Money Management (December 1, 2011)

www.moneymanagement.com.au

The publication for the personal investment professional

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YEAR IN REVIEW

2011 rear view mirrorTHE past 12 months have seen the unfold-ing of major events in the financial servicesindustry. Both tranches of the Future ofFinancial Advice legislation were tabled inthe Parliament, while industry participants

rush to meet the 1 July 2012 deadline.Financial planning industry bodies

have decided to fight the negative senti-ment towards financial planners by wayof launching advertising campaigns andfocusing on adviser education.There was quite a bit of activity on the

mergers and acquisitions front, with thecompletion of the AMP/AXA merger, IOOF’sacquisition of dealer group DKN, and theCommonwealth Bank’s purchase of CountFinancial, to name a few.

Year 2011 has also seen significant exec-utive movements, with some nailing big newroles, while others stayed in-between gigs.

For more on events that shaped the financialservices industry over the past year, turn topage 13.

By Mike Taylor

BUYER of Last Resort (BOLR) arrangementsentered into decades ago are returning tohaunt some of the major financial servicesinstitutions as growing numbers of olderfinancial planners look to exit the industry inthe face of Future of Financial Advice (FOFA)changes.

New research released by Wealth Insightshas revealed the degree to which lucrativeBOLR arrangements entered into during theheyday of the financial planning industrywill now impose themselves on the bottomline of some of the banks and institutionssuch as AMP and AXA.

Giving an indicator of the likely impactof those arrangements, the Wealth Insightsresearch conducted over the past sixmonths reveals that 15 per cent of advis-ers whose dealer groups are owned by thebanks or AMP/AXA are likely to exercisetheir BOLR if the FOFA changes come intoeffect.

The same research reveals that another

13 per cent of those advisers are weighingup their options.

Wealth Insights managing directorVanessa McMahon said the research wasbased on a sample of 434 randomly recruit-ed advisers from bank dealer groups orAMP/AXA.

She said the results of the research neededto be weighed against the scale of the plan-ning practices involved and the multipleswhich had been agreed at the time that the

BOLR arrangements were originally struck.“When you weigh up those fundamen-

tals, then you really do have to wonder aboutthe strategic intent of the people within thebanks and the major institutions whoentered into the arrangements so manyyears ago,” McMahon said.

She said that given the terms and condi-tions of the BOLR arrangements, it was stillpossible for some planners to exit their prac-tices on a pay-out based on a calculation of

five times value.McMahon said she had been surprised

by the number of planners surveyed by hercompany who had indicated their intentionto exit the industry utilising the old BOLRarrangements on the basis of the Govern-ment’s FOFA changes.

She said some had indicated a definiteexit post-FOFA, while others were waitingto see the final shape of the Government’schanges.

“Fifteen per cent say they are likely to exer-cise their BOLR if the reforms are passedthrough Parliament,” she said. “Another 13per cent are waiting to see the detail of thereforms before they decide and are still eval-uating their positions.”

McMahon said this meant that potential-ly up to 28 per cent of planners might exitthe industry, indicating that the actualnumber might easily reach 15 per cent.

“That will certainly impact the bottomlines of some of the companies heavilyexposed to legacy BOLR arrangements,”she said.

By Chris Kennedy

THE number of students inCertified Financial Planner(CFP) aligned courses morethan doubled in 2011 andthe industry is now viewinggraduate entrants morefavourably, according to sev-eral experts.

The Financial PlanningAssociation’s (FPA’s) head ofprofessionalism DeenSanders said that possiblythe most significant develop-ment of 2011 was the Aprillaunch of the FPA EducationCouncil. In just six months ithad already done some seri-ous work in developing a har-monised curriculum for finan-cial planning across alleducational institutions, hesaid.

That model curriculum,which will be going out to uni-versities for consultation fromDecember until February, willhelp institutions develop theirprograms and become Certi-fied Financial Planner (CFP)approved institutions.

Sanders said students inCFP-aligned programs hadincreased from around 2,000in the 2010 intake to around5,000 in 2011, partly due tomore institutions offering

such courses.AMP Horizons director Tim

Steele said AMP would againbe supporting its UniversityChallenge in 2012. It ishoping to be able to start toembed the program in univer-sity courses to allow studentsto get academic credit for thework they undertake.

The industry is starting tothink about education to thepoint where it is seen as abusiness enabler as opposedto a compliance requirement,Steele said.

“That’s a critical paradigmshift, that they can look ateducation as a way ofenhancing their offering toclients, the advice they offer

clients, and supporting thegrowth of practices, asopposed to ‘I need to com-plete this training to meet mylicensing obligations’,” hesaid.

Griffith University AssociateProfessor (Finance) andmember of the Financial Plan-ning Academics Forum, DrMark Brimble, said it wasgood that the educators werenow working together with theindustry to progress theagenda – rather than justtalking about it.

The industry would increas-ingly be looking at degree-qualified entrants as thenorm because it realised itwas good for their busi-nesses, he said. In the pastthe industry tended to recruitgraduates without specialisedtraining, then send them offto do an extra diploma to getspecialised qualifications, butit is now turning that corner,Brimble said.

“The industry is realisingthe value of those studentsin terms of their ability to workas trainees from day one,” hesaid.

Financial adviser and direc-tor at Synchron-aligned prac-

Banks to carry BOLR can as FOFA drives out planners

Continued on page 3

FOFA TRANCHE 2: Page 5 | POPULATION – IT’S A BIG WORLD: Page 20

Vol.25 No.46 | December 1, 2011 | $6.95 INC GST

15%

13%

38%

34%

Likelihood to exercise

BOLR

Likely

Evaluating

Unlikely

No BOLR

15 per cent of advisers whose dealer groups are owned by the banks or AMP/AXA are likely to exercise their buyer of last resort if the proposed reforms come into effect. Another 13 per cent are weighing up their options.

28%

Source: Wealth Insights

Chart: Impact of the reforms on Buyer of Last Resort

Deen Sanders

CFP students more than double in 2011

Ending 2011 as we began – uncertain

Australian financial plannersseem destined to end 2011 inmuch the same fashion theyended 2010 – uncertain about

the fine detail of the regulatory regimewhich will underpin their industry for thenext decade.

What became very obvious last weekwas that it may take until the middle ofnext year before the financial planningindustry sees the final shape of the legisla-tive and regulatory environment that willflow from the Government's Future ofFinancial Advice (FOFA) changes.

Notwithstanding the amount of timeand effort expended by the financialservices industry in dealing with theproposed policy changes, FOFA hasalways represented a second or thirdrank legislative priority for the GillardGovernment. Thus, all focus in 2011 wason the carbon tax and the MineralResources Rent Tax (MRRT).

Given his much-reported politicalambition and the role he plays in theLabor Party's factions, it is easy to forgetthat the Assistant Treasurer and Ministerfor Financial Services, Bill Shorten, is ajunior minister who does not enjoy a seatat the Cabinet table with the likes of PrimeMinister Julia Gillard, Treasurer Wayne

Swan, or even Immigration Minister ChrisBowen.

Shorten’s lack of Cabinet seniority istherefore reflected in the level of prioritygiven to the legislation he and his depart-mental officers generate. It follows thatthe FOFA changes were never somethinglikely to reach finality in a Parliamentfocused on the carbon tax and the MRRTin 2011.

While Shorten has yet to indicate thatthere will be any changes to thetimetable he and his advisers have linkedto the introduction of the FOFA changes,there seems a better than average chancethat the minister will need to grant anextension beyond 1 July 2012.

Such an extension would seem to beparticularly necessary in circumstanceswhere, at the time of writing, the ministerhad still not tabled the promised secondtranche of his legislation, and when plat-form operators were making it clear thatthe consequent lack of certainty made itcommercially risky to appropriatelyrework their architecture.

High levels of uncertainty and anelement of commercial risk almostalways attend legislative changes, butShorten's approach to FOFA has provedparticularly problematic for thoseseeking to plan and grow their business-es in the financial services industry –something which has been highlightedby his announcements around insur-ance in superannuation and annual feedisclosure statements.

These represented just two occasionson which the minister first announced aneleventh hour change to an importantelement of policy, only to later offerconcessions on the basis that the Govern-ment might have gone a step too far.

It is on this basis that financial plan-ners should look to enter 2012 planningfor the worst, but hoping for the best.

– Mike TaylorABN 80 132 719 861 ACN 000 146 921

S&P

2011 AUSTRALIA

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“It follows that the FOFAchanges were neversomething likely to reachfinality in a Parliamentfocussed on the carbon taxand the MRRT in 2011. ”

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Average Net DistributionPeriod ending September '1110,207

By Chris Kennedy

BENDIGO Wealth recently purchased Melbourne-basedboutique planning practice AIM Financial Services, repre-senting the first financial planning acquisition forBendigo and Adelaide Bank’s wealth management arm.

AIM will immediately rebrand as Bendigo FinancialPlanning and will be integrated into Bendigo Wealth’sstandard financial planning offering, Bendigo stated.

Bendigo Wealth’s head of wealth markets Alex Tulliosaid the acquisition was the first step towards increas-ing the ability of the bank’s fee-for-service financial plan-ning division to better service its 1.4 million retailcustomers.

“We’re committed to delivering a meaningful wealthoffering to our customers and the broader market, andthe acquisition of our first financial planning business isan important component in achieving this objective,”she said.

AIM’s 1,600 customers across two sites will be progres-sively introduced to the Bendigo style of banking, accord-ing to the firm’s principals Michael Duncan and MartinMcGrath.

“We’re very comfortable transitioning our customersto an organisation that aims to be Australia’s leadingcustomer-connected banking group and focuses onbuilding and improving the prospects of our customersand communities,” Duncan said.

www.moneymanagement.com.au December 1, 2011 Money Management — 3

News

Bendigo Wealth acquiresboutique practice

tice Wealth Enhancers, FinnKelly, was a finalist in theyoung achiever category ofMoney Management’s FundManager of the Year awardsearlier this year, and wasawarded the Association ofFinancial Advisers’ excel-lence in education award atits national conference inNovember.

Despite being just 27 andhaving spent seven years asan army officer, Kelly has anundergraduate degree (aBachelor of Science in mathsand physics), a post-gradu-ate degree and four diplo-mas, including a Diploma ofFinancial Services in finan-cial planning. “I literallyhaven’t stopped studying–whether it’s formal or non-formal – I think that’s thekey, that ongoing education,”he said.

Kelly said he was disap-pointed that he was able toearn the right to be a quali-fied adviser with little morethan a month’s hard work toachieve the diploma, leadinghim to continue to educatehimself in other ways.

“What you get from adegree is almost what youapply with clients; everythingwe do is about setting goals

and going on a journey – it’snot a quick fix,” he said.

Kelly said that if a qualifi-cation was a quick fix, it didnot set a good example forclients. The amount of knowl-edge a planner neededregarding investments, andthe soft skills involved indealing with clients, couldnot all be taught in a shortcourse, he said.

The gap between theolder and younger genera-tion also seemed to be clos-ing, with both realising theyhad things they could learnfrom the other, Kelly said.The stereotype of the olderadvisers having the softskills and younger genera-tion being technical special-ists also seemed to be dis-appearing.

CFP students more thandouble in 2011Continued from page 1

By Mike Taylor

THE second tranche of theGovernment’s Future ofFinancial Advice (FOFA) leg-islation has received a verymixed reception from Aus-tralia’s major financial serv-ices organisations, with theFinancial Services Council(FSC) suggesting the bestinterests test may proveunworkable and carry unin-tended consequences.

Among those unintendedconsequences is a limitationon the abillity of some finan-cial services companies toprovide scalable advice.

This contrasts with theattitude of the FinancialPlanning Association which,while expressing some con-cerns about the insurance

and soft dollar remunera-tion aspects of the bill, sug-gested it was broadly sup-portive of the financialplanning profession.

The Association of Finani-cal Advisers (AFA) said thesecond tranche needed to beseen as simply the secondpiece in a legislative jigsaw,and expressed concernabout its approach to insur-ance inside superannuation.

AFA chief executive RichardKlipin said the two tranches oflegislation, seen as a totalpackage, “represent the impo-sition of massive change forour industry and must beviewed that way”.

FSC chief executive JohnBrogden expressed his con-cern that the proposed bestinterests duty contained in

the legislation might prove tobe unworkable. He suggestedit “undermines a core objec-tive of the FOFA reforms – toincrease the availability andaccessibility of advice”.

“The FSC supports a bestinterest duty; however the leg-islation will create unprece-dented uncertainty for con-

sumers and advisers,” he said.“Our legal advice tells us thislegislation would be very diffi-cult to work with from the pointof view of understanding whatit means and how it wouldapply in practice.

“The best interest duty isthe foundation of the entirereform package, and withouta clear and objective meas-ure to test whether anadviser has acted in the bestinterests of their client, advis-ers will be exposed to signifi-cant risk and the cost ofadvice will go up,” Brogdensaid. “To make mattersworse, no reputable financialservices provider will be ableto offer scalable adviceunder this particular duty –this will be to the detrimentof millions of Australians.”

Finn Kelly

FOFA tranche contains unintended consequences

John Brogden


News

Patersons scores fully-integrated globalequity markets capabilityBy Andrew Tsanadis

PATERSONS Securities Limited has announced that UBSPlatform Solutions Group has developed the first fully inte-grated global equities trading and investment administra-tion capability.

The capability will provide Patersons with real-time tradingaccess to global markets, utilising UBS’s global trading infrastruc-ture and capabilities, including access to algorithmic trading andmulti-market execution, the financial services firm stated.

“The process will follow Patersons normal domestic ordercapture process, which will then route the trade to UBS whowill submit the trade to market,” said Patersons executive

chairman Michael Manford.Leveraging UBS’s investment platform EquityLink, Pater-

sons will also be provided with settlement and investmentadministration.

In addition to its arrangement with UBS, Patersons statedthat it has entered into a new custodial service arrangementwith RBC Dexia Investor Services, a company that has workedclosely with UBS in relation to trading, settlement, custodyand administration design and implementation.

“Together, we have developed seamless connectivitybetween Patersons, UBS and RBC Dexia that will result in afully automated trade execution and investments administra-tion solution for our clients,” Manford said.

ASIC flags moresurveillance next yearBy Mike Taylor

THE Australian Securities and Investments Commis-sion (ASIC) has flagged that it intends undertaking a sur-veillance project around Residential Mortgage BackedSecurities (RMBS) disclosure standards next year.

The surveillance project has been flagged by ASICchairman Greg Medcraft, who told an Australian Secu-ritisation Forum conference that both the regulator andTreasury were also considering the merits of providingregulatory backing for current industry standards.

Medcraft noted that new RMBS disclosure stan-dards will come into effect from 1 January next year,and said ASIC would undertake a surveillance project toassess the uptake of the industry standards.

“Ultimately, these reforms are aimed at improvinginvestor confidence in securitisation markets and this isin line with ASIC’s first key outcome of confident andinformed investors and financial consumers,” he said.

The ASIC chairman said that while the regulator andthe Treasury were considering the policy merits of pro-viding regulatory backing to the changes, this wouldrepresent a departure from the current policy approachin the Corporations Law of focusing the disclosureregime on retail investors.

“Currently, there is no disclosure regime for finan-cial products (such as RMBS and covered bonds)that are issued to wholesale investors,” he said.“However, we note that in other major securitisa-tion markets, prescriptive disclosure requirementsare being considered.”

New SMSFs unaware of riskBy Milana Pokrajac

THE majority of new self-managedsuper fund (SMSF) investors areunaware of the risk they are exposedto and the complexities of runningtheir own fund, according to data fromSelf Super Insurance.

Recent data from the insurer suggest-ed the longer an investor ran a fund themore they became aware of the risks.

“Our market research found almost30 per cent of SMSFs have limitedawareness of their obligations and more

than half were only moderately aware,”said John Kelly, managing director ofSelf Super Insurance. “Being unawareof those obligations means a largeproportion will inevitably breach theseobligations.”

Recent data released by the AustralianTaxation Office found most breachesinvolve improper documentation ofloans, administrative breaches, contra-vening the ‘in-house asset’ rule byexceeding the 5 per cent cap or misun-derstanding the exemptions.

