Money Management (March 29, 2012)

www.moneymanagement.com.au

The publication for the personal investment professional

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FINANCIAL planner and client senti-ment improved marginally in Februarybut remains ver y fragi le amid theexpectation of bad news, according tothe latest research conducted by WealthInsights.

The research, contained within theWealth Insights Financial PlannerSentiment Index, saw sentimentrecover from the lows recorded inDecember and January to a level notseen since around August last year.

However, the February 2012 senti-ment index was at minus 66 points –wel l below the posit ive 20 pointsrecorded in February last year.

Wealth Insights managing directorVanessa McMahon warned that therecovery in sentiment was fragile andcould easily slip back, depending on thetenor of news out of Europe or the US.

“Planners are braced for bad news,they just don’t know what it will be,” shesaid.

McMahon said this explained whymany planners continued to lean toconservative settings such as cash.

On the question of underlying busi-ness conditions, planners indicatedthey were in somewhat better shape inFebruary than they were last Decem-

ber. Asked whether, in their role as afinancial planner, times were good orbad right now, there was a significantincrease in the number of respondentsreporting that times were good.

By Mike Taylor

THE Government’s Future ofFinancial Advice (FOFA) billshave passed the House ofRepresentatives with thesupport of the key independ-ents and on the back ofcrucial changes to the origi-nal opt-in arrangementsregarded as favouring theFinancial Planning Associa-tion (FPA).

After nearly four days ofcontroversy surrounding theleaking of a document purport-ed to be an agreement on FOFAstruck between the FPA andthe Industry Super Network(ISN), the Minister for Finan-cial Services and Superannua-tion, Bill Shorten, announcedkey amendments largelyconfirming the contents of thatdocument.

Standing to conclude thedebate around the FOFAbills, Shorten announced“the Gover nment wi l l bemoving an amendment thatoffers financial advisers analter native to the opt-inrequirement”.

“This amendment wil lallow ASIC to provide class

order relief from the opt-inrequirement to licensees andrepresentatives who aresignatories to an ASIC-approved professional codeof conduct by 1 July 2015,” hesaid. “Importantly, such anASIC-approved code wouldneed to include practices andconduct requirements thatobviate the need for the opt-in requirement. This amend-ment ensures that the opt-inrequirement is linked in legis-lation to the class order relieffor licensees and representa-tives,” Oakeshott said.

As well, he said that underthe proposal the Government

would introduce legislationinto Parliament by 1 July 2013that would enshrine the term‘financial planner or adviser’in law.

Shorten indicated that theIndependents, particularlyRob Oakeshott, had been crit-ical to the development of theamendments.

Other minor amendmentswere achieved by the Oppo-sition, including making theannual fee disclosure require-ments more workable byexcluding prospective feeforecasts.

After a number of daysduring which organisationssuch as the Association ofFinancial Advisers (AFA) andthe Financial Ser vicesCouncil (FSC) had expressedconcern about the striking of“side deals” and the involve-ment of the ISN as an appar-ent intermediary, the FPAemerged as a major benefici-ary of the legislation ultimate-ly passed by the House ofRepresentatives.

The terms of the amend-ments mean that the FPA –with its existing and well-acknowledged code of

conduct and its approach tostandards of professionalismin the industr y – is bestplaced to deliver on theframework outlined byShorten.

What is more, the FPA hasbeen the most steadfastproponent of enshrining theterm ‘financial planner’ in law.

It was a measure of theattitude of other groups thatFSC chief executive JohnBrogden said the Govern-ment had walked away fromthe centrepiece of its reformsby dropping the requirementfor advisers to adhere to theopt-in reform.

“Our concern is that thelegislation leaves it to ASIC toadminister opt-in withoutany certainty as to what theyrequire to provide an exemp-tion and what the profession-al standards will be,” he said.

“Under a last minute dealbetween the FPA and ISN, theGovernment has dropped therequirement for opt-in butwill not give any certainty toconsumers and advisers onthe operation of the bestinterest duty and scalableadvice,” Brogden said.

Planners remain cautious

Continued on page 3

FOFA bills pass Parliament

INFOCUS: Page 13 | EQUITIES: Page 14

Vol.26 No.11 | March 29, 2012 | $6.95 INC GST

By Tim Stewart

WHILE the industry has welcomedthe delayed implementation of theFOFA reforms, the eleventh hournature of the decision has cost thebig institutions money.

The Government announced on14 March 2012 that the ‘hard’implementat ion date for thechanges would be delayed for oneyear to 1 July 2013.

