type of claim was unexpected and significant from a professional indemnity insurer’s perspective. “Some of the claims are huge,” he says, referring to a recent case where a c l i e n t i n c u r re d a $ 1 3 0 , 0 0 0 t a x b i l l because of a $300 error. “And that’s the sor t of thing that people are being hit with – I find it extraordinary,” says Busoli. Burgess agrees that there has been an increase of claims regarding excess c o n t r i b u t i o n s a n d h e k n ow s o f instances where advisers have compensated the client. He says it is therefore critical that advisers find out as much as they can about what contributions have been made, adding that advisers should not rely on the information from

Bryan Ashenden the ATO. ATO records are not always upto-date due to delays between the time funds have to lodge their contributions information to the ATO, and when the ATO records it, he explains. “The adviser either has to seek that information from the client’s fund or they have to re-create and keep those records themselves for their clients,” says Burgess.

Confidence in SMSFs

Curtin says advisers are mostly optimistic about the future demand for advice around SMSFs and expected demand to increase – 35 per cent of

advisers in the Russell survey felt that demand would increase dramatically. However, she says, there are several concerns that advisers have around excess contributions as well as the rules around borrowing within super. Tinkering with super by the Government has impacted investor confidence in the retirement savings system, says Burgess. “We know consumers don’t like to see further tinkering of the rules, because it takes away from their confidence in the system,” he says. The Russell research revealed that three in four SMSF trustees were confident in the superannuation system as a vehicle for retirement savings. However, advisers and trustees were equally fearful of legislative change and the prospect of Government tinkering with super – advisers were concerned about compliance obligations and regulatory change, while trustee apprehension was leading them to hold assets outside of super. Curtin says that some of the regulator y change may stifle growth and impact on consumer trust. “ To e n s u re t h a t we p rov i d e f o r adequacy in retirement, we do need to ensure that we keep canvassing – from the regulatory point of view – to ensure that people save within the superannuation environment, rather than looking to save outside,” she says. MM April 28, 2011 Money Management — 15


Low appetite for borrowing Next to the excess contributions tax, borrowing within super is one of the most concerning issues currently faced by selfmanaged super fund (SMSF) advisers, writes Caroline Munro. A recent Russell Investments self-managed superannuation fund (SMSF) survey has revealed there is a low appetite for borrowing within super. The survey revealed that threequarters of trustees (75.6 per cent) have not used the new borrowing rules and do not intend to do so. The survey report noted that it was possible there was a low appetite for borrowing via an SMSF due to strict enforcement of the new borrowing rules. There is also some confusion as to what actually constitutes an improvement to a property held within super that is geared, says Macquarie Adviser Services technical manager, David Shirlow. Shirlow says that in the explanatory memorandum that accompanied the legislation there was a strong indication that the intention of the legislation was to prevent trustees from spending fund money to improve a property. “On the one hand you have policy that seems to allow borrowing to acquire real estate in super funds, but on the other hand you have this restriction that, for practical purposes, is making things difficult,” Shirlow explains. “We need clarity about 16 — Money Management April 28, 2011

whether improvements can be made, or we need a change of legislation.” Shirlow assumes that the intention is to stop trustees from increasing the value of the property, which is subject to a loan. He explains that the other party involved is obviously the lender. National technical director of the Self-Managed Super Funds Professionals’ Association of Australia (SPAA), Peter Burgess, agreed it is difficult to follow the rationale behind some of these borrowing within super rules when it came to property. “I think what they were trying to get at is that the lender then has more equity to call on in the case of a default,” he says. “But it’s very difficult to follow that argument, and certainly the industry has been very outspoken on this point. It just does not make sense that you cannot improve an asset once it’s in one of these [borrowing] arrangements. It’s counter to what people should be trying to do with these assets.” Burgess notes that the Australian Taxation Office’s (ATO’s) viewpoint is that it doesn’t matter what the source of the money is when it came to making improvements – it was simply not allowed. “The end result is that you’ve

improved the asset, you therefore have a new asset, and that’s not allowed under these provisions,” he adds. Burgess suggests that trustees and their advisers think carefully before entering into a borrowing arrangement, especially when it came to a property that may need repairs at some point over the life of the loan. Cavendish Superannuation SMSF specialist executive, David Busoli, says the ATO’s guidelines around the borrowing rules are proof enough that the restrictions are “ridiculous”. For example, if a house were burnt down, the rebuilding of that house was considered an improvement and therefore was not allowed under the rules, he explains. Burgess agrees that the rules are so strict as to be ridiculous, although in the case of properties affected by a natural disaster the ATO recently stated it would be flexible. Busoli says that compared to the excess contributions issue, the ATO was more willing to be flexible when it came to breaches of the borrowing rules, adding that in fact its limited ability to show discretion in the case of excess contributions was “out of character”. MM

OpinionHedgeFunds If it ain’t broken…

Having sustained enormous criticism following the GFC, hedge funds are still struggling to garner favour among investors. Richard Keary explains why the sector did not fail.


he hedge fund investment model is not broken, and it did not fail in the market turmoil of 2007 and 2008. Yet many investors have exposure to products that might leave them with the distinct impression that their hedge fund investments did fail. There are two issues that need to be considered. One is the investment model, and the other is the product model. In other words, how did the underlying investments perform through the global financial crisis (GFC), and how was this affected by the way the investments were delivered? The performance of the investment model can be assessed by looking at the broad aggregates that are provided by different firms. In this case I have chosen the Dow Jones Credit Suisse Hedge Fund Indexes. This is not about individual managers, it is about the investment model – so looking at aggregate level data is appropriate. If we can conclude that the investment model did not fail, then a conviction to never invest in hedge funds again should be replaced by a determination to set higher product design standards next time.