“As the sector gets larger and even

more complex and some of the legisla-tive reforms take effect next year, thereare bound to be more risks to trusteesthat aren’t as apparent as the morefamiliar ones,” Kelly added.

Lack of knowledge of risks and obli-gations, Kelly added, would give rise tonew trends in the market.

“Firstly the rise of the administrator,who will help manage the complianceresponsibilities of an SMSF, and secondlythe rise of the educator, as various groupsestablish themselves to amalgamate anddisseminate information,” he said.

News

Second tranche gives scope toargue on volume rebatesBy Mike Taylor

FINANCIAL planning groups will have scope toprove some volume rebate arrangements arenot conflicted, under the legislation introducedby the Government as the second tranche ofits Future of Financial Advice (FOFA) changes.

Both the bill and attached explanatory memo-randum make it clear that while all volumerebate arrangements will be regarded as conflict-ed, it will be open to those involved to proveotherwise.

The explanatory memorandum states:“Where a volume-based payment of this kind ismade, section 963L requires the party alleged tohave paid or accepted conflicted remunerationto prove that the payment is not conflicted remu-neration. That is, if that party has paid or receiveda volume-based benefit of the type described, itwill have to demonstrate that, in the circum-stances, the benefit was not in fact conflictedremuneration.”

The Financial Planning Association (FPA) haswelcomed elements of the second tranche of thelegislation, with chief executive Mark Rantallsaying the organisation supported the majorityof the measures in banning soft dollar benefitsbecause they mirrored existing FPA standardsset by an industry benchmark.

“However we do not agree that locationshould be a factor – the FPA believes that if a

financial planner can participate in a legitimateprofessional development conference, it shouldbe irrespective of whether it is in Australia oroverseas,” he said. “The FPA also has a concernwith the definition of Group Risk and believesthe current definition within the legislation couldcause some unintended consequences and costsfor consumers as a result.

“As a whole, the FPA believes that the reformsannounced in FOFA Tranche 2 are supportive ofthe financial planning profession, our membersand all Australians,” Rantall said.

Westpac restructures divisionsWESTPAC has announced anorganisational restructure whichsees the creation of two new divi-sions – Australian Financial Ser-vices and Group Services – and therecruitment of Royal Bank of Scot-land chief executive, UK Retail,Brian Hartzer.

The changes see the departureof Rob Coombe as group execu-tive, Westpac Retail and BusinessBanking.

The new Australian Financial Ser-vices division, which encompassesWestpac Retail and Business Bank-ing, St George Banking Group, BTFinancial Group and Banking Prod-ucts and Risk management, will beled by Hartzer. He will take up hisnew position next year.

Group Services covers technol-ogy, banking operations, propertyservices and legal, and will be ledby John Arthur.

Announcing the restructuretoday, Westpac chief executive GailKelly said the changes were partof a drive by the banking group tobecome Australia’s leading finan-cial services organisation.

“Over the past four years, West-pac group has become a fundamen-tally stronger company,” she said.“We have successfully implemented

the largest financial services mergerin Australia’s history, put in place acustomer relationship-focused busi-ness strategy and a distinctive multi-brand approach.”

Kelly pointed to the next phaseof the banking group’s strategy out-lined in its results announcementearlier this month, including takingits multi-brand approach to thenext level.


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Gail Kelly Mark Rantall


News

SG to rise as Govt gets MRRTBy Mike Taylor

THE superannuation guarantee will rise from itsexisting 9 per cent to 12 per cent over the next eightyears following the Government’s successful nego-tiation of its Mineral Resource Rent Tax (MRRT)legislation through the House of Representatives.

Federal Treasurer Wayne Swan confirmed passageof the legislation last week after lengthy discussionswith the Greens which carried on until late Tuesdayevening.

Confirming passage of the legislation, Swanpointed to the benefits for small business in termsof consequent tax concessions as well as the liftingof the superannuation guarantee.

“The proceeds of the mining tax will enable increasedsuperannuation for Australian workers – deliveringinvestment back into Australian companies andAustralian jobs,” he said.

Swan claimed the increased superannuationwould increase Australia’s savings pool by $500billion by 2035 and provide extra superannuationfor 3.6 million low-income earners.

The Greens provided their support for the legisla-tion despite being urged by the Federal Oppositionto seriously question the underlying revenueassumptions.

Shadow Assistant Treasurer Senator MathiasCormann said Swan had consistently refused torelease the commodity price and production

volume assumptions used to estimate MRRTrevenue, claiming that they were based oncommercial-in-confidence data provided by thebig three miners.

“So not only are the big three miners allowed todesign the tax to suit their needs, they’re also theonly ones allowed to know the Government’s miningtax revenue assumptions. That’s just not goodenough,” he said.

Piersbridge Consultantssnapped up by rmgBy Tim Stewart

PERTH-based pract ice rmg f inancial serv ices hasincreased its funds under advice to $660 million with theacquisition of Piersbridge Consultants.

The acquisition – the third so far this year for rmg – willprovide the practice with more scale when it comes torisk insurance.

The advice arm of the Piersbridge, Precise FinancialPlanning, has already been incorporated into rmg – whilethe insurance business will continue to operate on astand-alone basis for two years.

All of the former Piersbridge advisers are now licensedunder Charter Financial Planning.

Piersbridge principal Ivan Cohen said succession plan-ning was a major factor in the decision to merge withrmg. A 10-year age difference between the principals wasan issue, and operating a medium-sized practice was“only going to get more difficult”, Cohen said.

rmg principal Patrick Conion said rmg would be ableto leverage the insurance capabilities of Piersbridge.

“The team has built a really impressive business.Together we can continue to enhance our services toclients and take on the challenges of the future,” he said.

rmg will continue to look for practices to acquire, Conionadded.

Dividends not always a recipe for successBy Chris Kennedy

DESPITE the current clamour for highyielding stocks in a sluggish market,big dividend yields aren’t always arecipe for investment success, accord-ing to Goldman Sachs Australia’s headof Australian equities Dion Hershan.

Very often those big yields aren’t sus-tainable, and if people had bought abasket of high yielding stocks leadingup to the global financial crisis in gen-eral those stocks were a train wreck,he said.

Hershan estimated around two thirdsof the top 20 yielding stocks in the Aus-tralian market needed to cut their yields.“You need to do more than scratch thesurface and find out what is sustainable.We’re conscious that the yield itself isnot the answer,” he said.

Some sectors such as the banks arelikely to maintain sustainable yields ofaround 7 per cent, and possibly theproperty trust sector which has beenrepaired considerably since the GFC,he said.

He said such stocks could appeal topersonal investors such as self-managedsuper fund trustees because those yieldsare higher than what they would be likelyto receive in a term deposit. But peoplewould need to be careful they weren’tbuying a company with a 6.5 per centyield but whose profit would drop by 30per cent in the next year, resulting in adrop in yields, he said.

Hershan compared current marketsentiment with the fourth quarter of2008, when investors were clamour-ing for safety and buying companieswith good balance sheets, good man-agement teams and good yields. Butwhen confidence turned in the mar-ketplace in the first quarter of 2009 alot of those stocks were left for dead,and the big oppor tunities were insome of the more cyclical names, Her-shan said.

“We don’t have a crystal ball interms of when things are going to turnbut we are seeing some good long-term opportunities. It’s just going torequire patience,” he said.

ASFA urges politicalsupport for higher SGBy Keith Griffiths

AMID the Government’s eleventh hourefforts to gain support for its MineralResources Rent Tax, the Association ofSuperannuation Funds Australia (ASFA)urged parliamentarians to stop debat-ing and support the increase in thesuperannuation guarantee (SG) on thebasis of it being good for the economy,affordable, equitable and necessary.

ASFA chief executive Pauline Vamossaid the existing 9 per cent SG wouldnot be sufficient to deliver dignity inret irement for the major ity ofAustralians.

Pointing to the current economicuncertainty in Europe and the US,Vamos said: “The more people savetoday for tomorrow the more self-reliant they become in retirement”.

According to ASFA, increasing the SGto 12 per cent is affordable given theincrease is to be phased in over eightyears, and any foregone Pay As You Earntax revenue wil l be offset by theincreased revenue from taxation onsuper fund earnings.

As well, it argued the increase is equi-table as the tax benefits for upperincome earners are limited, there is acap on SG contributions, and lowerincome earners will also soon receivethe low-income tax rebate, furtherbolstering their super and improvingthe equity of the system.

Based on the expenditure needs in

ASFA’s Retirement Standard, taking intoaccount the age pension, a single retireeneeds an account balance of about$430,000 in today’s dollars to support acomfortable retirement, while a coupleneeds around $510,000.

Additionally, according to a report byAllen Consulting Group (commissionedby ASFA), an increase in the SG to 12 percent would lead to a 0.33 per centincrease in (real) GDP by 2025,compared to the no-reform scenario.

“The Allen research provides strongsupport that a move from 9 to 12 percent would be not only good for theretirement futures of current workers,but would also have no adverse affecton employers,” Ms Vamos said.

Wayne Swan

Dion HershanPauline Vamos

News

Government vows not to tax trusts as companiesBy Mike Taylor

THE Federal Government has releaseda new consultat ion paper onmodernising the taxation of familytrusts and declared it is not looking attaxing trusts as companies.

The declaration was made by Assis-tant Treasurer and Minister for Finan-cial Services Bill Shorten, who claimedsuch a move was possible on the partof the Federal Opposition, and wouldrepresent a major departure from thecurrent law.

Releasing the consultation paper,Shorten said it represented an opportu-nity for the trustees and beneficiaries ofover 660,000 trusts to have the oppor-tunity to have a say in their own finan-cial future.

He said the interaction of the trustlaw and tax laws had been an ongoingissue for some time, and it was time toresolve it “for all the farmers and smallbusinesses in Australia who use truststo manage their financial affairs”.

The Treasury documentation attach-ing to the review pointed to five princi-ples which would inform the reviewprocess:

1. Tax liabilities in respect of theincome and gains of a trust should‘follow the money’, in that they shouldattach to the entities that receive theeconomic benefits from the trust.

2. The provisions governing the taxa-tion of trust income should be concep-tually robust, so as to minimise bothanomalous results and opportunitiesto manipulate tax liabilities.

3. The provisions governing the taxa-tion of trust income should providecertainty and minimise compliancecosts and complexity.

4. It should be clear whether amountsobtained by trustees retain their charac-ter and source when they flow through,or are assessed, to beneficiaries.

5. Trust losses should generally betrapped in trusts subject to limitedspecial rules for their use.

The Treasury documentation saidthat, in addition to retaining the broadpolicy framework that currently appliesto the taxation of trust income, theGovernment remained committed toits f iscal strategy. Therefore, anychanges made as part of this processwould have to be broadly revenueneutral.

THE Australian Pruden-tial Regulation Authority(APRA) has warned Aus-tralian banks, insurancecompanies and super-annuation funds that ithas become “consider-ably less to lerant” oftheir use of securitisa-tion transactions.

APRA general managerpolicy, research and sta-tistics Charles Littrell hasused an address to theAustralian SecuritisationForum this week to makeclear the regulator’s con-cern, but adding thatAPRA believes securitisa-tion is “more useful thandangerous”.

“But we have becomeconsiderably less tolerant

of the over-complicationthat crept into this finan-cial product,” he said.“We also observe thatsome ADIs have devel-oped the habit of follow-ing the letter, not thespirit, of the prudentialrequirements applicableto securitisation.”

Littrell said APRA hadundertaken a review ofindus t r y compl iancewith the requirementsaround securit isation,and what it had foundwas not pleasing. Somein the market appearedto have adopted anapproach of “what therules allow” rather than“what is economicallysensible”.

“APRA regards thebasic concessions insecuritisation, the abilityto remove al l capi ta lrequirements on theunderlying assets, andthe permission to pledgeassets, as extraordinarybenefits,” he said. “Wedo not propose to awardthese benefits to struc-tures and issuers that donot merit them.”

Littrell pointed to APRAnext year carrying out acomplete review of itsarrangements aroundsecuri t isat ion. I t sug-gested that any reformswere likely to feature asimpler approach butwith more supervisoryflexibility.


More than meets the eyeCreation of investment ideas is eclectic in nature.

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APRA getting tougher on securitisation rules Sydney man permanently banned by ASICBy Milana Pokrajac

THE financial services regulator has once again exer-cised its power to ban a person who has been convict-ed of fraud.

George Hawa from Sydney was permanentlybanned from the financial services industry after hewas convicted of serious fraud and sentenced to fouryears and nine months in total behind bars, theAustralian Securities and Investments Commission(ASIC) has announced.

ASIC has the right under the Corporations Act 2001to ban a person who has been convicted of fraud.

While unlicensed to deal in financial products,Hawa allegedly induced people to invest money inthe foreign exchange market, making false represen-tations to his clients about the past performance ofmonies invested with him.

According to ASIC, he had used a so-called ‘market-ing sheet’ that contained false information about theperformance of investments.

“ASIC’s action against Hawa reflects the Commis-sion’s commitment to ensuring consumer confidencein the financial services industry,” the regulatorstated.


News

Uncertainty surrounds Oakeshott on opt-inBy Mike Taylor

DESPITE having earlier this yearindicated his concern about thetwo-year opt-in contained in theGovernment's Future of FinancialAdvice (FOFA) legislation, there isno certainty NSW IndependentRob Oakeshott will support keyamendments to the Govern-ment's bills.

With the Assistant Treasurer andMinister for Financial Services BillShorten having told the recentFinancial Planning Association

(FPA) national conference that heis in no doubt the FOFA bills willpass the Parliament, financialplanners who have lobbiedOakeshott have confirmed theindependent's refusal to committo supporting amendments to thelegislation.

Financial planners have target-ed both Oakeshott and Tasmanianindependent Andrew Wilkie withthe objective of having themsupport the Federal Opposition indelivering key amendments to theFOFA bills, but neither politician

is understood to have given anyfirm commitments.

In the meantime, both the FPAand the Association of FinancialAdvisers (AFA) have been workingon submissions to the Parliamen-tary Joint Committee on FinancialServices, which is currently review-ing the FOFA bills.

The FPA and the AFA are unitedin opposing the first tranche of theFOFA bills, particularly withrespect to opt-in and the lastminute imposition of an annualfee disclosure requirement.

Shorten last week used hisaddress to the FPA conference tosignal that the Government wasprepared to moderate its approachto the annual fee disclosurerequirement, particularly withrespect to existing clients andretrospectivity.

AFA chief executive Richard Klipinwelcomed the minister's indicationof a moderating of the approacharound annual fee disclosure. Hesaid while his organisation wantedto be constructive it remainedconcerned about consistency.

AXA IM calls for responsibleinvestment standards By Tim Stewart

WITH responsible invest-ment (RI) shaping as a biggrowth market, globalinvestment manager AXAInvestment Managers(AXA IM) is leading theway in the sector with itsfocus on transparency.

AXA IM commissionedindependent expertDeloitte to audit its six RIfunds, with all of the fundsfound to be fully compliantwith the United NationsPrinciples of ResponsibleInvestment.

AXA IM Australia and NewZealand director Craig Hurtsaid the lack of a globallyrecognised set of RI stan-dards meant that globalinvestors were not beingoffered full transparency.

“Through our work withDeloitte and the expansionof our global RI initiatives,we aim to offer Australianinstitutional investors – andtheir individual membersand investors – a wideropportunity to invest instrategies incorporating[environmental, social andgovernance] principles,”Hurt said.

AXA IM is also looking atadding a number of newmetrics to assess RI issues.In addition to the widelyused carbon footprintmetric, the firm will developcorporate governance, socialand water metrics.

The company recentlyappointed Matt Christensento the role of global head ofresponsible investment.Christensen is a dominant

figure in the RI field, havingheld the position of found-ing executive director of thetop European RI think tankEurosif.

Christensen said that Aus-tralia’s $1.3 trillion superan-nuation sector would be akey driver of the Asian RImarket, but he added thatcorporate governance, reg-ulation and transparencywere key factors in Asia.