ANZ genera l manager fo radvice and distribution Paul Bar-rett warned in early Decemberthat Christmas was the deadlinefo r h i s o rgan isa t ion to s ta r tmaking changes to its systems inpreparat ion for a 1 July 2012start date.

“It has cost us money. For anumber of weeks during and afterChristmas we started coding sys-tems and anticipating where thingswould end up,” said Barrett.

“Most of our guesses were right,so it didn’t end up costing us awhole lot in the end – but it hadthe potential to,” he added.

IOOF general manager for distri-bution Renato Mota said there hadbeen a significant cost for IOOF,and that i t could have beenavoided if the Government hadannounced the delayed implemen-tation date before Christmas.

“A lot of the systems develop-ment has really occurred in thelast three months. It certainly hasmade a major impact – we’ve hadpeople punching away at comput-ers, putting code in and developingthe back end of the business,”Mota said.

However, he added that theindustry would be better off nowthat the implementation dates forMySuper, SuperStream and FOFAare all scheduled for 1 July 2013.

Colonial First State (CFS) gen-eral manager for product andchannel development Peter Chunsaid “it would have been a bit of amad scramble” to have everythingFOFA-compliant by 1 July 2012.

The biggest challenge for CFSwas trying to make changes to sys-tems and processes based on draft

Late FOFAdelay costsinstos

While there is a slight improvement in confidence, sentiment remains low and could easily slip back depending

upon news from Europe and the U.S.

00000000 0 0 0

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Wealth Insights Financial Planner Sentiment Index

31

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-19

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16 15 23

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38 39 32

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Feb '08

Aug '08

Feb '09

Aug '09

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Source: Wealth Insights

Figure 1 Wealth Insights Financial Planner Sentiment Index

Continued on page 3

Rob Oakeshott

Giving the game away?

Adocument purporting to be theoutline of an agreement struckbetween the Financial PlanningAssociation (FPA) and the

Industry Super Network (ISN) tradingagreement to the ‘opt-in’ for a range ofconcessions such as limited legal use ofthe term ‘financial planner’ caused afurore in the industry last week.

Despite the consistent denials of thelegitimacy of the document by the chiefexecutive of the FPA, Mark Rantall, therewere many in the industry who felt thedocument represented an attempt by theFPA to pursue its own agenda by striking a‘side deal’ with the ISN.

The document suggested the FPA wouldagree to the opt-in for a period of four yearson the condition that the Government thenundertook to deliver on a range of legisla-tive changes benefiting the FPA’s approachto professionalism in the financial plan-ning industry.

The document, obtained by MoneyManagement, was certainly convincing, butamid all the angst only a very few peoplenoted the incongruity of the Industry SuperNetwork being able to virtually dictate achange in Government policy.

In fact, the Minister for Financial

Services, Bill Shorten, should have feltsignificantly slighted by the implicationthat he is an unquestioning servantof the ISN, bound to honour that organ-isation’s undertaking.

So, too, should the Prime Minister, JuliaGillard, feel concerned at suggestions thather Government is being unduly influ-enced by a political lobby group foundedand funded by a group of industry super-annuation funds.

In any event, the mere suggestion anagreement had been struck between theFPA and the ISN represented political dyna-mite last week because it was viewed ascapable of swaying the vote of the inde-pendents in the House of Representatives.

It was argued that independents such as

Tony Windsor and Rob Oakeshott wouldsee little value supporting Coalition amend-ments to the Future of Financial Advice billsif one of the key industry players hadalready conceded the issue most abhorrentto the rest of the industry – opt-in.

Money Management has investigated theorigins of the alleged FPA/ISN documentand has established that, at the very least,it passed through the hands of peopleemployed by both organisations.

However this publication accepts thatwhen it contacted Mark Rantall he imme-diately denied any knowledge of the docu-ment and insisted the FPA’s position inopposing opt-in had not changed.Throughout the entire exercise of claim andcounter-claim with respect to the docu-ment, Rantall was a model of consistencyin his denials.

But as the dust settles on the entire inci-dent, and amid the reality that the Govern-ment ultimately delivered on much of thedocument's content, questions areunavoidable and allegations of a sell-outwill persist.

Bridges may not have been burned butthey have been severely damaged.

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“...questions areunavoidable and allegationsof a sell-out will persist.”

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Average Net DistributionPeriod ending March '1110,207

By Milana Pokrajac

THE Institute of Public Accountants(IPA) has reiterated its calls to theGovernment to extend legal privi-lege to professional tax advisers,noting five years have passed sincethe Austral ian Law Refor mCommission (ALRC) advocated thismove.