Assessing the investment model

Figure 1 shows the performance of the Dow Jones Credit Suisse Hedge Fund Index (Hedge Fund Index) relative to the S&P 500 Total Return and the All Ordinaries Accumulation Index (AOI). The Hedge Fund Index and the S&P 500 are in USD while the AOI is in AUD. Figure 2 shows the same data Continued on page 18

Figure 1 Hedge Funds, S&P500, AOI – Dec 93 to Aug 2010

Source: (1 Dec 1993 = 100)

Figure 2 Hedge Funds, S&P500, AOI – Dec 06 to Feb 2011

Source: (1 Dec 2006 = 100) April 28, 2011 Money Management — 17

OpinionHedgeFunds Continued from page 17 for the period starting December 2006 to capture the GFC and recovery. Notwithstanding the resilience of the Australian share market, the Dow Jones World Index Hedge Fund Index has produced similar return at observably lower volatility in both cases. One can also observe that the losses in 2008 were smaller for hedge funds and the recovery faster. Neither the S&P500 nor the AOI have recovered their 2007 peaks. Given that equity markets are the main driver of risk and return in securities portfolios for most Australians, it is worthwhile looking at the performance of equity hedge funds compared to the equity indices. Figures 3 and 4 show the cumulative performance of the S&P 500 Total Return Index and the Equity Long/Short hedge fund index. Given the high correlation between equity markets, the S&P500 TR can be used a proxy for equities in general. Over both time frames it is hard to argue that the S&P500 TR is a better investment than Equity Long/Short hedge funds, which have delivered better return at much lower volatility. Managed futures is a hedge fund strategy that is probably the standout for its success over the past three years – including the depths of the GFC. Managed futures managers (also called commodity trading advisers) follow a systematic approach to investing that is a pure distillation of the momentum factor. That is, they look for trends and are indifferent to whether those trends are up or down. In 2008 when the trend in most asset prices was down, Commodity Trading Advisors (CTAs) generally identified that trend and positioned themselves accordingly. As a result, CTAs as a group posted positive returns. This is not a failed investment model; if anything, it is a validation of why investors need to incorporate hedge funds into their investment universe.

Product failures

So if hedge funds did so well why are there many investors feeling rather let down by the whole experience? I believe that the hedge fund product model was the source of problems and therefore should be the focus of learning. But firstly, what do I mean

The arithmetic of a static allocation to equity market beta may not make sense if indeed we are facing either an inflationary or deflationary future.

by the product model? The way the investment is delivered is referred to as the product model. Product failure can mean many things but one example is when the product itself causes an otherwise temporary loss to become permanent. If we investigate this line of thought we come to the intersection if leverage and liquidity. Asset liability mismatch The Australian market and its platform processing paradigm demands frequent transactions (product liquidity). Product vendors took a punt that they could offer product liquidity that was better than the liquidity in the underlying investment. They relied on using cash inflows to satisfy the liquidity requirements of a small number of investors. When things were good this system worked well. When investors panicked and redemption orders piled up, the redemption orders could not be satisfied from inflows – and the underlying asset was not liquid enough to sell in an orderly fashion. As soon as investors realise this they know they have to be at the head of the queue, so a flood of redemption orders come in and it becomes impossible to satisfy investors. This results in one of two outcomes: the fund is frozen until the underlying assets are liquid enough, or the fund is liquidated. There is nothing in this scenario that says the underlying investment

Figure 3 Long/Short, S&P500 – Dec 93 to Dec 2010

Source: (1 Dec 1993 = 100)

18 — Money Management April 28, 2011

was bad. Yet the investor would have the distinct impression that something had really gone wrong – and it did, in the product structure. Using leverage to increase assets under management One must applaud the business merit of this strategy. Take $100 of assets and turn them into $200 of assets by borrowing. Charging fees on $200 of assets is a good deal for the manager (I am being facetious, if it was not obvious). The problem is that the lender takes a charge over the equity capital in the structure provided by the investors. If the underlying assets are falling in value and they are not liquid enough to be used to deleverage the structure, then the lender can refuse to return the equity to investors until all the assets are sold and the loan repaid. In the case of some of the assets that can take years. There is nothing in this scenario that says the underlying investment was bad. This is leverage at work. Having pointed out some product flaws, I would like to return to a more optimistic note and identify what investors should look for in a product. • Simplicity – The value proposition of a fund has to make sense and one needs to be able to see how that value proposition flows through to the investor. • Liquidity – Liquidity at the fund level (ie, the liquidity offered to you the investor) and the liquidity of the underlying investment should be consistent. Investors should accept that not all investments can be delivered on a daily basis. • Transparency – The ability to ask for detail about the underlying investments is an important monitoring tool to manage the potential agency risks of using fund managers. This does not mean you need to see holdings every day, it does mean that you need to ask the manager if they will show you holdings (even on a delayed basis) if you asked to see them (ie, you are testing if the product provider themselves has negotiated the right level of transparency). • Value for money – Understand how much of the performance is being taken away in fees. I firmly believe the hedge fund investment model is intact. However, over the past decade of being involved in the hedge fund

industry in Australia, I have said many times that just because it is called a hedge fund does not mean it is hedged. There is no doubt people have made investments in socalled hedge funds where the investments did not perform as expected. This is not the same as saying that the hedge fund investment model is broken.

Why is this important now?

Are you asking yourself, ‘why would I bother?’ We don’t often witness secular changes in investment markets. Secular trends are by definition long and therefore turning points are infrequent. There is little consensus about the path of inflation or deflation from here over the coming five or more years. There are cogent arguments that support an inflationary world. After all, inflation is and always is a monetary phenomenon. With the amount of money that has been created, inflation must be certain. Or is it? The Federal Reserve, through its quantitative easing programs, seems to be more concerned about fighting deflation. Either way, neither deflation nor inflation is good for equities. Look at Japan since 1990 for the deflationary experience. The 1960-1980 period in the US shows the ravages of inflation on equity market multiples. As expectations for higher inflation and higher interest rates become impounded in people’s beliefs, the multiple they will pay for future earnings falls. Even if earnings rise in a nominal sense the multiple is crushed and a broad index can be trapped in a sideways range for years. There are some business models that will be able to weather a higher cost of capital. There are business models that won’t. Good investors will be able to distinguish between winners and losers, whereas the benchmark index by definition contains all the winners and losers. The arithmetic of a static allocation to equity market beta may not make sense if indeed we are facing either an inflationary or deflationary future. This is a good time to think about hedge funds but it is not the time to ignore the product lessons learned over the last few years. Richard Keary is the CEO of FRM Australia Pty Ltd.