“Global investors shouldabandon the box-tickingapproach based on theapplication of a single set ofcorporate governance rules,and instead encourageAsian companies toembrace the spirit of goodprinciples of corporate gover-nance as their companiesand economies evolve,”Christensen said.

Asian forum opens capital opportunitiesBy Chris Kennedy

AUSTRALIAN financial services companies willhave an opportunity to access Asian investorsat the fifth Asian Financial Forum in Hong Kongin mid-January.

The forum will bring together around 2,000business and government leaders from aroundthe world, including a business mission ofAustralian delegates, according to the Australianmission leader David Thomas from Think GlobalConsulting.

Speaking at an Asian Financial Forum board-room luncheon in Sydney, Thomas said theconference would provide opportunities forAustralian financial services delegates to tap intoAsian investors including venture capital compa-nies, high net worth individuals and state-ownedChinese investment companies.

Delegates will be able to check the database ofdelegates and organise one-on-one meetings withthe types of individuals or companies they aretargeting, he said.

There will also be a ‘deal maker’ session whichThomas equated to a speed dating session, where

delegates are rotated and have about 20 minuteswith potential investors to sound them out.

Thomas said the conference would suit threedifferent kinds of Australian financial servicesdelegates: those looking to raise money fromChinese investors, companies or individuals forAustralian projects including clean-tech, biotech,other technologies, property and agriculture;those looking to develop businesses in Asia andseeking potential customers, clients, businesspartners, and relationships on the ground; andthose looking to do some research, refine strate-gies and develop local knowledge.

He said one of the success stories from the 2011conference was APIR Systems. APIR managingdirector Andy Hutchings Broso said that confer-ence had helped him to understand the regionalnature of the Asian market and gave him theconfidence to take the business overseas.

The conference program will discuss growthopportunities and challenges in the Asia-Pacificregion, including issues such as global investmentprospects, China opportunities, Japan’s recon-struction and green growth initiatives. It takesplace on 16-17 January 2012.

Large-cap Australian funds least active By Andrew Tsanadis

LARGE-CAP Australian share funds areamong the least active in the world whencompared to other single-country andinternational share funds.

That’s according to Morningstar’s latestreport which involved an analysis of 75large-cap Australian share strategies andthe degree to which ‘activeness’ in sharefunds has changed over the last three years.

The active share scores ranged from 25per cent (highly index-aware) to over 80 percent (highly active), with the optimal posi-tion for active share in risk/reward termsbetween the 40 and 60 per cent bracket, thepaper stated.

“The average active share score has beenon the upturn since the Australian sharemarket’s bottom in March 2009, the mostindex-aware fund managers appearing tohave become willing to take more activepositions,” Morningstar stated.

A high active share score indicates greaterpotential for divergence from the bench-mark but does not necessarily guaranteesuperior returns compared to Australianshare funds with lower active scores. Thisis despite active share funds “in most cases”

charging more in fees than compared toless active funds, the report found.

According to Morningstar, the “tightly-constrained and top heavy” nature of theS&P/ASX200 Accumulation Index at leastpartly accounts for the fact that on averagemost large-cap Australian share fundmanagers are making active decisions withonly half of their portfolios.

In Morningstar’s list of Australia’s mostactive share funds, Lazard Select AustralianEquity ranked first with an average activeshare score of 79.10. This was followedclosely by SGH20 (78.9) and PerennialGrowth High Conviction (76.7).

The least active Australian share fund wasfound to be Macquarie Australian Equitieswith a score of 25.20, followed by AdvanceAustralian Shares Multi-Blend (30.2) andBlackrock Scientific Australian Equity (30.6),according to Morningstar.

Euro crisis enters final stageBy Milana Pokrajac

EQUITY investors should focus on high-quality and defensive stocks in the next12 months, as the Eurozone crisisenters what might be its final stage,according to global chief investmentofficer for equities at Fidelity World-wide Investment, Dominic Rossi.

Rossi also believes investors needto keep a close eye on the bondyields of Belgium, Austria andFrance. Furthermore, a strong casecan be made for corporate and infla-tion-linked bonds.

“Given we are talking about AAAsovereign nations now becominginvolved, this has to be the finalphase of the crisis, simply becausethere is nowhere else for contagionto spread,” Rossi said.

The attendant volatility in the cur-rent financial markets should alsomark the last down-leg of this crisis,he said.

“The speed at which the crisishas moved from Italy to Spain andnow core Europe has been alarm-ing, but it also suggests acrescendo,” Rossi suggested. “Theevolution of the crisis path now sug-gests a tipping point at which quan-titative easing by the European Cen-tral Bank becomes palatable toGermany as the only option thatavoids a Eurozone break up.”

Richard Klipin


News

By Chris Kennedy

THE Coalition does not and will notsupport compulsion in national sav-ings, but will not repeal an increasein the superannuation guarantee(SG) from 9 to 12 per cent if it ispassed, according to oppositionleader Tony Abbott.

Abbott told a recent Financial Ser-vices Council (FSC) breakfast that theCoalition was not given much credit for

being interested in superannuation,but the party was interested inpeople’s retirement savings. However,he said his party was more interestedin incentives than compulsion and incarrots rather than sticks when itcame to encouraging people to savefor their retirement.

Abbott acknowledged that it wasimportant for the future of the countrythat people had adequate retirementincomes, particularly with an ageing

population. He also acknowledgedthat with a strong welfare safety net,people often did not save much.

“It is perhaps important that wehave an element of compulsion ifthere is going to be the level ofnational saving that we would like tohave,” he conceded.

He said the Coalition would alwayshave an instinct and a preference fortransparency, small business andderegulation, which he claimed were

often lacking in the system right now.FSC chief executive John Brogden

paid credit to the work done byShadow Minister for Financial Ser-vices Mathias Cormann (who couldnot be at the breakfast due toanother commitment) for learningeverything he could about the finan-cial services portfolio. Abbott saidhe was pleased that the industryhad developed such a strong work-ing relationship with Cormann.

Gold Coastdirector jailedfor 7.5 yearsBy Milana Pokrajac

A GOLD Coast director hasbeen sentenced to morethan seven years in jail fordefrauding investors of $2 million, according to anannouncement released bythe Australian Securities andInvestments Commission(ASIC).

ASIC al leged thatformer director of Waterat Wooyung Unit Trust,Rober t Dale, inducedfour investors to pay $2 mil l ion in total toacquire units in his trustfor the development ofproperty at Wooyung.

The investors, whopaid $500,000 each, toldthe Southport DistrictCourt that they neverreceived the promisedunits, while ASIC allegedDale used s ignif icantpropor t ions of theinvestor funds for privatepurposes.

Following a four-weektr ial , Dale was foundguilty of six charges ofdishonest ly gainingbenefit and one charge ofdishonest ly applyingproperty belonging toanother.

He wil l ser ve aminimum of three yearsand two months, beingel igible for parole on 15 January 2015. He willalso be disqualified frombeing involved in themanagement of a corpo-ration for five years.

“Building and enhanc-ing confidence amonginvestors is a key priorityfor ASIC; this includestaking action againstdirectors who fail to fulfiltheir responsibilities,”said ASIC CommissionerPeter Kell, who welcomedthe sentence.

Tony Abbott

Abbott reiterates opposition to SG raise


News

ACCC gives Count/CBA deal green lightBy Keith Griffiths

THE Australian Competition and ConsumerCommission (ACCC) has announced that it will notoppose the proposed acquisition of Count Financialby the Commonwealth Bank of Australia (CBA).

“The ACCC is satisfied that there is unlikely to bea substantial lessening of competition in any rele-vant market as a result of this proposed acquisi-tion,” ACCC chairman Rod Sims said in a statementto the Australian Securities Exchange.

The ACCC conducted a comprehensive review,

including extensive market inquiries with partic-ipants in the financial planning, mortgage broking,banking, superannuation and insurance sectors,and was satisfied that CBA would continue to beconstrained by a number of other significantfinancial planning dealer groups, mortgagebroking firms and investment product providers,Sims said.

With respect to the supply of life insurance andsuperannuation products, the ACCC also conclud-ed that the acquisition would not raise significantcompetition concerns in either of these sectors.

FPA most influential group, says ShortenBy Mike Taylor

THE Assistant Treasurer andMinister for Financial Services,Bill Shorten, has declared theFinancial Planning Association(FPA) has been the most influ-ential planning body in termsof informing the direction ofthe Government on the Futureof F inancial Advice (FOFA)changes.

Addressing the FPA nationalconference in Brisbane,Shorten not only signalled theGovernment may be preparedto moderate its approach tomandatory fee disclosure state-ments as a result of feedbackfrom the FPA, but that it alsobroadly endorsed the founda-

tion provided by the FPA’s codeof professional conduct.

In what was interpreted asa d i rect s lap at the moreaggressive lobbying approachadopted by the Association ofFinancial Advisers, Shortensaid that while some peoplehad tr ied to adopt a toughstance, it had been the FPAwhich had influenced the Gov-ernment enormously.

“The FPA has helped toexplain to us the issues andhow they impact planners,” hesaid.

While not totally committingthe Government to such amove, Shorten said the FPA hadprovided cogent reasons whythe use of the term ‘financial

planner’ should be restrictedwithin Corporations Law.

On the quest ion of theeleventh hour inclusion of anannual fee disclosure require-ment within the first trancheof the Government’s FOFA leg-islation, the minister said thaton the basis of representa-tions made by the FPA, theGovernment was prepared toretrospectively review the sit-uation with respect to existingclients to ensure simplicity.

Shorten said he believedthe financial planning indus-try needed to embrace theneed for change and he wasin doubt tha t the FOFAchanges would pass throughthe Parliament.

Advisers need to engage young dissatisfied investorsBy Andrew Tsanadis

YOUNG investors, those whohave only used a financialadviser for a short time, andthose with minimal invest-ments are the most dissatis-fied when it comes to finan-cial advice.

That’s according to theresults of the latest LifeplanFunds Management/Univer-sity of Adelaide’s Interna-tional Centre of Financial Ser-vices (ICFS) Financial AdviceSatisfaction Index conductedlast month.

The survey evaluated theresponses of 410 investorsin relation to their perceptionof t rust and re l iabi l i ty ofadvisers; the perception ofan adviser’s technical ability;and the perception of invest-ment performance.

According to Lifeplan headMatt Walsh, the client cate-gories that showed a decline insatisfaction across all three cri-teria were those aged under30; those with less than$50,000 to invest; and thosewho had been with theiradviser for less than two years.Despite the survey being under-taken during a particularly

volatile period for global mar-kets, Walsh said advisers coulddo more to attract and retainclients in these categoriesrather than just waiting for mar-kets to regain their stability.

“Perceptions of trust andreliability in particular areaffected by regularity of con-tact with someone, how openand transparent they are, andwhether they do what they saythey will do.”

Experience Wealth Advicedirector Steve Crawford agreeswith Walsh. He said that inregards to generation X and Yinvestors, advisers need to bein contact with their clients on

a monthly if not weekly basis.Crawford said communica-

tion can be enhanced by usingmonthly e-newsletters, Face-book updates, or tweets onarticles that clients need toread. He added that non-tradi-tional technology such as soft-ware that gives real-time cash-flow updates adds real valueto the relationship with an agegroup that is par ticularlyfocused on managing theirspending and savings.

In other results, the studyfound that clients who havebeen with their advisers formore than five years have amore favourable perceptionof financial advice becausethey tend to have higherlevels of f inancial l iteracythan their younger counter-parts, Walsh said.

Meanwhile, satisfactionlevels among femaleinvestors were found to begreater than that amongmale investors. Walsh saidthis was particularly true offemales under the age of 30.

“Female investors’ positiveperception of advisers couldsignal an opportunity for advis-ers to expand their clientbase,” Walsh said.

FPA pushes for retirementplanning focusBy Benjamin Levy

THE Financial Planning Associa-tion (FPA) will encourage itsmembers to focus more on retire-ment and post-retirement plan-ning, according to FPA generalmanager of policy and governmentrelations Dante De Gori.

Speaking at the FPA nationalconference, De Gori said aged carewas a massive concern for thecountry as health and lifestyleimprovements continued toincrease life expectancies, andfinancial advice was critical todealing with the issue.

“Undoubtedly, we will get to astage where more aged care oper-ators are going to be required, butalso, fundamentally, the advice youprovide in the context of retire-ment planning should also consti-tute what happens within retire-ment and post-retirement,” DeGori said.

Family and intergenerationadvice can play a role in this space,where many clients’ parents needaged care, De Gori said.

De Gori reiterated calls forchanges to tax laws and the Super-annuation Industry SupervisionAct to stimulate better product

innovation to counter longevityrisk issues.

Tax deductibility for advicewould stimulate more Australiansto seek financial advice, he said.

Rebates and offsets can beprovided to help low-incomeearners who may not seek advicebecause of affordability issues,he said.

De Gori also urged FPA advis-ers to complement plans on theNational Disability Scheme byproviding the benefits and meritsof life insurance to their clientsso they don’t rely solely on thescheme.

Matt Walsh

Dante De Gori

Government to consulton OTC derivativesBy Chris Kennedy

THE Government will consultwith industry on regulationsaround over- the-counter(OTC) derivatives, a processit said was underway beforethe collapse of MF Globalh ighl ighted the need tostrengthen client money pro-tections.

Assistant Treasurer andMinister for Financial Ser-vices and SuperannuationBill Shorten has launched adiscussion paper to consultwith retail clients and indus-try stakeholders about howthey are using client moneyaccounts in relation to OTCderivatives transactions andwhether retail investors areprotected appropriately.

The paper, ‘Handling anduse of client money in rela-tion to over-the-counter deriv-atives transactions’, consid-ers var ious aspects ofAustralia’s current regulatoryregime for the keeping andhandling of client monies, inparticular the regulation ofOTC derivatives, according toShorten’s office.

Shorten said that in lightof the collapse of MF Global,the Government is nowmoving more quickly to con-sider these issues.

“These markets are lessheavily regulated than on-exchange derivatives mar-kets, which have also seenongoing strengthening ofapplicable reporting and rec-onciliation rules by [the Aus-tralian Securities and Invest-ments Commission] in recenttimes,” Shorten said.

Bill Shorten


SMSF WeeklyATO interpretive decision impacts stepchildren By Damon Taylor

THE Austral ian TaxationOffice (ATO) has recentlyreleased an interpretive deci-sion which is highly relativeto self-managed super fund(SMSF) succession planning,according to Br yce Figot,senior associate for DBALawyers.

The interpretive decision,ATO ID 2011/77, considerswhen a stepchild ceases to bea child of a stepparent and,more particularly, answersthe question of whether astepparent’s superannuationdeath benefits may be paid to

a stepchild if the stepparentis divorced from thestepchild’s biological parentbefore death.

According to Figot , theATO’s posit ion is that astepchi ld ceases to be adependant after the divorce,but he added that such aposition had a number ofimportant implications.

“Firstly, remember that anATO ID is not the law,” hesaid. “However, assumingthat the view in ATO ID2011/77 is correct (whichDBA Lawyers believes it tobe), the most obvious impli-cation is that superannuation

fund trustees typically maynot pay out a deceased step-parent’s superannuationdeath benefits to a stepchildwhere divorce has occurred.

“This implication gives riseto a subsequent, less obvious,implication,” Figot contin-ued. “Namely, non-biologicalchildren of superannuationfund members typically ceasebeing beneficiaries of thefund upon divorce.”

Figot said that it maysurprise many to learn thatsuch a scenario was often verypositive news for super funds.

“Remember that the bene-ficiaries of a superannuation

fund are much broader thanthe members,” he said.“Further, beneficiaries havevar ious r ights, such ascompelling proper adminis-tration of the fund by thetrustee, having the trusteesact in good faith and inspect-ing trust documents, includ-ing the governing rules (eg,the tr ust deed) and tr ustaccounts.

“Accordingly, children of amember’s for mer spousecan’t use such rights to makea nuisance of themselves [oruse them as leverage in afamily law property settle-ment negotiation].”

Equities drive better super returnsBy Mike Taylor

SELF-managed superannuation fundswith a reasonable exposure to equitiesshould have regained some ground inOctober, if new data released by special-ist research houses Chant West andSuperRatings are a guide.