In response to ALRC’s recom-mendation, the Government hadreleased a discussion paper in April2011, but the profession had notheard anything since, according toIPA chief executive officer AndrewConway.

“The accounting profession is

one of high ethical standards andwe have earned the trust of thepublic in fulfilling an advisory roleon tax law,” Conway said. “It isabout time the law reflected theimportance of such advice andprotected the parties in question.”

The IPA has made this recom-mendation in i ts pre-Budgetsubmission 2012-13, noting thatAustralia was now lagging behindcontemporaries, such as the UKand the US.

“Consumers should have accessto the same legal protection andsafeguards regardless of whetherthey seek tax advice from a lawyeror accountant,” Conway added.

www.moneymanagement.com.au March 29, 2012 Money Management — 3

News

Important: This information is provided by Alphinity Investment Management Pty Limited (ABN 12 140 833 709 AFSL 356 895) (Alphinity). It should be regarded as general information onlyrather than advice. It has been prepared without taking into account any person’s objectives, fi nancial situation or needs. Because of that, each person should, before acting on any such information, considerits appropriateness, having regard to their objectives, fi nancial situation and needs.

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Legal privilege for tax adviserslong overdue: IPA

The Wealth Insights datarevealed the number of plan-ners reporting times to begood had risen from 12 percent in December to 29 percent in February, while 3 percent of respondents reportedtimes were very good.

There was a minordecrease in the number ofplanners reporting times tobe average, and a signifi-cant decline in the numberof respondents indicatingtimes were bad, from 25per cent in December to just 14 per cent last month.

McMahon said that while planners and their clientsremained cautious, the slight improvement in marketconditions and sentiment had seen a cautious moveback into markets.

However, she said that move back into the marketshad proved to be very tentative.

– Mike Taylor

guidel ines and legaladvice, he added.

“For various facets ofthe systems build we’vemade some key assump-tions, and we would havebeen waiting on the finallegislation to validatethose key assumptions,”said Chun.

Matrix Planning Solu-tions managing directorRick Di Cristoforo agreedthat implementing opt-inand fee disclosure sys-tems in particular wasproblematic without leg-islative certainty.

“If you’re a program-mer you can’t really pro-gram unt i l you knowexact ly what the lawlooks like,” he said.

I t may not even bepossible to implementannual fee disclosurefor existing clients by 1 July 2013, since the

data may not exist in anef f icient form on theproduct provider end, DiCristoforo said.

MLC could not bereached for comment bythe time Money Man-agement went to print,and a spokesperson forAMP said i t was tooearly to comment onthe implementat ioncosts related to FOFA.

Continued from page 1


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Andrew Conway

Late FOFA delaycosts big instos

Paul Barrett

Vanessa McMahon

Planners remaincautious

News

By Andrew Tsanadis

WITH the mandatory start dateof the Future of Financial Advice(FOFA) reforms deferred to 1 July2013, dealer groups will havemore time to develop a scaledadvice offering that works forthem, a technology provider says.

While larger institutions mayhave to review their systems as aresult of the deadline change, thecorporate superannuation

market in particular has longbeen utilising financial planningtools as a new way to engage withmembers, Provisio Technologiesdirector Cameron O’Sullivan said.

He said the legislative deadlinehas not been a trigger for this.

“The big change will be that, atthe moment, scaled advice haspredominantly been a not-for-profit arrangement, or it has beenused in new call centres that havebeen set up to deliver it. I think

you’ll see advisers hopefullyembracing it a lot more,” he said.

O'Sullivan was quick to pointout that what’s going to giveadvisers more cause for cautionis the lack of clarity around howbest interest is going to operatein relation to scaled advice provi-sions.

He said this lack of clarity waspreventing large dealer groupsadding scaled advice solutions totheir business until the regula-

tions come into effect.“The deadline gives the larger

adviser networks another 12months to work out exactly whatthey want to do. It’s going to givethem another year to build some-thing,” O’Sullivan said.

Despite this, O'Sullivanbelieves those dealer groups thathave moved early into the scaledadvice space may require only asmall adjustment to their systemsonce FOFA comes into effect.

High feeshurt marketneutral funds

By Tim Stewart

MARKET neutral funds havebeen the best performingsector over the past five years,but high management feesare putting Australianinvestors off, according toresearch house Zenith.

Zenith head of alternativeinvestments Daniel Liptaksaid Australian investors arepreoccupied with manage-ment expense ratios ratherthan net-of-fee returns.

The typical managementfee for a market neutral fundis between 1.5 per cent and 2per cent, along with aperformance fee, he said.