Figure 4 Long/Short, S&P500 – Dec 06 to Feb 2011

Source: (1 Dec 2006 = 100)


Avoiding a shipwreck The bursting of equity bubbles damages investors’ portfolios, but Robert Keavney argues that with robust valuation tools, bubbles can be identified in advance – and in time to take defensive action.


ome investment professionals feel it is speculative or guesswork to attempt to identify bubbles. I have heard it argued that one can’t time markets, so it follows that one can’t know whether markets are expensive or cheap. But this does not follow. Timing is a question of when an event will occur (eg, when a bubble will burst). Generally this cannot be known. But that any bubble will burst at some time is somewhere between highly probable and certain. For example, most people today would accept that the American and world stock markets became over-valued in the dotcom period, peaking in 2000. Technology stocks traded with price/earning (PE) ratios in the hundreds (and in some cases, in the thousands), stocks with no profit were being valued as a multiple of revenue, and companies that changed their name to include ‘.com’ experienced strong growth in share prices even if they had nothing to do with the Internet. It is utterly implausible to suggest that this period was not a bubble. Yet, even those who recognised it at the time had no idea how long the bubble would last. Indeed, the market rose for several years beyond the point where it could first be described as excessive before the market collapsed. We can therefore conclude that the inability to time markets is not inconsistent with being able to determine when they are dangerously over-valued.

Priority number one

It is often said, and experience confirms, that asset allocation is more important than fund/security selection in determining overall returns. Consistent with this, I believe that recognising bubbles and taking defensive action is the single most important element in achieving superior long-term investment returns. Very few financial planners are able to consistently produce an equity return 2 per cent per annum above index. Those

Market earnings forecasts are notoriously unreliable, generally erring on the optimistic side.

by 85 per cent in a year-and-a-third, it could be dangerous to pay fair price. Surely this would undermine any sense that fair value is a useful concept. This introduces the principle that fair value must not be volatile. As John Hussman describes it, valuation must be based on smooth, low variability fundamentals.

Valuation tools

who could would deliver a valuable enhancement to clients’ portfolios. However an adviser who produced only index-like returns on the equity portion of portfolios, but who had recognised over-valuation and, say, halved normal equity exposure before the popping of the dotcom and global financial crisis (GFC) bubbles, would have achieved a stronger long-term return than the adviser who achieved 2 per cent excess, but was not defensive at market peaks. Surely it follows that more time should be devoted to market valuation than to stock/fund manager selection.

Fair value

Presumably when one buys at ‘fair value’, it implies that one has reasonable prospects of not looking back and feeling one paid too much. Of course, no guarantees are possible as markets can move away from fair value, but surely this is the essence of the concept of fair value (for completeness, we should add that fair value also implies ‘not outstandingly cheap’). Can fair value fall by 85 per cent in 16 months, and then rise by 543 per cent in the next 15 months? If fair value could fall

20 — Money Management April 28, 2011

The most commonly used tool in valuing markets is PE. Figure 1 shows the earnings and price over the last century. Price is unambiguous, but earnings are not. Should a robust valuation tool use actual/historical or forecast earnings? Any valuation tool should be backtested over very long periods, which requires historical data. There is a huge volume of data for past actual earnings, whereas there is no way of knowing consensus earnings forecasts 50 or 100 years ago, hence there is no capacity to adequately test the veracity of forecasts using them. Further, market earnings forecasts are notoriously unreliable, generally erring on the optimistic side. Thus, only historical earnings should be used in valuation tools for whole markets (the situation is quite different with individual stocks). Yet, even recognising that we are interested in historical earnings, which of the various measures of earnings should we use? The latest historical earnings data on the S&P 500 index website is for 30 June, 2009. Standards & Poor’s (S&P) reports that the PE of the market on that day was both 23.1 and 122.4 – depending which method of measuring earnings is used. As the higher number is more than five times the lower, each gives a very different impression of the level of the market. At a PE of 122 the US market would have been its most expensive ever, which is surprising, as this was far below the market peak in 2007. S&P publishes ‘as reported’ earnings (ARE) and ‘operating’ earnings (OE). As

the name implies, ARE is the bottom line in companies’ published accounts – their reported profits. describes OE as: “Earnings without considering certain expenses such as inventory write downs, severance pay, depreciation and amortisation charges, or just about anything else the company feels like excluding to make its earnings look better.” While this may be a little harsh, it contains an element of truth. Let’s just say OE excludes certain expenses. OE have averaged 19 per cent higher than ARE from 1988 through 2009. The amount by which OE exceeds ARE follows a strongly growing trend line. Directors are excluding more and more from their purported operating profits. It is difficult to suggest an explanation for this without reflecting poorly on the character of corporate America – still, readers are free to draw their own conclusions. Valuation models should use ARE, especially if historical back testing is desired.


Now we must come to the fundamental flaw in PE as a valuation tool. Earnings are highly volatile (from here on, ‘earnings’ refers to ARE). S&P 500 earnings fell 85 per cent from September 2007 to

Figure 1

Price and earnings – historical comparison



350 300






150 100


Real S&P Composite Earnings

Real S&P 500 Stock Price Index

400 2000













Year Source: Professor Robert Shiller, Yale University

Figure 2 Shiller price/earnings ratio 50 2000

45 40









20 15


10 5 0 1860









Source: Professor Robert Shiller, Yale University

January 2009, then grew – I mean exploded – by 543 per cent to October 2010. This alone should undermine any confidence in PE using one year’s earnings as a valuation tool. Nor malising (smoothing) is the process used to overcome the problems just described. Professor Robert Shiller, author of the prescient Irrational Exuberance, used the average of the last 10 years earnings in his PE model. This smoothed out the wild swings in earnings just described, resulting in a more stable and meaningful sense of fair value for the market. An even smoother result is produced by using average 20-year earnings. The smoothest line is a trend line, but this requires decisions about which period to use for the trend line. Using one or two decades of average earnings in PE models will produce reasonably sound estimates of market value. Figure 2 shows Shiller’s PE for the S&P 500 over time. He calculates the current multiple to be approximately 23. If you run your eye across the chart you see that only the market peaks of 1901, 1929, 1966 and the recent period have ever exceeded this level. Using this tool and others with a demonstrable track record, suggests US shares have again become dangerously over-valued.

The ‘X trap’

Earnings are cyclical. When they are above normal they will subsequently decline – and vice versa. It would seem sensible if investors were only willing to pay a lower PE multiple to buy shares when profits are abnormally high. If, say, profits were twice their norm, a PE of half its norm would keep prices stable and around fair value. Conversely, when profits are below average a higher than average multiple would be sensible. If investors actually operated this way there would be no bubbles and no busts. Equities would grow steadily and profitably. However, instead of this we fall into the ‘X trap’ – extrapolation. When conditions have been favourable and profits strong, investors extrapolate current favourable conditions into the future and are willing to pay a higher PE, justified in their mind by the future of unending profitability which they imagine. Figure 2 shows that, in 2000 when profit margins were unsustainably fat, investors chose to pay higher PEs than ever in history. Conversely, when profits were low in the 1982 recession, investors only offered the lowest PEs since the 1930s. Hence we have bubbles, and busts. This is exactly what a bubble is: high multiples of temporarily high profits.