The Chant West data revealed themedian growth fund grew by 3.1 per centlast month, while the SuperRatings datarevealed 2.78 per cent growth for themedian balanced option.

Chant West principal Warren Chant attrib-uted the positive October figure to a sharemarket rally based on optimism that Euro-pean leaders had devised a workable planto stem the sovereign debt crisis.

However he pointed out that marketshad softened again this month as it hadbecome clear the debt crisis had a longway to run.

Because of their higher exposure to

equities, retail master trusts out-per-formed industry funds in October, butChant pointed out that industry fundswere still the better performers over thelonger-haul.

Despite the positive October perform-ance, super returns remain in negativeterritory on a year-to-date basis.

THE actions of conventional superannu-ation funds may have given rise to thegrowth in self-managed superannuationfunds (SMSFs).

That is one analysis delivered to the Asso-ciation of Superannuation Funds of Australia(ASFA) national conference earlier thismonth, but Institute of Chartered Accoun-tants SMSF specialist Liz Westover believesthere are a number of reasons for growth inthe sector.

Westover said that among these is thegrowth in share ownership generated bydemutualisations and privatisations inAustralia, as well as recent stock marketvolatility.

“During stock market volatility whensuper fund balances were declining, many

Australians resented ‘paying’ someone elseto lose their money and preferred to have ago at obtaining better returns themselves,”she said.

Westover said other types of funds hadbeen inflexible and lacked choice aroundinvestments and options in retirement.

However she said there had been animprovement with respect to larger funds inrecent years in terms of meeting theirmembers’ needs and providing them withchoices and flexibility.

“Larger funds have a great opportunity tooffer up the benefits of SMSFs, without theresponsibilities of being trustee,” Westoversaid. “If they can maximise these opportuni-ties, they become a very attractive option forAustralians saving for their retirements.”

SISFA urges higher contribution caps A RECENT submission made by theSmall Independent SuperannuationFunds Association (SISFA) to theAssistant Treasurer Bill Shorten hashighlighted a number of areas ofconcern in matters relating to retire-ment policy.

Focusing on adequacy and contri-bution regulations in particular, thesubmission stated that while SISFAsupported the policy direction ofincreasing compulsory superannua-tion to 12 per cent, it was strongly ofthe view that more was required.

“SISFA does not advocate an ‘openslather’ or ‘no limits’ approach,” thesubmission stated. “We hold a strongview that greater flexibility and imag-ination in accumulating wealth insuper should be encouraged andembodied in legislation.”

To that effect, the suggestions madeby SISFA included higher contributioncaps (both concessional and non-

concessional) and a more flexibleapproach to those caps in the form ofa ‘rolling period cap’ or similar.

On the topic of contribution regu-lations, SISFA proposed that contri-butions be more dynamic and flexi-ble, using the possibi l i ty of alife-time cap, a rolling period cap ora single universal limit for life-timecontributions as possible examples.

“Solutions in this regard could bea life-time cap on concessional/non-concessional contributions to allowthe savings of people to increasethrough higher contributions attimes when their cashflow allows,” itsaid.

“Alternatively, move to a singleuniversal limit for life-time contri-butions to super, irrespective of age.

“This is consistent with the themeof a later acceleration model for themaking of higher contributions laterin life.”

Bryce Figot

Warren Chant

Conventional funds canmeet SMSF needs

Multiport grows managed account FUASELF-MANAGED superannuation funds(SMSFs) and managed accounts special-ist Multiport has passed a milestone,declaring that it has reached $150 millionin funds administered on its managedaccounts service.

Multiport chief executive John McIlroyattributed some of the growth in the man-aged accounts service to continuinguncertainty within investment markets.

“With the Future of Financial Advice(FOFA) reforms and ongoing marketvolatility causing many financial plannersto look at ways to create or improve valuefor their clients, managed account solu-tions are being looked at more closely,”he said.

McIlroy said his company was providing amanaged account service integrated with itsSMSF administration solution. John McIlroy

When Assistant Treasurer BillShorten late last week intro-duced the second tranche ofhis Future of Financial Advice

(FOFA) legislation to the House of Repre-sentatives, much attention was focused onits approach to fee disclosure and the bestinterests test.

That attention was entirely justified incircumstances where the CorporationsAmendment (Further Future of FinancialAdvice Measures) Bill 2011 laid out theremuneration game rules to which theindustry will have to adhere for the foresee-able future.

The bill gives financial advisers very littlechoice other than to adopt a fee-for-serviceapproach. The only wriggle room it providesis the vague suggestion that there may bescope for them to prove that some forms ofvolume rebates are not conflicted.

It is assumed that proof that a volume-rebate arrangement is not conflicted willneed to be provided to the Australian Secu-rities and Investments Commission.

The Government has explained its posi-tion in the explanatory memorandumattaching to the bill, which dealing with theissue of volume rebates states:

Where a volume-based payment of thiskind is made, section 963L requires the partyalleged to have paid or accepted conflictedremuneration to prove that the payment isnot conflicted remuneration.

That is, if that party has paid or receiveda volume-based benefit of the type described,it will have to demonstrate that, in thecircumstances, the benefit was not in factconflicted remuneration.

In an industry as complex and fast-evolv-ing as the financial services industry, thereare and will always be a wide range of remu-neration arrangements. However, volume-based payments of the kind described insection 963L appear on the face of it to beinherently conflicted, since the financialadviser will have a financial incentive tomaximise the value of the payments irrespec-tive of the suitability of the products orinvestments for the client.

It would be legislatively impractical todefine and categorise all remunerationarrangements precisely, and to prescribe inadvance which are conflicted and which arenot. Where there are volume-based benefitstructures that are not inherently conflicted,this will be peculiarly within the knowledge

of those paying and receiving the benefits. Itis therefore appropriate that those parties berequired to demonstrate that the benefits arenot conflicted.

It says something about the intent of thelegislation that Division 4 of the bill isheaded “Conflicted Remuneration” anddescribes “conflicted remuneration” tomean “any benefit, whether monetary ornon-monetary, given to a financial servic-es licensee, or a representative of a finan-cial services licensee, who provides finan-cial product advice to persons as retailclients that, because of the nature of thebenefit or circumstances in which it is given:

(a) could reasonably be expected to influ-ence the choice of financial product recom-mended by the licensee or representative toretail clients; or,

(b) could reasonably be expected to influ-ence the financial product advice given to retailclients by the licensee or representative.

The bill then goes on to detail forms ofmonetary and non-monetary remunerationwhich are not regarded as conflicted, includ-ing general insurance and basic bankingproducts.

The bill’s explanatory memorandum saidthe ban on conflicted remuneration includ-ed a ban on both monetary and non-mone-tary (soft-dollar) benefits. However, it said inrelation to monetary benefits that there areareas the ban on conflicted remunerationdoes not apply to:

• general insurance;• life insurance which is not bundled with

a superannuation product;• individual life policies which are not

connected with a default superannuationfund; and

• execution-only (non-advice) services.However it digs deep into the commer-

cial structures which have underpinneddealer groups when, at section 963L, theheading states “Volume-based benefitspresumed to be conflicted remuneration”.

The legislation states: “It is presumed forthe purposes of this Division that a benefitof one of the following kinds is conflictedremuneration, unless the contrary is proved:

(a) a benefit access to which, or the valueof which, is wholly or partly dependent onthe total value of financial products of aparticular class, or classes:

(i) recommended by a financial serviceslicensee, or a representative of a financialservices licensee, to retail clients, or a class

or retail clients; or(ii) acquired by retail clients, or a class of

retail clients, to whom a financial serviceslicensee, or a representative of a financialservices licensee, provides financial productadvice.

(b) a benefit access to which, or the valueof which, is wholly or partly dependent onthe number of financial products of a partic-ular class, or particular classes:

(i) recommended by a financial serviceslicensee, or a representative of a financialservices licensee, to retail clients, or a classof retail clients; or

(ii) acquired by retail clients, or a class ofretail clients to whom a financial serviceslicensee, or a representative of a financialservices licensee, provides financial productadvice.

While those analysing the second tranchebelieve the Government has provided somewriggle room by allowing scope to provesome volume rebate arrangements are notconflicted, the logistics of pursuing such anargument would seem likely to be bothcostly and time-consuming for thoseinvolved.

Where cl ient best interests areconcerned, the second tranche introducedby Shorten last week fulfilled many of thearguments which had been presented bythe Financial Planning Association (FPA)amongst others by not requiring plannersto go beyond what is currently regarded asreasonable professional conduct in thesense of knowing their client.

The problem for the FPA and other stake-holders in dealing with the introduction ofthe second tranche of the legislation is that,initially at least, they did not have theopportunity to peruse the usual explanato-ry memorandum attaching to the bill.

However when it was finally released, itdescribed the legislation’s approach to thebest interests test in the following terms:There is a general obligation on providers ofadvice to act in the best interests of the client.This general obligation is supplemented bya provision setting out steps that, if theprovider can prove they have taken, will betaken to satisfy the general obligation. Thesesteps have been set out based on the specif-ic conditions under which advisers current-ly operate. This approach is needed given thebroad nature of a best interests obligation; itmay allow a provider to demonstrate that ithas complied with the obligation by provingit took certain steps.

InFocus

The second tranche of the Government’s Future of Financial Advice legislationhas laid out the remuneration and best interests ground rules for financialplanners but, as Mike Taylor reports, much will depend on the attitude ofthose administering the new rules.

FPA Sydney ChapterChristmas Lunch8 December 2011Hilton, Sydneywww.fpa.asn.au

Chartered SecretariesAustralia Annual Conference4-6 December 2011Sofitel Sydney Wentworthwww.csaconference.com

24th Australasian Finance &Banking Conference14-16 December 2011Shangri-La Hotel, Sydneywww.asb.unsw.edu.au

The Superfund ReformSummit 20127 February 2012CQ Functions, Melbournewww.superfundreform.com.au

Effective Business ForecastingConference 201214 February 2012Park Royal Darling, Sydneywww.cpaaustralia.com.au

3.9%High Growth

WHAT’S ON

SUPER FUNDPERFORMANCESNAPSHOT


The cost of playing by new rules

Month ended 31 October 2011

3.1%Growth

1.3%Conservative

2.8%Industry Funds

DIVERSIFIED FUNDS

GROWTH FUNDS

3.8%Master Trusts

Source: Chant West’s monthlysuperannuation fund performance survey –results to 31 October 2011


Year in review

2011REAR VIEW MIRROR


Year in review

IT has been a fractious year inthe financial services industry,with regulatory uncertainty and

increasing industry consolidationtaking a toll.

After an exhaustive (and exhausting)consultation process, the Minister forFinancial Services and Superannuation,Bill Shorten, finally tabled the firstFuture of Financial Advice (FOFA) billsin Parliament on 13 October 2011.

Given the tortuous path the Govern-ment has taken on FOFA, it should havecome as no shock to the industry thatthe Minister chose to add an undis-cussed and contentious annual feedisclosure requirement into the Bill atthe eleventh hour.

The inclusion of retrospective feedisclosure “flies in the face of grandfa-thering, and adds significant cost andadministration to financial planningpractices for little consumer benefit,”says Financial Planning Association(FPA) chief executive Mark Rantall.

Rantall said in October that the pres-ence of the unexpected requirementmeant the FPA could not support theBill. However, he was pleased to hearShorten appear to back down from theannual fee disclosure at the 2011 FPAConference at the end of November.

“The reality is that if nobody talks to[Shorten] about issues and advocates forboth consumers and financial plannershe won’t reconsider them,” Rantall says.

In fact , this is not the f irst t imeShorten has introduced a controversialamendment to the FOFA legislation andthen backed down after vocal lobbyingby the industry.

On 28 April (after the final round ofconsultation) the Government unveiledits reforms, only to surprise the indus-try with an announcement that commis-sions on group and individual insurancewould be banned inside super.

“Everyone then got very focused ontrying to convince the Government thatwasn’t the r ight way to go, and wesuccessfully achieved that objective,”says Association of Financial Advisers(AFA) chief executive Richard Klipin.

Shorten did indeed back down, andrisk commissions will now only bebanned on group insurance withinMySuper products. They will be permit-ted within Choice products.

Sticking to his gunsOne issue that Shorten is unlikely to backdown on is the opt-in requirement inFOFA (ie, the requirement that plannerscontact their clients once every two yearsand ask them if they would like to contin-ue the relationship). The industry hasreacted furiously to opt-in, but thus far ithas only managed to have it changed froman annual to a biennial obligation. Addi-tionally, industry lobbying has ensuredthat opt-in will not be retrospective (ie, itwill only apply to new clients).

Shorten isn’t the only person fightingthe financial planning industry on opt-in.The Industry Super Network (ISN) iswaging a very vocal campaign againstcommissions, and the Government hascontroversially cited a questionable pieceof ISN-commissioned Rice Warnerresearch that claims implementing opt-inwould only cost planners $11 per client.

“The work and the advocacy of the

industry fund movement, which is verywell resourced and very formidable, iscounter-productive. It’s shrinking themarket and putting in doubt the confi-dence of Australians,” Klipin says.

Still, Klipin is more enthusiastic thanothers in the financial planning industryabout getting opt-in scrapped.

“Opt-in is still in doubt. The fact thatthere’s been vigorous debate on that isa good thing, because FOFA is going tobring significant change to the indus-try,” Klipin says.

The AFA is far from happy with thecurrent shape of FOFA. The reformsmust be measured against two things,says Klipin: ensuring more people getaccess to financial advice, and increas-ing transparency.

“Our view since 28 April is that neitherof these things will be achieved. Priceswill go up, red tape will go up, and accesswill go down,” Klipin says.

He was especially concerned with theconcept of ‘intra-fund’ advice that theGovernment has introduced.

“The danger of scaled advice is that it

will return us to the days when productsales reigned, and advice was product-led rather than client-led. That’s why theAFA has had a lot to say in such a forth-right way about holding these FOFAissues to account,” Klipin says.

If the AFA has been “forthright” in itsdealings with the Government, the FPAhas been rather more politic in its lobby-ing efforts. Rantall describes the FPA asan “honest broker” in the FOFA debate,and emphasises the industry body’sdesire to professionalise the industry.

“It’s now or never to evolve financialplanning into a universally respectedprofession … all financial plannersshould have to sign up for an approvedcode of ethics and professional code ofconduct,” Rantall says.

The FPA has completely re-engi-neered itself in order to prepare the wayfor a professional industry, Rantall says.The FPA has pre-empted the Govern-ment’s fiduciary duty by establishing itsown ‘best interest’ obligations, he adds.

As for the Government’s two ‘bestinterest’ duties – the duty to act in the

2011REAR VIEW MIRROR

Tim Stewart and Milana Pokrajac look back atmajor events that have shaped the financialservices industry over the past year.

Mark RantallBill Shorten Richard Klipin


Year in review

best interests of one’s client, and the dutyto put the interests of one’s client beforeone’s own – they have been generallyaccepted by financial planners, who arequick to claim that they already placetheir clients’ interests before their own.

Back to schoolApart from opt-in, education too hasbecome a real buzzword in the financialplanning industry over the past year asthe sector seeks to become a highlyregarded profession.

Industry commentators have longargued that the entry-level bar for finan-cial planners needs to be raised, andtheir voices became louder since theglobal financial crisis (GFC).

Earlier this year, voting members ofthe FPA have approved the Association’sthree-year plan, which it said wouldraise professional standards andincrease education requirements.

They have introduced two levels ofpractitioner membership:

Associate Financial Planner level,granted to those who had completed a

Diploma in Financial Services and areRG 146 compliant; hold an authorisedrepresentative status and have aminimum of one year approved practi-tioner experience;

Certified Financial Planner (CFP)level, which requires an undergraduateor masters degree, or a doctorate;completion of CFP certificationprograms, as well as at least threeyears approved practitioner experi-ence.

Following the vote on the FPA’s new strat-egy, a new Planning Education Council wascreated, which began the development ofa harmonised national university curricu-lum for financial planning.

It is hoped that within three years,there will be more educational pathwaysand offerings to suit members in theachievement of university qualifications.

Australian Security and InvestmentCommission too, has responded toindustry-wide calls for higher educationstandards for financial planners.

In its consultation paper [CP 153] onthe assessment and professional devel-

opment framework for financial advis-ers, ASIC proposed all new and existingfinancial planners be subject to a nation-al exam to ensure they possess the neces-sary competencies. The proposed frame-work also includes a mandatory“professional year” for all new advisers, aswell as a so-called knowledge updatereview requirement that would becompleted every three years.

If passed, these requirements wouldpresent a sizeable step up from theRegulatory Guide 146 requirements,which could often be fulfilled during atwo-week course.

However, although he supports theraising of the professional standardswithin the sector, Klipin said the amountof legislative and regulatory changes couldeasily overburden planners.

“The greater concern we have across allof these changes is the quantity of changecoming through and the pressure it willput on small businesses to adjust and tochange,” he said in an earlier interview

Continued on page 16

“Both campaigns aim topresent financial planningas a respected professionand improve the overallimage of the industry; butwhether they will haveenough funds to matchISN’s efforts remains to beseen. ”

Sticking to his gunsShorten remained persistenton opt-in.

Back to schoolIndustry supports proposededucational requirements,concerned about over-burdening.

Advertising weaponBoth the FPA and the AFAunveiled their new adcampaigns.

Come together2011 has seen major mergersand acquisitions in financialservices.

Revolving doorSome executive moves shookthe industry.

Shifting platformsPlatforms adapt to a changingmarket.

YEAR IN REVIEW

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Year in review

with Money Management.However, some institutions – partic-

ularly AMP and MLC – have dedicated agreat deal of resources to increasingeducation standards within their finan-cial planner networks.

Advertising weaponThe collapse of Storm Financial and theWestpoint Group some years ago did notdo any favours for the public image ofthe financial planning industry; neitherdid the ever successful anti-commissionscampaign “Compare the Pair”, launchedby the Industry Super Network.

Various surveys done over the pastyear found only two in five people use afinancial adviser, that the cost of finan-cial advice was seen to be too high, whiletrust in planners was too low.

At their national conferences in 2010,both the FPA and the AFA have proposedto their members the launch of anadvertising campaign which would aimto improve the image of financial plan-ning in the eyes of the public.

Since then, their respective membershave voted in favour of this proposal, andboth associations have launched theiradvertising campaigns earlier this year.

The FPA’s 30-second ad focuses onprofessionalism, comparing itsmembers to pilots, doctors and lawyers.

But the AFA had taken a slightly differ-ent approach. What was initially goingto be a “Make a Plan” advertisingcampaign later evolved into the “YourBest Interest” reality series. The AFA hasrecently launched its pilot episode,presented and narrated by formerChannel 7 presenter, Naomi Robson.The video focused on the value of adviceand the role of a financial planner inclients’ wealth creation.

Both campaigns have been paid forand approved by Association members.

Earlier this year, FPA chief MarkRantall said its ad campaign would costup to $15 million over five years, withCFP members to be levied by $220 eachper year, while general and future advis-ers would pay an additional $100.

In addition, the FPA will contribute$500,000 per year from its own reserves.Rantall said the Association expected itsprofessional partners to come throughwith the same amount of money for thecampaign.

While a similar funding model mightbe a possibility in the future, the AFA’scampaign funding has so far been purelybased on voluntar y contributions.Richard Klipin told Money Managementthat some firms have contributed in theorder of $10,000, while others havecommitted to lesser amounts.

Both campaigns aim to present finan-cial planning as a respected professionand improve the overall image of theindustry; but whether they will haveenough funds to match ISN’s effortsremains to be seen.

Come togetherThe imminent FOFA reforms have arguablyled to an increasing amount of consolida-tion in the financial services industry.

The year began with the completionof AMP’s acquisition of AXA Asia Pacific,

which came after a $13.3 billion bid byNAB was blocked by the AustralianCompetition and Consumer Commis-sion in 2010.

Later in 2011, Count Financial agreedto be taken over by the CommonwealthBank in a deal worth $373 million. Themerger took CBA’s number of advisersfrom 1,220 to 1,850 – making it thesecond biggest player in the wealthmanagement industry.

Zurich exited the financial researchbusiness by selling Lonsec to the MarkCarnegie-backed company FinancialResearch Holdings in June.

Snowball Group and Shadforth Finan-cial Group announced their intention tomerge in May. The merged entity, withthe proposed name SFG Austral ia,announced a net profit after tax of $25.4million in August.

DKN Financial Group was taken overby IOOF holdings in October, in an acqui-sition worth $115 million that deliveredIOOF about 700 planners (including 110under the Lonsdale banner).

BT Investment Management lookedoutside Australia for its expansion, withthe purchase of UK-based boutique activeequity investment manager J O HambroCapital Management for $314 million.

Matrix Planning Solutions has put 100per cent of its shares up for sale to anexternal investor, a move that Matrixmanaging director Rick Di Cristoforosaid had “significant support” from bothshareholders and advisers.

UBS Global Asset Managementfinalised its takeover of ING InvestmentManagement Australia in October,leading to the redundancies of 36 of the120 ING staff, according to one source.

AMP-backed Hil lross FinancialServices acquired the dealer group Irisin July. Hillross managing director HughHumphrey said the acquisition wouldallow Hillross to take on all 12 Iris prac-tices, 37 advisers and $2.2 billion infunds under advice.

The revolving doorWhile there was a flurry of movementon the mergers and acquisitions front,there was even more activity when itcame to executive comings and goings.

The first big news of the year was theappointment of former ING InvestmentManagement Asia Pacific boss Chris

Ryan to the role of chief executive atPerpetual in January.

Ryan replaced David Deverall, whoannounced his intention to leave Perpet-ual in 2010.

AMP’s big acquisition this year costAXA Asia Pacific chief executive AndrewPenn his job. It wasn’t all bad news forPenn though – he received a termina-tion payment of $9 mil l ion which,together with his $8 million in options,amounted to a total payout of |$17 million.

Paul Barrett left his role as generalmanager of Colonial First State’s (CFS’s)advice business in February to head upANZ’s advice division. The vacated role

at CFS was subsequently filled by thepromotion of Marianne Perkovic.

Wilson HTM underwent a big shakeupas chief executive David Groth steppeddown after a year in the role. WhileAndrew Coppin continues to hold therole of managing director, the firm hasyet to find a replacement chief executive.

In March, managing director of Trea-sury Group Mark Burgess announced hisresignation following his appointmentto the Future Fund Management Agency.He continued in his role at TreasuryGroup until 24 June 2011.

Former partners Alan Kenyon and StevePrendeville parted ways in May, formingtheir own practice sales businesses.

Continued from page 15

“While there was a flurryof movement on themergers and acquisitionsfront, there was even moreactivity when it came toexecutive comings andgoings.”

Chris Ryan

Marianne Perkovic

Leanne Milton

Rick Di Crisfotoro


Year in review

Kenyon now runs Kenyon Partners, whilePrendeville heads Forte Asset Solutions.

Arthur Naoumidis resigned as chiefexecutive of the financial services plat-form Praemium in August. His suddendeparture saw him replaced with thecompany’s largest shareholder, MichaelOhanessian.

Following the integration of SnowballGroup into Shadforth Financial Group,the company announced that Snowballchief executive Tony McDonald wouldleave the merged entity on 4 October2012. He will remain at the company forthe next 10 months to oversee the inte-gration of the two groups.

After the acquisition of DKN by IOOF,DKN chief executive Phil Butterworthdeparted the company on 21 October2011. After a month of speculation, itwas announced by BT Financial Groupthat Butterworth – along with membersof his team from DKN and Lonsdale –would be in charge of a BT advice busi-ness unit that includes the establishedMagnitude brand.

Karma Wilson departed the AMPCapital Investors Asian Equities team inthe middle of 2011, leaving JonathanReoch and Ragavan Sivanesarajah asacting co-heads.

Shifting platformsShifting client and planner demandshave resulted in numerous changeswithin the platform sector.

Ever since the first mention of theFOFA legislation, there has generallybeen a greater focus on cost, and plat-form providers have responded witheither the introduction or announce-

ment of lower-cost offerings.Both AXA and MLC have segmented

their target markets into two categories:high net worth and majority investors.

But it’s not just the planners who arecoming to platforms with shift ingdemands. Retail investors are still thirstyfor cash and other defensive assets,prompting platform providers to intro-duce offerings more popular than thoseof managed funds.

Just under a year ago, OneAnswerintroduced six new ANZ term deposits,generating over half a billion dollarssince, while BT had $3 billion in term

deposit inflows since 2009. Bonds, directequities, exchange traded funds andseparately managed accounts are alsoproving to be a hit.

But with the FOFA deadline fastapproaching, platform providers seem tobe struggling the most in terms of meetingthe 1 July 2012 implementation date.

Major players in the sector haveexpressed concerns over the past yearthat with the lingering FOFA uncertain-ty around things like grandfathering andopt-in, there is not much time left todevelop compliant administrationsystems to cater for financial planners.

Colonial First State’s Peter Chun andIOOF’s Renato Mota have agreed thatdelaying some of the FOFA elements tocoincide with the MySuper implemen-tation date in 2013 would result in amuch more beneficial outcome for plat-forms, planners and clients.

In addition, with the removal ofconfl icted remuneration models –volume-based repayments passed downto dealer groups and volume basedshelf-space fees coming from fundmanagers would no longer be permit-ted – comes a great deal of pressure tosecure distribution channels.

As mentioned above, some of the bigacquisitions include IOOF’s purchase ofDKN, and CBA’s proposed purchase ofCount. However, even smaller, non-institutionally owned platform providersare making their moves. Managingdirector of netwealth, Matt Heine,recently confirmed the company’sacquisition of Paragem Dealer Services,while HUB24 added seven new dealergroups to its client list. MM

By Mike Taylor

AUSTRALIAN financial planners and their clientshave had to live with higher than normal levels ofmarket volatility for much of the past three yearsas both a consequence and a by-product of theGFC.

But in 2011 the main contributor to thatmarket volatility has been debt - European sover-eign debt and the US debt ceiling.

Indeed, while the year started on a reasonablypositive note, it did not take long for the eco-nomic and market commentators to start dis-cussing “PIGS” – Portugal, Ireland, Greece andSpain – the Eurozone economies deemed to facethe greatest challenges with respect to sovereigndebt.

It was Greece which was first to hit the debtwall and the ripples it generated across globalmarkets were commensurate with the degree towhich the European Community struggled tocome to terms with providing a bail-out. Thatstruggle continues.

Similarly, while the US Congress agreed inAugust to lift the nation’s debt ceiling after weeksof political brinksmanship, the underlying issuehas not gone away and continues to be a factor inmarket activity, with a view that a similar debatewill occur next year.

The impact of both the European and US debtissues on the Australian share market was evi-

denced by a steep decline which saw it descendthrough 4,000 points to levels not seen since thedepths of the GFC.

According to ASX data, the ASX 200 Indexstarted January 2011 at around 4,753.9 and haddescended to 4,008.6 by the end of September,having broken through the 4,000 barrier on anumber of occasions.

According to data collected by specialistresearch house Wealth Insights, there has been astrong correlation between the ASX 200 andclient sentiment, which in turn, has been feedinginto adviser sentiment.

Wealth Insights managing director VanessaMcMahon said this correlation between the sharemarket and sentiment had been evident through-out the period since the start of the GFC.

Continuing volatility has also been factored intothe forward outlooks of the major banks and insti-tutions, with Westpac, NAB, ANZ and the Com-monwealth Bank each pointing to the manner inwhich it had impacted investment performance,and was likely to continue to do so into 2012.

As well, one of the most recent meetings ofthe Reserve Bank board saw them discussing“extreme market volatility which reflected fearsabout a slowdown in the global economy andescalation of sovereign debt tensions in theUnited States and Europe”. These concerns hadled to particular focus on the financial strength ofEuropean banks. MM

Markets still wobbly

“Australian financialplanners and their clientshave had to live with higherthan normal levels ofmarket volatility for muchof the past three years asboth a consequence and aby-product of the GFC. ”

On the first Tuesday in Novem-ber each year, FlemingtonRacecourse hosts what hasbecome famously known as

‘the race that stops a nation’. During theMelbourne Cup festivities this year, theReserve Bank of Australia (RBA) did its bitto get the nation going again.

As punters eagerly awaited the resultof the photo finish in the big race,Australian households and corporateborrowers were already rejoicing at theRBA’s 25 basis point cut in policy interestrates. The first rate cut in Australia in morethan two and a half years is sure to providesome relief to home owners. Businesses,too, are likely to benefit from an expectedboost to consumer sentiment and anincrease in consumer discretionaryspending power.

But what does this mean forinvestors?RBA Governor Glenn Stevens’ statementaccompanying the announcement high-lighted the recent moderation in thepace of global growth, flagged Europe asa key concern and noted the recentfinancial market turmoil may result in “aperiod of precautionary behaviour byfirms and households”.

Such precautionary behaviour hasbeen evident for some time, with house-holds around the world saving more andstarting to pay down debt. This height-ened aversion to risk and consequenthousehold deleveraging is the naturalaftermath of a multi-year credit boomand subsequent downturn, which couldhave important implications for invest-ment markets.

Research conducted by Bank ofAmerica Merrill Lynch found that previ-ous periods of household deleveragingaround the world lasted six years on

average. In share markets over this time:• Dividends accounted for a much

larger share of returns than duringnormalised periods, with over half of totalreturns derived from dividends duringdeleveraging compared to the historicaverage of less than one-third;

• Defensive securities outperformed,whilst banks and industrials tended tounderperform; and

• Returns were lower and volatilityhigher than the historical norm.

We believe an investment in thepublicly traded equity securities of stable,income producing global infrastructure

companies may be one solution to navi-gating through this period of continueduncertainty, risk aversion and householddeleveraging.

Now to look at each of these points inmore detail.

Dividends accounted for a muchlarger share of returns Infrastructure companies own andoperate long-lived assets that provideessential services, such as toll roads,airports, sea ports, oil and gas pipelines,electricity transmission lines, waterpipelines and treatment plants andcommunication towers.

Most offer dividend yields ranging from2.5 per cent to 7 per cent, with a number

delivering over 10 per cent. Importantly,these dividends are backed by stable,long-term cashflows that are less impact-ed by the broader macroeconomic envi-ronment than typical broad market equi-ties. Such stability is depicted in Chart 1,with infrastructure securities realisingpositive cashflow (earnings before inter-est, taxes, depreciation, and amortisation)growth each year over the past decade,even during the 2008 global financialcrisis. This has translated into weightedaverage dividend growth of 5.8 per centper annum over the past five years.

Defensive securities outperformedInfrastructure securities can be thoughtof as ‘no boom – no bust’ securities due


OpinionInfrastructureThe age of uncertainty

The decision by the Reserve Bank of Australia to cut interest rates by 25 basis pointslast month might result in good news for both investors and the markets, accordingto Paul Williams.

9% 9%

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E

EBITDA Growth (Year over Year)

Global Infrastructure Global Equities

As of 30 June 2011. Global infrastructure EBITDA growth is derived using the constituents of the Dow Jones Brookfield Global InfrastructureIndex on 31 December 2010 and is calculated from 30 December 2000 through 30 June 2011. Note: Median EBITDA (Earnings Before Inter-est, Taxes, Depreciation and Amortisation).Source: AMP Capital Brookfield Pty Limited research and estimates; FactSet, Dow Jones Brookfield Global Infrastructure Index, Merrill LynchGlobal Quantitative Strategy, MSCI, IBES,Worldscope.

Chart 1: Comparative cashflow growth

9.7% 8.7%

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1-Year 3-Year (Annualised) 5-Year (Annualised) 8-Year (Annualised)

Global Listed Infrastructure Global Equities Global Bonds

As of 30 September 2011 and shown in US Dollars.Source: Barclays Capital Inc., Bloomberg; Dow Jones; European Public Real Estate Association.