It is often said that lower inflation justifies higher PE multiples. As matter of fact there is a tendency for multiples to be above average when inflation is low. However, does not mean this is justified. Inflation is not stable, so it fails our lowvolatility test for valuation metrics. History has confirmed this. An examination of all low inflation periods when PEs were high, shows that subsequent market returns were disappointing as PEs eventually reverted. Low inflation does not justify high PEs.

The value of valuation

It is not hard to make money in rising markets. It would be hard not to. The big threat is losing it again in falling markets. One benefit of looking for over-valuation is that it allows reasonable exposure to growth assets when valuations are in the fair value range. One is not forced to sit in conservative portfolios through the whole cycle, to defend against bubbles. The good news is that bubbles are measurable, as is seen in figures 1 and 2. However, it must be acknowledged that dangerously expensive markets can continue for an inconveniently long time. The S&P 500 peaked in the dotcom era in 2000, then fell until 2003. From then to

2007 the market rose, and was dangerously over-priced for at least two years of that time. Jeremy Grantham called this period the “greatest sucker rally in history”. That it was over-valued was ultimately confirmed by the collapse during the GFC. However, two years is a long time to maintain faith in your valuation models, when it is costing your clients money, and competitors (and sometimes even colleagues) are criticising you. It also requires an ability to sustain clients’ comfort with your strategy during this extended phase. It requires a certain patience and strength of character to adhere to a strategy based on valuation for several years, while markets rise inexorably. But then, no matter what strategy one follows, there will be multi-year periods where it is not producing optimal results. The real test is long-term returns. Looking at figure 2 makes clear that it could easily have been recognised, before the peaks of 2000 and 2007, that markets were dangerous. Identifying bubbles is the main purpose of valuation tools. This can make a considerable difference to your clients’ returns and their satisfaction with you as an adviser. Robert Keavney is an industry commentator. April 28, 2011 Money Management — 21


The world’s your oyster Figure 1 Infrastructure returns and geography – Dec 2000 to Dec 2010

Going global with your infrastructure investments can yield a more defensive portfolio, with more stable returns and lower volatility, writes Perry Lucas.


ustralian fund managers have been pioneers in the development of infrastructure as an asset class. As a result, there is a bias among Australian investors investing in Australian infrastructure assets. Unfortunately, this means missing out on some 98 per cent of the opportunities that world infrastructure markets have to offer. Moreover, sticking to Australia may be a riskier strategy than going global.

The lucky country? Source: AMP Capital Investors, based on holdings in the AMP Capital Global Infrastructure and Utilities Index over the analysis period.

Figure 2 Australian listed infrastructure and investment sectors – Dec 2000 to Dec 2010

Source: AMP Capital Investors, based on holdings in the AMP Capital Global Infrastructure and Utilities Index over the analysis period.

Figure 3 Australian unlisted infrastructure and investment sectors – Dec 2000 to Dec 2010

Source: AMP Capital Investors, based on holdings in the AMP Capital Global Infrastructure and Utilities Index over the analysis period.

22 — Money Management April 28, 2011

As with most markets – and share markets in general – Australia accounts for a small percentage of the world opportunity set. Based on listed market estimates, investors who stick to investing in Australia alone are potentially missing 98 per cent of global opportunities. In fact, based on a broad market portfolio of 133 global infrastructure securities held in the AMP Capital Global Infrastructure and Utilities Index (a proxy for the global infrastructure market), in the five years to February 2011, Australia demonstrated the highest annualised volatility in returns across the countries and regions in which AMP invests. There was a significantly lower level of volatility in the United Kingdom, Japan, the United States and Canada. These countries all have fairly developed infrastructure markets – some of which are larger than Australia’s. This is in part due to the relatively small size of Australian markets. Though we have been investing in infrastructure longer than most other nations, we are still a small and constrained market when compared with the developed markets of the UK, Europe and North America. When comparing volatility across countries, the listed airport sector provides an interesting example. Table 2 summarises the annualised volatility of eight listed airport investments in the AMP Capital Global Infrastructure and Utilities Index over five years. Holding only Australian airport securities would have exposed investors to a volatility of 33.87 per cent over the fiveyear period, while adding European and New Zealand airport exposures could have helped reduce overall volatility for an allocation to listed airport securities. Investing solely in Australia exposes investors to more volatility based on the relative concentration in the Australian infrastructure market. Global diversification by adding global sectors and geographies with lower volatility potentially will

Table 1 Annualised infrastructure volatility – Dec 2005 to Feb 2011 Country/Region

Annualised volatility



New Zealand












Asia ex Japan


Source: AMP Capital Investors, based on holdings in the AMP Capital Global Infrastructure and Utilities Index over the analysis period. Note: Japan data is prior to market volatility from the March 2011 earthquakes.

Table 2 Comparing volatility for listed airport assets – Dec 2005 to Feb 2011 Australia


Stocks held



European Airports



New Zealand Airports



Source: AMP Capital Investors, based on holdings in the AMP Capital Global Infrastructure and Utilities Index over the analysis period.

lower an investor’s overall portfolio volatility.

Diversification benefits

To achieve portfolio diversification, gaining exposure to a mix of sectors of geographies with low correlations among them generally means that returns do not move all at once, which moderates the highs and lows in a portfolio. By sticking to an Australian-only infrastructure investment strategy, investors will miss out on the diversification benefits a global infrastructure portfolio can provide. For example, figure 1 demonstrates the correlations between Australian infrastructure returns and those across other countries and regions in the AMP Capital Global Infrastructure and Utilities Index. The data shows that for the last 10 years, Australia was correlated to the Index portfolio to a factor of 0.62, and similarly 0.60 for the MSCI World index. However, lower correlations to the UK (0.36), New Zealand (0.35), Canada (0.18), and Japan (0.11) highlight relatively low correlations available to investors whose strategy encompasses a global portfolio of infrastructure securities.

OpinionCommodities A commodities boom? George Lucas takes a look at the commodities market and asks if 2011 will see the sector flourish.


s senior Australian executives trooped home from Davos, there was a sense they were returning with a far more optimistic attitude than when they left for the annual talkfest at the Swiss resort. Quite clearly there was a positive note sounded at Davos about global growth in 2011 that would have seemed misplaced even late last year. Even Europe is offering a silver lining. If that optimism proves prophetic, then commodities – of the soft and hard variety – could enjoy one of its strongest years since World War II. In short, the coalescing of a recovering US, rising demand for coal, iron ore, base metals and oil, and tightening demand and supply balances in agricultural commodities all suggest a commodities bull market in 2011. The US Federal Reserve kicked off the year with its Beige Book report, taking its cue from business leaders across the country. It’s an increasingly bright, if cautious, picture. Critically, for a commodities-based economy such as Australia, the Fed’s manufacturing contacts were the most optimistic about a US recovery in 2011. A re-emerging US economy, which is still the largest economy, will also be the antidote to the measures Beijing and other Asian economies may take this year to slow their economies because of inflation fears – although compared with

developed economies, a ‘slow’ 8.7 per cent growth rate for China, as predicted by the World Bank, remains quite respectable. A recent article in The Economist put it bluntly – commodities are “partying like it is 2008”. Oil prices are now trading around US$100 a barrel and are the highest since October of that year. World food prices are back to their peak of July 2008, as is copper. And the story is the same for iron ore – predictions of prices setting an all-time high in 2011, beating the 2008 record. According to a recent report, the average annual spot market price for iron ore this year will rise to US$153-154 a tonne of iron ore finds with 62 per cent iron content, delivered to China – exceeding the average US$150 price in 2008. The rise in commodities prices is in line with and confirming the increase in global economic growth and is not just confined to energy and agriculture. About US$100 a barrel now, oil has been predicted by Goldman Sachs, JP Morgan and other investment banks to keep on rising through 2011, simply because demand is greater than supply as the global economy recovers. Some forecasters are predicting oil reaching US$150 a barrel by October. One important factor that could deflate the figure over the year is if the US dollar makes a strong recovery and keeps the price of crude at its current level.

24 — Money Management April 28, 2011

the oil price does make “its Ifexpected recovery, then supply and demand pressures will flow on to alternative fuel sources.

If the oil price does make its expected recovery, then supply and demand pressures will flow on to alternative fuel sources, such as ethanol, leading to rising prices in sugar, corn and other ethanol sources. Then there is food and other soft and agricultural commodities, such as cotton,

which is reportedly hitting prices not reached since the American Civil War. In recent months, agricultural commodity prices have risen sharply in everything from coffee to natural rubber. These higher prices have had an impact on the margins of producers, who in turn will be passing them on to consumers. Indeed, food – and food security – has become a hot issue in the past few weeks, starkly illustrated by the riots in Egypt and the annual food price rises of 14 per cent in India and reported shortages of staples such as onions and lentils there. Recent floods in Australia and Brazil, as well as droughts during 2010 in Russia and Argentina, only add to the scenario that demand for food from a tightening supply line will cause hefty rises in agricultural commodity prices. It will now be a key topic at the upcoming G20 meeting. Weather – and commodity – watchers will be keenly scouring the northern hemisphere ahead of its spring planting season and looking for any unseasonal weather patterns that could disrupt food and mineral production akin to what Australia has suffered in the past couple of months. Like a perfect storm, it appears the stars are in alignment for a bumper year for commodity investors. George Lucas is the managing director of Instreet Investment.

OpinionInsurance Setting appropriate standards

Amid the heated debate about standard definitions for general insurance, Tim Browne asks whether the same approach should be used in the life insurance arena.


ince Christmas, Australia has experienced a number of natural disasters such as floods and cyclones. Unfortunately, not all of the people affected had appropriate cover in place, sparking widespread calls for a review of general insurance policies to address the need for greater understanding from consumers. The Government has noted that different insurers take different approaches to coverage, and that recent events highlight a lack of consumer understanding about what their insurance policy covers. In response, the Government has proposed a single, standard definition of flood cover across the insurance industry. Assistant Treasurer and Minister for Financial Services Bill Shorten recently announced: “In future, if the term ‘flood’ is standardised across insurance policies and defined in plain English terms, they will be more easily understood upfront, so consumers aren’t surprised when they try to make a claim. These changes will help make sure this kind of unnecessary confusion and heartache about insurance policies doesn’t occur following the next natural disaster.” A one-page, key facts statement will also be included in policies to allow consumers to see, at a glance, the key elements they are covered for. The result of this review will undoubtedly provide

confidence for consumers as to the level and type of cover they have in place. Following this development for the general insurance market it would be quite understandable that the same questions may be asked of life insurance. That is, should we have standard definitions for income protection, trauma and total and permanent disability products? Over recent years there has been a proliferation of definitions in these types of cover with innovation and competition bringing more than 60 different definitions for trauma products alone. In fact, every life insurer in Australia has its own unique trauma insurance definition. However, it could be asked whether this complexity is necessary when you consider that more than 80 per cent of all claims concern four critical illness (trauma) conditions – heart attack, stroke, cancer, and bypass surgery. The situation was similar in the UK until 1992 when insurers sought to simplify matters by defining the 12 most common conditions. Since then, the sale of trauma insurance policies has increased significantly year-on-year, and now more than nine million adults in the UK (one in four) have trauma cover. Today the UK has 37 standard trauma definitions that are consistent across all life insurance providers. We should view Australia in this context

where just one in every 26 working-age people has trauma cover. Of our 22 million population, there are less than 600,000 trauma policies in force. The underinsurance issue in Australia is such that we rank as one of the most underinsured nations in the developed world, and parents with dependants are underinsured by $1.37 trillion, according to research from the Financial Services Council.

While standardising “trauma definitions has worked extremely well in the UK, we need to carefully examine if this is appropriate for Australia.