Chart 2: Historical total return by asset class

to the inherently defensive nature of theinfrastructure asset class. Infrastructureassets serve as the foundation for basic,irreplaceable public services, which arenecessary to support economic and socialactivity. As a result, they are less impact-ed by economic cyclicality.

Electricity transmission companiessuch as ITC in the U.S. or Red Electricain Spain, for example, own and operatehigh voltage lines carrying electricityfrom power stations to cities. Theirrevenues are guaranteed by regulation,and have no sensitivity to the amount ofelectricity used by households orcommercial properties.

Infrastructure assets are often ownedin perpetuity and subject to regulatorycontracts, or underpinned by long-termconcessionary agreements lasting 25 to99 years. This framework supports visi-bility on future real earnings, with priceincrease provisions often embedded toensure a predictable and growingreturn over time.

Transurban’s concession agreementfor the M1 motorway in Sydney, forexample, regulates toll increases at thegreater of either the consumer priceindex or 1 per cent per quarter for theremaining life of the concession, whichcurrently stands at 37 years.

Further, the typical features of highbarriers to entry, monopoly-like pricing

power and modest ongoing operationaland maintenance expense often trans-late into high operating margins once anasset becomes operational. This createssignificant free cashflows which can beused to support dividend distributions.

Whilst defensive as a whole, the infra-structure asset class is comprised ofsectors with varied degrees of defensive-ness. The demand for water pipelines andelectricity transmission lines, forexample, remains relatively stablethroughout economic cycles, whereaspassenger and freight volumes (whichdrive the demand for airports andseaports) are much more closely tied toregional or global economic activity.

Through active management, a portfo-lio of global infrastructure securities canbe adapted according to the growthprospects and prevailing market condi-tions in each sector and geography. Inaddition to offering an attractive yield, anactive strategy can also provide diversifi-cation and enhance the opportunity todeliver sound capital growth.

Returns were lower than normal andvolatility higherWhilst still relatively nascent, the globalinfrastructure securities asset class hasconsistently delivered strong totalreturns relative to both equities andbonds. Indeed, the Dow Jones Brookfield

Global Infrastructure index has outper-formed global equities over every rollingthree-year period since inception of theindex in 2002 (see Chart 2).

In this ‘new normal’ environment oflower returns and higher volatility,investors may rightly focus on risk-adjust-ed returns. On this metric, too, the globalinfrastructure securities asset class hasdelivered relative to the broader equitymarkets, as shown in Chart 3 below.

Of course, past performance is notnecessarily a good predictor of futurereturns. We strongly believe, however, thatthe fundamental attributes of the global

infrastructure securities asset class makesit an appealing investment proposition,well-suited to today’s uncertain andvolatile environment.

As households continue to delever andgovernments globally work through theirsignificant fiscal imbalances, an assetclass which offers strong, growing divi-dend yields and the opportunity forcapital growth is certainly one thatwarrants attention.

Paul Williams is an investment specialistfor global property and infrastructuresecurities at AMP Capital.


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Global Infrastructure Global Equities

As of 30 September 2011. Source: AMP Capital Brookfield research, FactSet, Bloomberg, Dow Jones Brookfield Global Infrastructure Index

Chart 3: Risk-adjusted returns: three-year rolling Sharpe ratio

The global population has hit theseven billion mark, having grownby a full billion people since 1999.The overwhelming driver of this

growth has come from developing coun-tries and this will remain the case – as willthe general trend for urban populations toexpand at the expense of rural populations.

This has many implications for investorsas the world’s consumer base expandsrapidly and the demand for finite resourcesincreases.

The demographic paradoxThe split between population growthin the developed and developing worldis stark. Much like their economicgrowth rates, developing countries’populations are growing considerablyfaster than developed ones. This isbecause developed countries havealready undergone a demographic tran-sition: a progression from the high birthand mortality rates of a pre-industri-al ised economy to low bir th andmortality rates. The enablers have beenthe rising wealth and better healthcarewhich allow people to live longer.

This is the demographic paradox: as anation’s wealth increases, its birth rate falls– a phenomenon that has prompted somepeople to point out that a government’sbest tactic to tackle a high birth rate is toencourage economic growth.

Many developing countries are, ofcourse, experiencing faster economicgrowth which is increasing the amount ofpeople in the global middle class. In time,with continuing economic growth, we can

expect many emerging economies toundergo their own demographic transi-tions as families protect their wealth byhaving fewer children.

Some implicationsFirst and foremost, a larger global popu-lation increases the demand for finiteresources, particularly food, water andenergy. These resources have already expe-rienced strong demand and price increas-es in recent years as emerging marketshave grown and begun to consume – notjust produce – a growing share of theworld’s resources.

The investment implications are myriad:we highlight the impact on food and thepotential for companies to sell to a rapidlyexpanding consumer base.

More people, more food, morefertiliser

The World Bank estimates that demandfor food will rise by 50 per cent by 2030,largely as a result of population growth, aswell as rising affluence and changing diets.Population growth poses a serious chal-lenge for food production, particularly inlight of the fact that the amount of arableland in the world is being reduced due toindustrialisation and urbanisation.

With a growing number of mouths tofeed yet declining arable land, we havesome strong fundamentals that point tothe need to increase crop yields. However,changing diets in the developing world addan extra dynamic to the mix.

Economic growth and rising affluencein developing countries is allowing huge

numbers of people to improve their dietsby adding more protein, namely meat anddairy products. The demand for moreprotein has a significant indirect impacton grain. Livestock is reared on grain feed,making production heavily resource inten-sive. Indeed, it takes seven kilograms ofgrain to produce just one kilogram of meat.In a world growing ever hungrier for meat,the need for more grain and better yieldsis clear.

Much of the arable land in the develop-ing world is inefficient and significant gainsin yields can be made via the use of fertilis-ers. Higher commodity prices mean thatfarmers are making healthy profits and canafford to buy fertilisers. The demand for,and the price of, fertiliser is likely to growstrongly over the next decade.

A number of stocks can be expected tobenefit from the world’s growing need forfood. Fertiliser stocks are one of the mostdirect beneficiaries of the need to increasecrop yields. Stocks such as Potash Corp,Uralkali, Industries Qatar and Mosaicoutperformed significantly during the lastepisode of food inflation, when many ofthese themes first caught investor atten-tion. Valuations are now more reasonable,yet the long-term fundamentals remainvery attractive.

A consumer revolutionOver the next few decades, the number ofpeople considered to be in the ‘globalmiddle class’ is projected to more thandouble, from 430 million in 2000 to 1.2billion in 2030 (or from 7.6 per cent of the


OpinionPopulation

Tom Stevenson examinesinvestment implications as theglobal population hits the sevenbillion mark.

It’s a world after all

big

world’s population to over 16 per cent).Most of the new entrants will come fromjust two countries – China and India –where private consumption has beengrowing rapidly in recent years. In fact, toput the source and magnitude of thisgrowth in perspective, the World Bankpredicts that by 2030, 93 per cent of theglobal middle class will be from develop-ing countries.

This bare fact alone is the reason whycompanies from all over the world are atpains to develop a presence in emergingmarkets. They want to capture rates ofconsumption growth that are unimagin-able in mature western economies.

As incomes grow, consumption patternschange as the proportion that is spent onbasic necessities diminishes. And as the

proportion of income spent on discre-tionary consumption rises, so too does theallure of having the coolest fashion itemsor the latest mobile phone.

Changing diets There is a clear relationship betweenhigher income and changing food expen-diture. As incomes rise, the percentage ofincome spent on food declines as discre-tionary spending rises. However, the actualvalue of food spending increases asconsumers trade up to higher protein andmore expensive foods such as meat anddairy. Food producers like Brazil Foods(one of the world’s largest producers ofprocessed meat) and dairy producers likeChina Mengnui are examples of the manylocal beneficiaries of this theme. Mean-

while, Nestlé seems set to be a beneficiaryof growth in the confectionery market asemerging consumers develop a ‘sweettooth’.

BeveragesDue to the relative lack of safe drinkingwater, emerging markets like Brazil andMexico are among the world’s largestbottled water customers by volume. InMexico bottled water consumption perperson is twice that of the US. Companieslike Danone, the global leader in bottledwater by volume, are benefiting from thisdemand. Soft drink and beer consumptionis also increasing and both Western andother companies like Coca-Cola, Pepsico,Ambev and Grupo Modelo are seeingstrong growth in revenues.

Female spending patternsFemale labour participation rates havegrown steadily in emerging markets in linewith economic growth. Rates of femaleparticipation in East Asia are higher than indeveloped economies. This is significantas women have distinctive spendingpatterns including the purchase of cosmet-ics, fragrances and toiletries. Brazil isalready the world’s third largest market forthese products and Natura Cosmeticos andGenomma International are two of theleading domestic firms.

Household goods and electricalsHigher incomes are also allowing thepurchase of a range of household goodsfrom freezers to televisions and comput-ers. We have identified Gome as a leadingelectrical retailer in China that is wellplaced to compete against local and inter-national brands.

AutomobilesMany new entrants to the emergingmiddle class are increasingly able topurchase their first car assisted by the avail-ability of credit in most emerging markets,while higher income consumers particu-larly in China are trading up to westernEuropean models made by BMW and Volk-swagen. Brilliance China AutomotiveHoldings is BMW’s Chinese partner andlikely to benefit from the Germancompany’s fast sales growth in the country.BYD is another interesting domestic carcompany in China, which is innovative inthe electrical segment.

Financial ServicesPenetration of financial services is low rela-tive to developed markets but growing rapidly.Sberbank in Russia and Banco Bradesco inBrazil are taking advantage of the growingmarket for simple mortgages and loans.

AdvertisingWhile western consumers grow a littleresistant to direct advertising, forcingcompanies to be ever more innovative,multinationals are using time-tested aspi-rational advertising to build their brandsin emerging markets. For instance, brewingcompany Diageo has made great stridesin the promoting their Guinness product inAfrican markets. Nigeria has recentlybecome the largest market for Guinness inthe world by volume.

InternetInternet access is growing very quickly indeveloping countries, with manyconsumers accessing the internet solelyon a smart phone rather than a personalcomputer. Internet penetration in Chinais already relatively high in the industri-alised coastal areas but is expected to hit 51per cent nationally in 2013 from 35 per centcurrently. Tencent is the largest socialnetworking site in China with a 75 per centmarket share of China’s internet user base.It offers a wide range of services that havestrong monetisation potential. There is aworld of opportunity out there.

Tom Stevenson is the investmentcommentator at Fidelity WorldwideInvestment.


As speculation mounts that wemay face another global financialcrisis, it is reasonable to expectthere is likely to be an increase in

those experiencing financial and emotion-al difficulties. In rare situations some mayexperience severe financial difficulties andmay even be faced with bankruptcy. Whatis bankruptcy, and more importantly forsomeone facing bankruptcy, what incomeand assets are made available to creditors?

InsolvencyInsolvency is the situation where a personis unlikely to pay their debts. In many casesa person who is insolvent may be able topay their debts over a longer period or byrestructuring their financial arrangements.Just because a person is insolvent does notmean they will be declared bankrupt. Bank-ruptcy is considered to be the last optionafter other alternatives are seriously consid-ered. Under the bankruptcy legislationthere are three possibilities for a personfacing insolvency - debt agreements,personal insolvency agreements and bank-ruptcy. Each of these arrangements is usedfor a different purpose.

Debt agreementsA debt agreement is used when a debtor isunable to pay their debts as they fall due. Adebt agreement is made between a debtorand creditor to try and reach an achievableand sustainable repayment agreement. Theagreement may involve periodic paymentsor the payment of a lump sum which isequal to or less than the full amount of thedebt. A debt agreement is a legally bindingagreement and is an alternative to bank-ruptcy.

Personal insolvency agreementA personal insolvency agreement (PIA) willallow a debtor to come to an agreementwith creditors without being declared bank-rupt. Under a PIA the debtor must be insol-vent and the debtor in Australia (or has aconnection with Australia). A PIA involvesappointing a trustee to take control of prop-erty and to put forward a proposal to cred-itors. The benefit of a PIA is that there are noincome or assets limits, and it acts as analternative to declaring bankruptcy.

BankruptcyThose who are unable to pay their debtsand unable to come to an agreementwith their creditors may petition forbankruptcy. Alternatively, creditors mayapply to the court for bankruptcy on adebtor.

Where a person is declared bankrupt,a trustee is appointed to administer theperson’s pre-bankruptcy assets andliabilities. The trustee has the power:

• To sell assets of the bankrupt as atthe date of bankruptcy;

• To mandate amounts from incomeearned after bankruptcy above a particularamount (such as from employment incomeand superannuation pensions); and

• To investigate the financial affairs of thebankrupt to recover property or moneywhich has been transferred to someone elsefor inadequate consideration.

Bankruptcy generally lasts for threeyears, although it could be extended. Apermanent record of all bankrupts iskept on the National Personal Insolven-cy Index. Those who are bankrupt gener-ally cannot leave the country unless theyhave written permission from their bank-ruptcy trustee.

IncomeThere are no restrictions on how muchincome you can earn after you are declaredbankrupt. However, some income may bepaid to the trustee if your ‘assessableincome’ exceeds a certain threshold.

Some items included as assessableincome are salary and wages, fringe bene-fits, business profits and somepensions/benefits. A full list of assessableincome can be obtained from a debtor’sbankruptcy trustee.

To determine the amount of income thatis paid to a bankruptcy trustee, the follow-ing formula is applied:

Assessed income less actual income threshold2

Assessed income takes into accountthe gross amount of income, less anytaxation and Medicare levy. The actualincome threshold factors in the depen-dants of the bankrupt. The threshold is

set by the Government and updatedtwice yearly.

Case study Damian (56) is unable to meet his debts,which have become unmanageable after adivorce. He is single with no dependants,earning a salary of $64,500. He is declaredbankrupt and wants to know how much ofhis income is paid to the bankruptcytrustee.

Step 1: Calculate assessable incomeSalary income $68,500Less income tax $14,100Less Medicare levy $ 1,027Less Flood levy $ 93Assessed income $53,280

Step 2: Trustee determines the actual incomethreshold amount (AITA)AITA with no dependants$47,265.40

Step 3: Trustee applies the formula ($53,280 - $47,264.40)/2 = $3,007.80

Damian is required to pay $3,007.80 to his

bankruptcy trustee. He may come to anagreement to pay the amount in a number ofinstalments (weekly/fortnightly/monthly).

AssetsA trustee may sell some assets to pay offdebtors, known as divisible assets. Theseinclude houses, apartments, land, sharesand investments.

However, certain assets, known asexempt assets, cannot be accessed by abankruptcy trustee. These include house-hold and personal items, tools used to earnincome (up to $3,500 as at 20 September,2011), vehicles (up to $7,050 as at 20September, 2011), and superannuation. Fora full list of divisible and exempt assetsplease refer to www.itsa.gov.au.

SuperannuationAmounts held in superannuation general-ly will not become part of the property ofthe bankrupt that is divisible among cred-itors. This applies for both amounts heldin accumulation phase and/or in pensionphase in the fund.

Where a contribution is made with theintention of defeating creditors, the


OpinionBankruptcy

Before, duringand after

Troy Smith outlines what bankruptcyis, when it should be filed for andwhat income and assets would beavailable to creditors.

contribution can be recovered by a bank-ruptcy trustee. Provided below are situationswhereby contributions may be successfullyrecovered by a bankruptcy trustee:

• If at the time the contribution wasmade, the person was, or was about tobecome, insolvent

• If the contribution in question was not inaccordance with a ‘pattern of contributions’

• If the bankrupt contributes to their ownsuperannuation and/or that of a third party

• If a person other than the bankruptmakes contributions for the benefit of thebankrupt.

Payments from superannuationA lump sum payment from a superan-nuation fund is generally protected froma bankruptcy trustee, even if thepayment is received on or after the dateof bankruptcy.

Whilst the balance of a super fund inpension phase is generally protected,income payments (such as pensionpayments) are assessed as income inthe hands of the bankrupt. This meansthat these payments are taken intoaccount when determining i f any

income contributions should be paid toa bankruptcy trustee.