Standardising definitions in Australia is becoming a hot topic, and a popular issue for many. Riskinfo conducted an adviser poll in March 2010, where they asked: ‘Do you support the concept of standardising key definitions in trauma insurance products?’ More than 63 per cent of respondents wanted standardised

definitions. CommInsure, in collaboration with Beaton Research and Consulting, surveyed more than 500 advisers this month, with a similar amount, 56.1 per cent, stating that product definitions as a whole should be standardised. We need to ask ourselves if implementing clear and concise minimum benefits through standard definitions, consistent with general insurance, would improve the understanding and confidence of consumers for life insurance. There are certainly numerous potential advantages of standardising trauma definitions within Australia. Clients receive certainty at claim time that, regardless of what company they chose to purchase their trauma insurance policy from, they know the minimum definition they need to meet in order to be eligible to receive a claim payment. If the standardised definitions are readily communicated to the public, then we can hope for greater understanding of the need for trauma insurance, and thereby increased uptake of policies across the board. Ultimately, this will help reduce underinsurance. The distribution footprint for life insurance in Australia is such that, of the approximate 18,000 financial advisers in operation nationally, just 3,000 actively provide life insurance solutions to their clients. Simplifying the industry’s offering to consumers through standard definitions might also encourage planners who normally shy away from advising on trauma insurance, and perhaps life cover in general, to discuss these products with clients. While standardising trauma definitions has worked extremely well in the UK, we need to carefully examine if this is appropriate for Australia and importantly, if it would benefit all parties by ultimately generating greater clarity and confidence for consumers. In order to consider the issue of standardising trauma definitions we can look to the UK example where an effective consultation process to determine standardised trauma definitions has taken place. Various stakeholders are involved, with a full public consultation process, including regulators, charities, consumer groups, insurers, medical professionals, and the media. One of the common concerns that has been raised is that standard definitions could stifle innovation. Issues such as this must also be addressed. To counter this view – again looking to the UK example – the industry upgrades its trauma definitions every three years. The Australian market would again need to consider its own appropriate review cycle, particularly to keep pace with medical advancements. The overarching principle should be greater transparency, understanding and accessibility for the consumer. If standardising product definitions, particularly for trauma (critical illness) policies, achieves these principles then we have a duty to take action and look to its benefits in the future. Tim Browne is the general manager of retail advice at CommInsure. April 28, 2011 Money Management — 25

Toolbox More than meets the eye Scott Quinn explains that there is more to account-based pensions than tax – Social Security must also be considered.


t is no surprise that most discussions centred on account-based pensions are taxation driven. Predominantly the focus is on tax-free investment returns, taxfree pensions for those at least age 60 (from a taxed source) and the salary sacrifice/transition-to-retirement strategy. Equally important are the Social Security implications. By understanding these implications, decisions can be made and strategies can be implemented that could mean the difference between thousands of dollars of Social Security entitlements and access to a range of benefits provided through Government concession cards.

Social Security assessment of accountbased pensions

Most Social Security income support payments are subject to an income and assets test. The asset test assessment of an accountbased pension is simple: the account balance is assessed as an asset (regardless of age). This is particularly important for Social Security recipients under pension age, where assets are being moved from an exempt superannuation accumulation interest into an assettested account-based pension. The income test is a little more complicated. Only account-based pension payments exceeding a certain amount (the Centrelink

Figure 1 Deductible amount Purchase price – total commutations Life expectancy at commencement*

deductible amount) are assessed under the income test. The Centrelink deductible amount is shown in figure 1.

Nominating a reversionary beneficiary

If you nominate a valid reversionary beneficiary the account-based pension will continue to be paid to the nominated reversionary beneficiary on the death of the original owner. Under this nomination the superannuation fund trustee has no discretion as to who or how the benefit will be paid upon death of the original owner. Before you nominate a reversionary beneficiary on an account-based pension you need to consider the Social Security implications. As a general rule, the Centrelink deductible amount of an account-based pension will be reduced where: • The original owner is male and they have nominated a female as a reversionary beneficiary and the female is not considerably older; • If the original owner is female and they have nominated a male as a reversionary beneficiary and the male is considerably younger; and • The original owner nominates someone of the same sex as a reversionary beneficiary (who is younger). A reduced Centrelink deductible amount is a particular concern for an income tested Social Security recipient – or one that is likely to become an income-tested client in the future.

Case study one

Callum (68) and Sarah (65) are about to commence account-based pensions. Callum

*Where a reversionary beneficiary is nominated, use the longer life expectancy of the original owner and the reversionary beneficiary.

Table 1 Case study 1 Reversionary beneficiary Centrelink deductible amount

Not a reversionary



($350,000 - 0) / 21.62

($350,000 - 0) / 16.24

Table 2 Case study 2 Account based pension balance

has $350,000 in superannuation and Sarah has $100,000. Their age pension entitlement is currently reduced under the income test. Callum’s life expectancy is 16.24. Sarah’s life expectancy is 21.62. The impact of nominating Sarah as a reversionary beneficiary on Callum’s accountbased pension is illustrated in table 1. Callum draws a pension payment of $21,000 for the year. If Callum nominates Sarah as a reversionary beneficiary their combined age pension entitlements will reduce by $2,406. Given Sarah’s life expectancy is greater than Callum’s, the Centrelink deductible amount of Sarah’s account-based pension will remain the same regardless of whether Callum is nominated as a reversionary beneficiary. Commuting an account-based pension,allocated annuity or allocated pension to reset the Centrelink deductible amount Naturally, as someone gets older their life expectancy decreases. If the balance of an account-based income stream remains the same or relatively high, the Centrelink deductible amount may be increased by commuting the account-based pension and starting a new one.

Case study two

Brayden (65) commences an account-based income stream with $500,000. His Centrelink deductible amount is: ($500,000 – 0) / 18.54 = $26,968 The result after five years, if Brayden commutes his account-based pension and commences a new one (assuming new life expectancy is 14.76), is shown in table 2. Any costs involved (eg, buy/sell spreads, entry/exit fees in relation to the account based pension) would have to be taken into consideration against any potential Social Security benefits gained. Using nominated beneficiaries to maintain a Social Security entitlement for the partner The death of one member of a couple can have a significant impact on the surviving member’s Social Security entitlements. The income and assets required to receive a part age pension, comparing couple homeowners to single homeowners, is

shown in table 3. If the surviving member of the couple loses their entitlement to age pension, they also lose their entitlement to the Pensioner Concession Card. They may become entitled to another concession card, but it won’t have the same level of benefits. To minimise the Social Security impact where one member of a couple dies, all or part of the account-based pension could be directed to someone other than the partner upon the death of the original owner. This could be achieved either by the Will or by nominating a child, financial dependant or an interdependent as a beneficiary.

Case study three

Holly and Michael are asset tested and receive a combined age pension of $11,346. Their combined assets are $700,000. Both Holly and Michael have an account-based pension of $200,000 each. If either Holly or Michael passed away and the surviving partner maintained ownership of all combined assets, they would lose entitlement to the age pension and the Pensioner Concession Card (allowable assets for a single age pensioner is $668,000). Alternatively, if Holly and Michael each nominated their children to receive half of their account-based pensions upon death, the surviving partner’s assets would reduce to $600,000. This would generate an age pension of $2,650 and maintain access to the Pensioner Concession Card.


Understanding the Social Security implications of an account-based pension is extremely important. Right from the commencement of the income stream to estate planning, important decisions need to be made and/or opportunities to maximise Social Security entitlements may present themselves. Failure to make the right decisions or to recognise opportunities could result in the loss of thousands of dollars of Social Security benefits and/or the loss of valuable concessions on offer to the holder of a Government concession card. Where there are competing interests, the importance of each must be taken into consideration. Scott Quinn is technical services manager at OnePath.

Centrelink deductible amount

Maximum increase in age pension




Table 3 Case study 3




Family situation

Income must be less than:

Assets must be less than:













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Please send your appointments to:

MANUEL Damianakis has been appointed to the new role of AMP Capital national key account manager, dealer groups in AMP Capital’s retail distribution team. Damianakis has joined the company from Vanguard where he was the northern regional sales manager. He has 13 years of experience, starting his career as a financial adviser before moving into funds management. He will have responsibility for the delivery and co-ordination of the product, platform and sales strategy across AMP Capital’s key national accounts. Damianakis will report to AMP Capital’s head of retail distribution, Ben Harrop. DEALER group Matrix Planning Solutions has recently recruited Elias Serhan to the role of compliance development specialist. In this role, Serhan will work closely with the Matrix compliance team assisting with complaints handling and adviser audits. Prior to joining Matrix, Serhan was with Count Financial for three years in a number of roles, including compliance officer. “I look forward to working closely with the Matrix practices and getting to know individual businesses,” he said. Matrix is also taking the

opportunity to enhance its compliance team, with a newly created role focusing on paraplanning support for its practices.

THE Association of Financial Advisers (AFA) has appointed Wealth Enhancers financial adviser Sarah Riegelhuth to chair its 2011-2012 GenXt Committee. Riegelhuth was a finalist in the AFA’s Rising Star of the Year Awards in 2008 and 2009. AFA chief executive Richard Klipin said her knowledge and passion for the advice industry make her a great choice for the program, which was designed to ‘bridge the gap’ between the current and next generation of advisers. The committee’s role is to organise events and forums to facilitate the transfer of knowledge, experience, skills and networks between the generations. “It’s no secret that, with [the Future of Financial Advice] reforms about to move from theory into practice, we have some challenging times ahead,” said Riegelhuth. “I look forward to helping our younger advisers navigate those changes.”

RUSSELL Investments’ global consulting division is continuing

Move of the week COMMINSURE has appointed its Queensland state manager Tony Smith to the position of head of national accounts, which was vacated by Simon Harris in December when he moved to Guardian. Tim Browne, CommInsure’s general manager for retail advice, said the internal appointment reflected the high calibre of people within CommInsure. Smith has held positions as an adviser and in management over his 18 years in the insurance industry, according to CommInsure. Smith’s team will work very closely with the head of adviser distribution and all CommInsure state-based teams in executing a strategy aimed at selected national dealer groups, and their respective authorised representatives, to secure CommInsure as the insurer of choice, according to Browne.

to strengthen its presence in AsiaPacific with the announcement of two key appointments in Australia and Asia. Frank Russo has been appointed senior consultant at Russell Consulting in Australia and will be based in Melbourne. He joins from independent asset consultant Access Capital Advisers, where he served on the board of the AMP Infrastructure Fund of India and as the investor representative on several investment advisory committees. Russo previously held senior positions at Equipsuper and Westpac Banking Corporation. In a second move, Trevor

Opportunities ASSOCIATE ADVISER Location: Melbourne Company: WHK Description: An opportunity has arisen for an associate adviser to join the WHK wealth management team on a full-time permanent basis. The successful candidate will be supporting two dynamic advisers. In this role you will be responsible for project managing the client review process on behalf of the advisers, including preparing agendas, portfolio updates and performance reports using COIN software. You will also prepare advice documents on behalf of advisers, including delegating the preparation of advice to a centralised advice team. A tertiary qualification is preferable, but not essential. Successful candidates will be working towards or will have completed a financial planner qualification. You will also have worked in a financial planning environment, with experience in client service, administration and basic advice preparation. For further information or a confidential discussion please contact Graeme Quinlan or Josh Pennell or visit

CLIENT REPORTING – ASSET MANAGEMENT Location: Melbourne Company: Kaizen Recruitment

Persaud has been appointed as a practice leader for consulting and advisory services in ASEAN, India, Hong Kong and Taiwan. In his role, Persaud will lead the strategic development and delivery of investment consulting services for Russell’s clients in the region, encompassing investment advisory, asset allocation, strategic asset tilting, risk management and portfolio construction. He will be based in Singapore.

ST ANDREW’S Insurance has relaunched its growth strategy and appointed Peter Thomas to a newly created role of senior

Tony Smith manager, strategic alliance Australia. Thomas has spent almost 40 years in banking and finance, most previously working for Wespac as director of corporate banking. Prior to this, he worked in corporate and institutional banking, transactional banking, and product and operations. Thomas will be based in Sydney and will report to Sean Straney, general manager for distribution. St Andrew’s chief executive, Renato Mazza, said Thomas’ appointment brought “not only extensive business development experience, but in-depth banking experience to the team”.

For more information on these jobs and to apply, please go to

Description: Our client is a leading asset management firm that currently has an exciting opportunity in its middle office team. The successful candidate will be responsible for the oversight of daily, monthly and quarterly client performance, attribution and investment reports in a timely and accurate manner. It is essential that you possess exceptional organisational management skills to manage reporting deadlines for multiple clients. The ideal candidate will have over five years of funds management experience – ideally from a client reporting background – and will be comfortable engaging with front office portfolio managers. The additional focus of the team is expanding across the APAC region, which will lead to long-term career development opportunities. If you are interested in learning more about this position please contact Matt McGilton at Kaizen Recruitment on (03) 9095 7157 or visit

FINANCIAL PLANNER Location: Canberra, ACT Company: Hays Recruitment Description: An Australian financial services institution is currently undergoing significant expansion. As a result, there is now an opportunity for a financial adviser with a proactive, professional and client-focused

approach to join its team. The opportunity offers an excellent chance to be part of a larger yet still boutique structure, an attractive salary, highly appealing bonus structure and the opportunity to purchase equity. The scope of the role will see you providing comprehensive calculated financial advice and being able to implement strategies covering superannuation, wealth creation, retirement planning and risk. Ideally you will have previous experience as a financial planner, a minimum ADFP, an extensive database and a desire to own and grow your own business. For more information and to apply, visit

FINANCIAL PLANNING CLIENT SERVICE MANAGER Location: Sydney Company: Hays Recruitment Description: There is an exceptional opportunity currently available to join a well established financial planning firm located in Sydney’s eastern suburbs. As a client services manager you will be actively involved in the full financial planning process including liaising with clients, developing strategies, undertaking research, preparing comprehensive Statements of Advice and implementing recommendations.