Case studyDamian was a bankrupt who was requiredto pay $3,007.80 of his income to his bank-ruptcy trustee. He is having difficultiesmeeting his cost of living, paying his rent,and paying his bankruptcy trustee. Hedecides to commence a transition to retire-ment (TTR) pension using $150,000 of hissuper, and draw down the maximumpension payment of $15,000 (100 per centtaxable).

Step 1: Calculate assessable incomeSalary income $68,500Pension payment $15,000 Less income tax $16,595Less Medicare levy $ 1,252Less Flood levy $ 168Assessed income $65,485

Step 2: Trustee determines the AITA AITA with no dependants $47,265.40

Step 3: Trustee applies the formula($65,485 - $47,264.40)/2 = $9,110.30

By commencing a TTR pension anddrawing down a pension payment of$15,000, Damian’s payments to the trusteehave increased from $3,007.80 to $9,110.30,which is an increase of $6,102.50.

SummaryBeing made bankrupt is a matter thatshould be avoided at all costs if possible,and there are a number of alternatives thatcould be considered. Anyone facing bank-ruptcy needs to be aware that a trustee willbe appointed to manage debts up to thetime of being declared bankrupt. In addi-tion, income earned by the bankrupt afterbankruptcy, and certain assets of the bank-rupt, may be used or sold by the bankrupt-cy trustee to pay creditors. Amounts held ina superannuation fund for the bankruptare generally protected from being avail-able to creditors. However, the receipt of apension by a bankrupt from a superannu-ation fund should be considered carefully,to avoid drip-feeding your retirement bene-fits into creditor’s pockets.

Troy Smith is the technical servicesmanager at OnePath.


“Being made bankrupt is amatter that should beavoided at all costs ifpossible, and there are anumber of alternatives thatcould be considered.”

Asuperannuation death benefit canbe paid as an income stream to adependant (as defined in theSuperannuation Industry (Super-

vision) Act). A child of the deceased fundmember meets this definition if, at the timeof the member’s death, the child is:

• Less than 18 years of age• Aged 18 to 25 and financially dependant

upon the member, or• Aged 18 or older and a disabled childThe income stream paid to the child

(excluding a disabled child) can only be paiduntil the child reaches age 25. At age 25, theincome stream must be commuted and anyremaining capital is paid as a tax-free lumpsum. An income stream payable to adisabled child can continue to be paidregardless of age.

An account-based pension (ABP) or othersuperannuation income stream paid to achild can be either:

• A continuation of a superannuationincome stream which was being paid to amember before their death (ie, reversion-ary), or

• Commenced from super held in theaccumulation phase.

In order for a pension to be paid frombenefits held in the accumulation phase, thesuper fund must be able to pay an income

stream. Some providers allow a bindingdeath benefit nomination to specify boththe beneficiary and the form of the benefit.This provides the client with control overhow the benefit will be paid.

Clients should keep the nomination up-to-date. The trustee only confirms the nomi-nation’s validity at the time of the client’sdeath. If there is no binding nomination andthe trustee indicates the child will be paid alump sum, it is worthwhile writing andrequesting the death benefit be paid as anincome stream. In some cases the trusteewill only pay a lump sum. However, thiscould only happen by making sure that allpossible options have been considered.

Establishing a testamentary trustA testamentary trust is established frominstructions in a client’s will. It is importantto have a solicitor correctly draft the will toensure the testamentary trust achieves theclient’s goals and objectives. In some cases,the will may be drafted to give the executorthe option of creating a testamentary trustrather than making it compulsory.

A death benefit paid from superannua-tion to a tax dependant is tax-free. A super-annuation death benefit must be first paidto the deceased’s estate before being direct-ed to the testamentary trust. The taxation of

the superannuation death benefit whenreceived by the testamentary trust dependson who the underlying beneficiaries are.

If all beneficiaries are tax dependants, theamount is received by the trust tax-free. Ifany of the beneficiaries are non-tax depen-dants, the total amount of the superannua-tion death benefit is treated as if received bya non-financial dependant.

Care needs to be taken to ensure the testa-mentary trust beneficiaries are tax depen-dants. Consideration may be given to havingmore than one testamentary trust or limit-ing the beneficiaries of the testamentarytrust receiving the superannuation deathbenefit to ensure the amount is tax-free.

Strategy considerationsTaxation of incomeWhen comparing testamentary trusts andchild ABPs, one aspect to consider is thetaxation of income received, which issummarised below.

Child ABPsThe taxation of the income paid from anABP to a child will depend on the originalowner’s age (see Table 1, opposite page) asthe child will be under age 25.

Income from an ABP is also eligible for theLow Income Tax Offset (LITO) of up to $1,500.

Testamentary trust Income distributed from a testamentarytrust to a child under 18 is taxed at adultmarginal rates. This income is also eligible toreceive the LITO of up to $1,500. The penaltytax rates applying to unearned income donot apply to distributions from testamen-tary trusts.

Testamentary trusts are usually discre-tionary. This gives the trustee discretion todecide which beneficiaries receive incomeor capital and the timing. This also allowsthe trustee to direct income or capital in atax-effective manner. Generally, a trust willdistribute all income to beneficiaries. Anyincome not distributed will be taxed in thehands of the trustee at 45 per cent. Incomereceived by the beneficiary is taxed at ordi-nary marginal rates and the Medicare Levyand Flood Levy may be payable.

Comparison of taxationIn the example provided in Table 2,although the income from the testamen-tary trust has a tax liability, other factors(eg, control and asset protection) mayoutweigh the additional tax liability.

Also, the additional tax may be only ashort-term implication, as the incomestream paid to the child must becommuted by age 25 unless they are


Toolbox

Jennifer Brookhouse outlines the issues to consider when deciding whether asuperannuation death benefit going to a child should be paid as an income stream orinto a testamentary trust.

What about the kids?

Briefs

disabled. If not, the capital is paid to thechild and any earnings are taxed at thechild’s marginal rate.

Anti-detriment paymentsAn anti-detriment payment may be addedto a death benefit paid as a lump sum tothe child (including via the estate to atestamentary trust). The lump sum maybe paid from the accumulation phase orthe commutation of a pension.

While the anti-detriment paymentincreases the lump sum payable, it is notpayable if the death benefit is paid as anincome stream. Only lump sum deathbenefit payments will attract an anti-detri-ment payment. Death benefits receivedas a lump sum must be received in cashand leave the super environment.

Note that the anti-detriment is a volun-tary payment. Not all super funds will payan anti-detriment payment and somefunds, such as self-managed superannu-ation funds (SMSFs), may not be able tomake the payment.

ControlA key question to ask clients is ‘when do youwant the child to have control of the funds?’While a child is under age 18, a Power ofAttorney can assist with the managementof an ABP. A child will have control of fundsheld in an ABP from age 18.

The child can decide to commute thepension to a lump sum at any time from 18.This may not be the ideal time for the childto have access to the capital. If commuted,all remaining capital is received. Partialcommutations are not permitted for deathbenefit income streams to a child.

The rules of a testamentary trust mayspecify that capital cannot be distributed toa child until a particular age, such as 21, 25or older. The rules may leave it to the trustee’sdiscretion to determine when capital ispayable. This discretion would enable atrustee to consider the child’s circumstancesbefore paying out the capital, rather thanrelying only on the child turning a particu-lar age.

Asset protection upon relationshipbreakdownA testamentary trust allows the asset toremain within the family bloodline. Forexample, a future spouse of a child wouldnot be a trust beneficiary.

The assets in the testamentary trust maybe considered a financial resource for thedivision of assets upon a relationship break-down. The asset of the trust will not formpart of the assets of the relationship (unlessthe child is the sole beneficiary) and cannotbe divided as part of a property settlement.

The capital in an ABP must be paid by age25. This becomes capital in the child’s nameand may form part of the relationship assets.This exposes this amount to being divided ifthe relationship breaks down.

Asset protection upon bankruptcyWhile the possibility of bankruptcy may bean important consideration, it may be diffi-cult to measure when the beneficiary is achild. Normally, consideration would begiven if the beneficiary was in a high-riskprofession (eg, company director, doctor orsmall business owner).

Assets held in a testamentary trust areprotected from potential creditors (unlessthe child is the sole beneficiary). If using atestamentary trust for bankruptcy protec-tion, ensure the trustee has discretion on thedistributions of income and capital.

Also ensure there are other beneficiariesof the trust (who are also tax dependants atthe time the trust is established) to ensurethe superannuation benefit is received tax-free and an anti-detriment payment is made.

The level of protection from bankruptcyis not clear in relation to superannuationincome streams. Income received from an

ABP may be available to repay creditors. Thelump sum the child may receive (either byvoluntary or compulsory commutation) isnot accessible only if the lump sum isreceived after bankruptcy.

Beneficiaries with special needsA child may have special needs which maywarrant access to capital to be restrictedbeyond age 18. In this case, a testamentarytrust would be a more appropriate option.Examples of special need beneficiariesinclude those who are spendthrift or have agambling, alcohol or drug addiction. Capitalin an ABP is accessible from age 18, as this iswhen the child has legal control over theaccount.

Cost and trusteeshipThe cost and benefits of the strategy mustbe considered. The cost of the ABP mayinclude the management fees charged bythe retail superannuation fund. SMSFs willhave other fees.

For SMSFs, consideration should be givento who will be the child’s legal personalrepresentative (LPR) while under age 18. TheLPR will act as the trustee on behalf of thechild and participate in the running anddecision-making of the SMSF.

Ensure the trustee is someone whounderstands the client’s wishes. As trusteeof the super fund, the client wants to ensurethat the SMSF will continue to operate effi-ciently; for example, that trustees are ableto reach agreement on issues.

A testamentary trust is a legal structureand will need to satisfy certain requirements,such as completing annual tax returns. Thetrustee may need to seek professional advice(eg legal, accounting, financial planning),and the costs paid by the trust should becompared to the strategy benefits.

Clients should also carefully consider whois nominated as the trustee and appointerof the testamentary trust. The trustee will beresponsible for managing the money untilpayable to the child. The trustee needs tounderstand what the client is hoping toachieve, and details should be provided inthe will or deed of wishes.

The appointer is able to remove thetrustee and replace that person with anotherperson. Again, carefully consider who thisperson will be and their understanding ofthe client’s objectives.

ConclusionWhen estate plans are being made and chil-dren are potential beneficiaries, it’s impor-tant to weigh up the advantages and disad-vantages of child ABPs and testamentarytrusts and consider the ‘what ifs’.

Jennifer Brookhouse is a senior technicalconsultant with MLC Technical Services.


Age of original Taxation of pension incomeowner at death (from taxed scheme)Under age 60 • Tax-free component is tax-free

• Taxable component is taxed atMTR and receives 15% tax offset

Over age 60 Tax-free (regardless of components)

Table 1 Taxation of income paidfrom ABP to a child

Source: MLC Source: MLC

ABP Testamentary trust ABP income $20,000 N/ATestamentary trust distribution N/A $20,000Tax liability $2,100 $2,100Less tax offsets:• Pension $3,000 N/A• LITO $1,500 $1,500Tax payable Nil $600

Table 2 Comparison of taxation

IN a major overhaul of its Mas-terKey Fundamentals platform,MLC have lowered administrationfees and added a range of invest-ment options.

The new pricing structure will seethe administration rate cut by anaverage of about half for balancesup to $200,000.

A fee cap has also been intro-duced for balances above $1.4 mil-lion, meaning they won’t pay morethan $3,500 for administration,stated MLC.

Along with doing away with monthlyaccount fees, MLC MasterKey generalmanager Dean Thomas said thechanges would make the platform sig-nificantly more competitive for clientsand financial advisers.

ANZ Wealth has announced that itintends to extend its new eBrokingExchange service to cover non-aligned financial planners.

Describing the service as a compre-hensive package to develop a success-ful succession plan, ANZ general man-ager, advice and distribution PaulBarrett said the package was aimed atassisting aligned planners to get thefull value for their business if theydecided to sell.

As part of the succession package,ANZ Wealth offers planners a practicefunding facility, eBroking Exchangeincluding free access to an online mar-ketplace, succession plan analysis andaccess to valuation support.

Barrett said the group hadreceived strong feedback for theenhanced service, which he said ANZWealth was planning to expand tonon-aligned planners looking to selltheir business into an ANZ-aligneddealer group.

RATINGS house Standard & Poor’sFund Services has announced therewill be no change to the three-starrating on the Russell EnhancedIncome Fund, despite BNY MellonAsset Management’s decision toclose its boutique Australian equi-ties business, Ankura Capital.

Ankura was managing the equiv-alent of 19.5 per cent of the fund’stotal portfolio, and following notifi-cation Russell Investment Manage-ment had repatriated that portionof the fund, S&P stated.

The ratings house added that thefunds had been invested in a sepa-rate mandate that largely replicatedthe Russell High Dividend Aus-tralian Shares Index and would“remain so until a replacementfund manager is contracted”.Assuming a new manager isappointed over the short-term, S&Pstated it does not bel ieve thechanges would adversely impactthe manager’s ability to achieve theobjectives of the fund.

Centric Wealth has appointed InvestecBank’s managing director telecom, mediaand technology Phil Kearns as its chiefexecutive officer, commencing 12 December 2011.

Centric chairman David Shein saidKearns has been the driving force inbuilding Investec’s client base and intro-ducing new investment products, includ-ing aircraft and wind farm investmentfunds. Kearns has also been responsiblefor managing significant transactions inthe wealth advisory industry, Shein said.

Centric’s chief financial officer ChrisPowell will take on the additional role ofchief operating officer. Powell was previ-ously regional CFO of Zurich FinancialServices Australia and New Zealand, andwas also chairman of Lonsec.

Shein said that with the appoint-ments of Kearns and Powell, Centric nowhad a complete senior managementteam in place.

MTAA Super has announced the appoint-ment of Leeanne Turner as chief execu-tive officer, effective immediately.

For the past four years, Turner wasMTAA’s deputy CEO, and her appoint-ment follows a comprehensive internaland external search that was conductedwith the assistance of an executive searchfirm.

Prior to joining the superannuationprovider, Turner was CEO of AvSuper.

Commenting on her new role, MTAAchairman John Brumby said Turner hassound business and administrativeinsight, expertise in managing compli-ance issues and strong communicationskills.

“Leeanne’s appointment reflects herskills and track record within the superan-nuation industry,” he said.

As part of a range of board and execu-

tive changes, MTAA has also announcedthe appointments of Vicki Allen andSusanne Dahn as independent membersof the board and Philip Perdikaris as anemployer representative.

STANDARD & Poor’s (S&P) has appointedfour analysts to its fund services division.

Josh Hall (appointed associate direc-tor) and Matthew Conacher (appointedrating specialist) will join the team inS&P’s Sydney office.

Leader Simatupang will be located inS&P’s Melbourne office and has taken onthe rating analyst role. Joining Simatu-pang in Melbourne is Madeline Yang, whohas been added to the Wealth Manage-ment Services team as research analyst.

Before joining S&P, Hall was Chal-lenger’s head of research, and previouslyheld research positions with Perpetual,Genesys Wealth Advisers, and Pricewa-terhouseCoopers. In his new role, he willbe primarily responsible for equities.

Conacher will also focus on equities,having previously held various roles withMLC, including funds research analyst forthe MLC/360 team, change managementanalyst, investment analyst for the MLCretail product team and business analystfor the JANA business services team.

Simatupang will work across variousasset classes, and was previously aresearch analyst providing analyticalsupport to S&P’s Wealth ManagementServices. Before joining S&P, she workedas a research analyst for IOOF’s dealer-ships and platforms.

Yang will provide quantitative andgeneralist analytical support to S&P’swealth management services. Yang waspreviously a senior performance analystat Mercer Investment Management.

THE Self Managed Super Fund Profes-sional’s Association of Australia (SPAA)has announced the appointment ofCarolyn Baker as a member of the board.

SPAA chairman Sharyn Long saidBaker’s appointment will boost the tech-nical expertise and deepen the account-ing expertise on the Association’s board.

Baker has been a member of SPAA forover eight years, and is currently a SPAASMSF specialist advisor and a memberof the Association’s regulatory sub-committee.