Successful applicants will have a proven background of working within the financial planning industry, ideally in a client service role. RG146 qualified, you will be seeking an opportunity to take ownership for a portfolio of clients, ensuring the ongoing success of the business. For more information and to apply, visit

PARAPLANNER Location: Melbourne Company: WHK Description: As a paraplanner, you will play a key role in the WHK advice team by providing technical support to principals and advisers within the wealth management division. Specifically, you will be responsible for constructing complex advice documents and assisting with professional and operational support through research and modelling to support the provision of advice to clients. You will have at least two years of experience with high-net-worth clients across a broad spectrum of advice, including SMSFs, wealth accumulation, retirement planning and estate planning. Successful candidates will possess RG146 qualifications and ideally be on their way to completing their Certified Financial Planning designation. For more information and to apply, visit April 28, 2011 Money Management — 27



Out of context

“It will be interesting for me to hear what I say too.” Guest speaker at the Association of Superannuation Funds of Australia luncheon Dave Marvin let the audience in on his secret: he doesn’t write speeches.

“China has more engineers than lawyers, so it can make big projects happen. American and Australia have more lawyers. They prevent anything from happening.” Premium China Funds Management supremo Simon Wu laments the West's legal red-tape.

The carry on trade OUTSIDER can remember a time when the Australian dollar was known variously as ‘the Pacific Peso’ and ‘the little Aussie bleeder’. Those days are a distant memory now. Having just returned from a trans-Tasman visit, Outsider was delighted at just how much his Aussie dollars could buy in Wellington, Auckland and a couple of provincial ports in-between – although he did notice a few Kiwi financial institutions trying to get a healthy clip of the ticket on the exchange rate arbitrage. Outsider likes to think of the strength of the Aussie dollar as presaging the strength of the Australian Rugby Union team, who will travel to New Zealand later this year to contest the World Cup and attempt to regain the William Webb Ellis trophy. While New Zealand’s insurance industry strug-

gles to handle the fallout from successive natural disasters, Outsider gained the distinct impression that losing the World Cup on home soil might be counted by many Kiwis as an even greater disaster. Perhaps this explains the pre-emptive strike inflicted by a particular provincial Air New Zealand check-in operative who, when told Mr and Mrs O were Australians returning to Sydney, demonstrated a bureaucratic haka and laid down the law when it turned out one suitcase was a smidgeon overweight (despite a second suitcase being three kilos under). Outsider knows of at least half a dozen financial services types who will be travelling to the ‘Shaky Isles’ to support the Wallabies. Given they are hardly shy and retiring people (two of them are BDMs, after all), he suggests they either watch their weight or utilise the services of the flying kangaroo.

“Put your hands up if you think management really cares... put your hands up if you’ve had a fight with product providers.” ASFA chief executive Pauline Vamos opens the ASFA national super compliance summit on a cynical note.

An unpleasant surprise OUTSIDER has always found that one of the grandest things about being a financial services hack is that it allows one to maintain some semblance of normality in one’s daily routine and personal life. Imagine working for a 24-hour news service, being forced to work all kinds of graveyard shifts, coming in on public holidays and weekends – Outsider shudders at the very thought. Friday afternoon early marks to hit the golf course would be a thing of the past. That’s why a peculiarity of the lunar cycle or some such that had the Easter weekend pushed back to coincide with ANZAC day had Outsider licking his chops at the prospect of a five-day weekend. With only one issue of this esteemed publication due over the two-week period, Outsider had penned in all manner of road trips and golf days and possibly even some extra days off. His

financial services journo chums all had exactly the same idea, with plenty putting in for extra leave over the Easter break. Thus Outsider was stunned to learn that his employer had in fact planned on cramming in two issues in this period, and a relaxing fortnight was turning into a barrage of deadlines. Luckily Outsider has plenty of financial services contacts he can call on at short notice to help him fill all those news pages. What’s that? Out-of-office auto-reply? Returning on May 2? It turns out these financial services types are cannier than Outsider gave them credit for. Again Outsider is reminded that the perks of covering financial services fall short of the perks of actually being there. So while his chums are all out on their yachts, Outsider will be back at his desk, doing what he does best – making up stories.

A literary master WHILE Outsider may not be a great admirer of Assistant Treasurer Bill Shorten’s policy peregrinations, he is becoming an increasing admirer of the minister’s speeches, which are nothing if not colourful – not to say unique. It doesn’t seem to matter which city the good minister is visiting, he seems to have a ready reference to its historic importance accompanied by some interesting literary flourishes. Were he not quite so cynical, Outsider would think that Shorten has visions of grandeur.

And so for those of Outsider’s readers who have not had the good fortune to hear Shorten at work, here is an introduction the minister gave at a recent address to a Committee for the Economic Development of Australia (CEDA) conference in Melbourne: “‘The Iceman Cometh’, wrote Eugene O’Neill back in 1939. “One stands here 71 years later wondering a little whether the American Nobel laureate was giving some sort of prescient warning of the Aussie summer we’ve just had.

28 — Money Management April 28, 2011

“O’Neill’s classic play of course didn’t in practice deal with raging rivers and flooding waters – and in large part alludes to anarchy, and society’s attempts to deal with it. “But events that seem like natural anarchy come to this wide brown land from time to time; and we do our best as a society to deal with it and hope for a better tomorrow. “And some ice-hearted creature riding rude and wicked skies certainly came to us in January and so now we await, hopefully for a weather god of a very differ-

ent disposition, in the early autumn sun. “Knowing Melbourne’s capricious climate well, as I do, perhaps we shouldn’t be too optimistic. Although O’Neill did also write in ‘39:

“‘The lie of a pipe dream is what gives life to the whole misbegotten mad lot of us, drunk or sober.’ “Anyway, we’ll see.” Outsider eagerly awaits Shorten’s rhetoric accompanying the FOFA changes.

Money Management (April 28, 2011)  

Money Management (April 28, 2011)

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