Baker is the founder and principal ofQueensland boutique accounting andconsulting firm CJ Baker & Associates.Before joining SPAA, she was a manager ofthe audit and financial services divisionof PricewaterhouseCoopers, as well as thebusiness services and superannuationdivision of Ernst & Young.

“Carolyn's expertise in accounting,audit and SMSF advice, coupled with herbusiness experience from building herown practice, means the SPAA Board willbe well equipped to continue to improvethe quality of advice in the industry,”said Long.

ABERDEEN has appointed Stuart Jamesto the newly-created role of deputy headof distribution as part of an internalrestructure of its Australian distributionbusiness. Reporting to managing direc-tor and head of distribution Brett Jolie,James will manage the daily operationsof Aberdeen’s distribution functions. Hepreviously led client services and retailbusiness development teams in the UKand Australia.

Following a recommendation to inte-grate Aberdeen’s institutional retail busi-ness development teams and services intoa single division, Alex Haynes has beenappointed head of business development.Meanwhile, Amanda Young has beenappointed to head of client services forthe integrated team.

“The new structure better aligns ourdistribution efforts and makes the bestuse of the skills and experience of ourentire distribution team,” said Jolie.

CROWE Horwath has bolstered its taxadvisory and corporate finance teamswith the appointment of Chris Leach,Sam Neale and Darryl Norville.

Leach will take on the role of principaland Neale has been appointed associateprincipal of the tax advisory team inSydney. Meanwhile, Norville joins thecompany’s corporate finance practice inPerth as principal.

Commenting on their appointments,Crowe Horwath Sydney chief executiveDarren O’Brien said that Leach and Nealehave extensive experience, particularly inthe energy and resources sectors. He saidthat with their appointments the tax advi-sory team in Sydney now has a total offour new principals.

Before joining Crowe Horwath, Leachand Neale advised medium to largecompanies on investment structures,transactions and implementations, aswell as the Government’s recent miningand carbon taxes.

Norville has considerable industryexperience, including over eight yearsspent as a director of a transaction advi-sory practice for one of the big fouraccounting firms. Before that he was aderivatives trader for ten years in severalglobal investment banks in the UK.

“Darryl’s industry experience gives himan extremely practical and client-centricperspective on transaction advice,” saidCrowe Horwath Perth chief executiveGeoff Kidd.

MACQUARIE Private Wealth has appoint-ed Mark Chartres as senior investmentadviser to its Melbourne office.

Specialising in equity strategies,Chartres brings six years’ experiencewithin the broking industry, which hasincluded working with Asian institution-al clients.

Macquarie Private Wealth statemanager for Victoria Malcolm Cameronsaid Chartres’ appointment will help toboost Macquarie’s advice offering inVictoria.

IBBOTSON Associates Australia hasannounced the appointment of MatthewEsler as head of adviser services.

Reporting to Ibbotson general managerinvestment services Chris Galloway, Eslerwill be responsible for leading the devel-

opment of Ibbotson Associates Australia’sinvestment capabilities and solutions,and managing the firm’s relationshipswith financial advice practices.

Esler was most recently MidwinterFinancial Services’ executive director,strategy and technical services, where hecurrently remains as non-executive direc-tor. He was previously Advance AssetManagement’s head of technical, andbefore that, served as Zurich FinancialServices Australia’s technical manager.


AppointmentsMove of the week

BRIAN Hartzer has been appointedchief executive of Westpac’s newAustralian financial services division.

The announcement is part of thegroup’s new management structure.

Hartzer has more than two decadesof banking experience, includingresponsibility for a number of retail,commercial banking and wealthmanagement businesses worldwide.Before joining Westpac, he was ANZ’sgroup managing director personal divi-sion, which comprised the bank’s retailbanking, regional and rural banking,consumer finance, mortgages, invest-ment and insurance products, andbanking products businesses.

In 2008, Hartzer was appointed ANZ’schief executive officer Australia and, inthe following year, joined the RoyalBank of Scotland in the UK as chiefexecutive officer UK retail, wealth andulster.

In other Westpac appointments, JohnArthur has moved into the position ofchief operating officer, while Jason

Yetton has been appointed group exec-utive, Westpac retail and businessbanking, and will commence his roleimmediately.

Yetton has worked in a variety ofsenior leadership roles, including threeyears spent as chief executive officercommerce BT Unit Trust at BT Finan-cial Group.

Please send your appointments to: [email protected]

Jason Yetton

Stuart James

Matthew Esler

Opportunities


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

COMMERCIAL ANALYST/SENIORACCOUNT EXECUTIVELocation: AdelaideCompany: Terrington ConsultingDescription: An Australian bank is seeking acommercial analyst to provide risk and creditsupport to a major client group portfolio.

The successful candidate will join a teamof professional bankers and contribute to themaintenance and growth of a significant clientportfolio.

In this role, you will be responsible forresearching and preparing detailed creditsubmissions, liaising with existing portfolioclients, conducting reviews and identifyingopportunities to improve existing portfolioservice levels.

You will have an accounting/auditbackground and have previous experience incredit within the SME or commercial bankingsector.

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

RESIDENTIAL LENDERLocation: AdelaideCompany: Terrington ConsultingDescription: A successful retail bank islooking for a driven, relationship-focusedresidential lender.

In this role, you will be responsible forgenerating and capitalising upon referrals inorder to ensure that there is a strong flow ofnew business while maintaining an existingclient base.

You will be supported by state-of-the-arttechnology and systems and have access to awide range of products and services to ensurea competitive advantage in approvalturnaround time.

To be successful, you will need excellentbusiness development and rapport-buildingskills.

Financial services experience will be highlyregarded but applicants will also considercandidates with proven relationshipmanagement and business developmentskills.

The candidate will receive full training andsupport and will be rewarded with anoutstanding remuneration package.


BUSINESS DEVELOPMENT MANAGER/RELATIONSHIP MANAGERLocation: NSWCompany: Terrington ConsultingDescription: Following significant businessexpansion, a successful Australian-ownedbank is seeking a number of experienced andrelationship-driven business developmentmanagers.

You will be capable of driving growth, buildingbrand equity and providing holistic and tailoredadvice while building your own client portfolio.

The successful candidate will have a solidunderstanding of credit risk and a proventrack record of driving expansion with minimalsupport.


CLIENT SERVICES MANAGERLocation: AdelaideCompany: Terrington ConsultingDescription: An Adelaide-based financialservices firm is looking for a relationship-focused and highly professional clientservices manager.

In this role you will be assisting the plannerto maintain and build client relationships;become the key contact for clients; provideadministrative support as needed; preparefinancial planning documentation and clientreviews; and manage compliance procedures.

You will have experience with financialplanning processes and have the ability tomaintain client relationships. Previousexperience using Xplan or similar planningsolutions would a distinct advantage.

To find out more and to apply, visitwww.moneymanagement.com.au/jobs, orcontact Myra at Terrington Consulting - 0422918 177 / (08) 8423 4466,[email protected].

AMP HORIZONS ACADEMYLocation: Australia-wideCompany: AMP Horizons AcademyDescription: AMP is accepting applications forits 2012 AMP Horizons Academy 12-monthtraining program.

The paid traineeship begins with a 10-weekcourse at the AMP’s academy in Sydney.Graduating as a competent financial planner,you will be provided with a position in yourhome state and receive additional on-the-jobtraining for nine months in an AMP Horizonspractice, and be mentored by experiencedfinancial planners throughout the year.

The successful applicants will have aDiploma of Financial Services (FinancialPlanning) or be RG146-compliant.

You will be rewarded with a fast-trackedcareer in the company and a competitivetraining salary.

To find out more and to apply, visitwww.moneymanagement.com.au/jobs, orcontact AMP – 1300 30 75 44

SENIOR FINANCIAL ADVISER/EQUITYPARTNERLocation: AdelaideCompany: Terrington ConsultingDescription: A leading South Australianbusiness advisory company is seeking asenior financial planner for a long-termopportunity and a pathway to equities orequity upfront.

In this role, you will be working with anexisting portfolio of clients, and the company’s

market reputation and referrals from itsaccounting arm will provide furtheropportunity to grow your portfolio.

Candidates will have experience insuccessfully managing and growing a clientbase and understanding of a range offinancial planning strategies, services andproducts, including direct investments, gearingand superannuation. CA/CPS qualificationswill be highly regarded.

To find out more and to apply, visitwww.moneymanagement.com.au/jobs, orcontact Myra at Terrington Consulting - 0422918 177 / (08) 8423 4466,[email protected]

FINANCIAL PLANNERLocation: Far North Coast, NSWCompany: Terrington ConsultingDescription: A financial services firm isseeking an experienced and establishedfinancial planner.

The firm has excellent brand and marketreputation and you will be rewarded with ahighly competitive salary package andincentives. You will also have access toresearch, professional facilities, establishedsystems and an opportunity to grow yourportfolio.

In this role you will be engaged in a rangeof financial services offerings, includingstockbroking, strategic planning,superannuation, SMSF, insurance, portfoliomanagement and fixed interest.

You will have several years experiencedelivering to a diverse range of clientele. Youwill also have proven sales skills andnetworking capabilities.


SENIOR FINANCIAL PLANNERLocation: AdelaideCompany: Terrington ConsultingDescription: A financial institution is searchingfor a senior financial planner to work with aportfolio of high net worth clients.

You will have the opportunity to grow yourown portfolio referral networks and berewarded with a highly competitive salary andcareer development opportunities.

You will have several years experience inproviding senior financial advice tosophisticated clients, and proven sales andnetworking capabilities.

Should the current position be unsuitableto you, you will be notified of newopportunities as they become available.


JUNIOR PARAPLANNERLocation: AdelaideCompany: Terrington ConsultingDescription: A financial services organisationis seeking an energetic, service-orientatedjunior paraplanner.

In this role, you will be responsible forassisting in preparing/amending

documentation for the production of SOAs;building and maintaining client relationships;and maintaining compliance procedures.

You will be results-driven and have a strongdesire and passion for providing high qualitycustomer service. You will also be RG-146compliant.

This is a part-time position with a view tofull-time employment as work-load increases.


FINANCIAL PLANNER Location: Hong KongCompany: ipac AsiaDescription: An international financial adviceand investment group is looking to hire afinancial planner for its Hong Kong office.

In this role you will be responsible forportfolio and risk management and willprovide financial planning advice forretirement, children’s education, insurance,and employee benefits and businesscontinuity.

The successful candidate will receive anattractive base salary and bonus package;have the opportunity to attend overseasconventions; be involved in comprehensiveprofessional training programs and haveaccess to ongoing personal growth anddevelopment support; and engage with a widerange of product choices and excellent backoffice support.

To find out more and to apply, visitwww.moneymanagement.com.au/jobs, orforward your resume to the ipac humanresources department,[email protected]

FINANCIAL PLANNER/EXISTING BOOKLocation: AdelaideCompany: Terrington ConsultingDescription: An international financialservices organisation is interested in speakingto a financial planner with an existingbook/client base.

You will be offered succession, equity,outstanding earning potential and excellentsupport.


FINANCIAL ADVISERLocation: AdelaideCompany: SFR AdvisoryDescription: An advisory firm is seeking afinancial adviser to join its office in Perth.

The independent firm operates its own CPAtax practice, has its own in-house SMSFadministration service, and works within aFOFA framework.

The firm also has an in-house investmentcommittee and is technologically well-equipped.

For more information and to apply, visitwww.moneymanagement.com.au/jobs, orcontact Garth Lovelace for a confidentialinterview.

““BEING a reptile of the indus-try media rather than a jour-nalist employed by areputable metropolitan dailybroadsheet, Outsider acceptsthat he may not be seeing thebig picture.

Thus, he concedes that hemay have been missingsomething when, on thesame day the Assistant Trea-surer and Minister for Finan-cial Services, Bill Shorten,tabled the second tranche ofhis Future of FinancialAdvice legislation, he read aheadline in one of Australia’smost reputable daily broad-sheets suggesting financialplanners were being subjectto a ‘shake-up’ by the impo-sition of a best interests test.

Outsider is wonderingwhether this is the same bestinterests test pursued by theFinancial Planning Associa-tion and the Association ofFinancial Advisers overmany months, and the same

best interests test thatseemed to fit pretty closelywith the standard operatingprocedure already employedby many financial advisers.

While being a humblereptile of the industry media,

Outsider still recognises thedegree to which the facts canget in the way of a story –and how some of hisbrethren will write in thebest interests of generatinga headline.

Outsider


“The mind boggles, but of

course in the twilight zone of

the Opposition, anything goes.”

Treasurer Wayne Swan questions

the wondrous land of the Opposition

in a speech to the House of

Representatives.

“What is interesting is that the

Opposition have had more

positions on superannuation

than are in the Kama Sutra.”

Swan compares the Opposition’s

zealous disapproval of the

superannuation guarantee levy with

another passion.

“I made the mistake of reading

APRA’s prudential paper last

night, and I was so

overstimulated and excited I

wasn’t able to sleep.”

Journalist Kerry O’Brien errs with

his bedtime reading material at the

ASFA conference.

Out ofcontext

Time to KISS off, Gene?

Sounding fishy

Shake, rattle … and yawn

OUTSIDER has noted over the years that the financial servicesindustry is filled with all kinds of colourful characters. Someare career planners, some are high flying execs, some earntheir crust poring over the stock market, others find theirway in from completely unrelated fields, including careers asprofessional sportspeople.

But it’s possible that none of them are quite as colourful asKISS bassist Gene Simmons, who it seems has turned his handto doling out financial advice and selling insurance.

Outsider read recently that the 62-year-old rock legend, he ofthe famous tongue and bedder of 5000 ladies (or so he claims),spoke to students at the London Business School. Outsiderunderstands that it is Simmons’ reputation as a successfulentrepreneur rather than his famed prolific interactions withthe fairer sex that earned him this honour.

Simmons also has a new role selling life insurance policies to

the rich and famous through Cool Springs Life EquityStrategy, although the group’s target demographic ofpeople with a net worth greater than $20 million justrules Outsider out of their calculations.

Given his success in business and marketing, there isno doubt Simmons would be a wealth of knowledge –and Outsider was curious to hear what gems he wouldhave to share.

Outsider’s curiosity was rewarded with the following nuggetsof brilliance: “Without profit you can’t feed your family. I’m goingto give you the secret of success. Live like a squirrel. Eat asmuch as you can and bury the rest.” Fair enough, but surelythere’s more to becoming ludicrously rich?

Well yes, there was also this: “The worst thing a man cando, financially and biologically speaking, is to get married.” Ah, sothat’s where it all went wrong!

OUTSIDER happened to find himself in NewYork at just the same time Australian news-paper reports were raising questions aboutthe appointment of Greg Medcraft as chair-man of the Australian Securities and Invest-ments Commission (ASIC), given his formeremployment by Societe Generale before theGlobal Financial Crisis.

In view of the level of controversy thatseemed to be bubbling in Australia, Out-sider made some discreet inquiries in andaround Wall Street and noted that while hisquestions seemed to pique a certainamount of interest regarding the man sittingatop the Australian regulator, only a veryfew people seemed familiar with his careerin the Big Apple.

Outsider came home to discover that,while ‘Greg Who’s’ career might not havebeen a cause celebre in New York, it had

certainly become the subject of debate inthe Australian Senate, where some hardquestions were asked about why the Gov-ernment did not follow normal procedureby advertising the position and having theTreasury do some serious due diligence.

According to the answer provided byFinance Minister Senator Penny Wong, thiswas because Treasurer Wayne Swan hadreceived approval from Prime Minister JuliaGillard that an exemption be granted.

“I am advised that Treasury undertook a

review of all possible candidates, includingmarket soundings, and advised that Mr Med-craft was the preferred candidate for the posi-tion. Treasury advised that, since Mr Medcraftwas highly qualified, it was preferable not toadvertise the position, to minimise disruptionat ASIC and to facilitate a seamlesschangeover,” Senator Wong said.

Outsider’s fishing experience tells himthat soundings are less effective whenyou’re seeking to make a catch in deeperwaters.

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

Documents

Money Management (December 1, 2011)