However, over the past fiveyears, investors got $2.54back for every dollar theyspent on fees in marketneutral funds, Liptak said. Incontrast, for every dollarspent on an average long-only Australian equities fundinvestors lost 95 cents, hesaid.

This means that investorsin market neutral funds arefully participating in theexcess returns, whereas all ofthe alpha generated by long-only funds is going to themanager, Liptak said.

Advisers need to educatetheir clients about the bene-fits of market neutral fundswhich provide a high risk-adjusted return that is notcorrelated with the market,Liptak said.

Another reason the take-up of market neutral funds inAustralia is low is because“platforms that the advisersget their products from areheavily tilted towards longAustralian equity managersand the platform providerfunds”, said Liptak.

The biggest take-up ofAustralian market neutralfunds comes from foreigninvestors, added Liptak.

FOFA phase-in helps groups develop scaled offerings

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Cameron O’Sullivan


News

By Chris Kennedy

THE Financial Planning Association(FPA) has planned a series of best prac-tice workshops to address recent disas-trous financial planning shadow shopresults that found only three of 64 finan-cial plans assessed by the AustralianSecurities and Investments Commission(ASIC) were ‘good’.

The educational workshops will beconducted in partnership with ASIC,which conducted the shadow shop, as well

as dispute resolution service the FinancialOmbudsman Service (FOS). They will beheld in Sydney, Brisbane, Melbourne,Perth and Adelaide throughout May.

The workshops are targeted at all finan-cial planning professionals and will coverthe implications of the shadow shopreport for individual planners, financialplanning business owners, those whowork in licensees and dealer groups, andother wealth management professionals.They will aim to use the report findings todemonstrate practical ways for financial

planners to learn, improve and deliver bestpractice advice, the FPA stated.

The workshops will be attended by keydecision-makers at ASIC and FOS. Spokes-people from ASIC will be on hand todiscuss the criteria, methodology andresults of the report, while FOS will provideinsights on how to prevent disputes, theFPA stated.

FPA chief executive Mark Rantalldescribed it as “a very rare opportunityfor our own members and all other stake-holders in the advice community to gain

first-hand insights from the regulator, theombudsman, the professional body andleading practitioners – all in the sameplace, at the same time”.

ASIC Commissioner Peter Kell said theworkshops would “provide a vital forumto share the thinking and rationalesbehind the report in relation to retirementplanning advice with a wide range ofindustry representatives, including thefinancial planning practitioners who arelooking to learn from the lessons revealedin the report”.

Februarystrong forsuper returnsTHE median balanced orgrowth super fund returnedalmost two per cent in Febru-ary, continuing a positive startto the year, according to datafrom Chant West and Super-Ratings.

That brings the cumulativereturn for the first two monthsof 2012 to 4.4 per cent for themedian growth fund, but only0.6 per cent overall for thefinancial year to date, accord-ing to Chant West.

The results came on theback of a 2 per cent increasein the Australian share marketand a 4.9 increase in globalshares in hedged terms for themonth, while Australian andglobal real estate investmenttrusts returned 2.3 per centand 1.2 per cent respectively,according to Chant West.

“It’s worth noting that thenegative returns we sawduring the GFC, whichextended from the end ofOctober 2007 to the end ofFebruary 2009, have nowcompletely worked their wayout of the three-year returns,”Chant West director WarrenChant said.

Master trusts again outper-formed industry funds in Feb-ruary, returning 2.2 per centagainst 1.8 per cent, due totheir higher weighting to listedshares and property at a timewhen those markets are risingstrongly, Chant West found.

Master trusts are alsoahead over three years, by10.5 per cent to 9 per centdue to rising markets. Howeverindustry funds remain in frontover 10 years by 1.2 per centper annum, Chant West found.

SuperRatings estimated themedian balanced fund was ontrack for a quarterly return ofaround 4.5 per cent for theMarch quarter, making it thefirst positive quarter since theMarch quarter last year.

FPA addresses shadow shop failures with workshops

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News

Cormann in disbelief over alleged FOFA dealBy Mike Taylor

THE Federal Opposition hasexpressed disbelief that the Finan-cial Planning Association (FPA)might have entered into an agree-ment with the Industry SuperNetwork (ISN) involving trade-offsaround the acceptance of opt-in inreturn for the Government legislat-ing to restrict the use of the term‘financial planner’.

The Opposition spokesman onFinancial Services, Senator MathiasCormann, has told Money Manage-ment he would be very surprised ifthe FPA ever supported opt-in incircumstances where it, the Associ-ation of Financial Advisers (AFA) andthe Financial Services Council (FSC)have all been very supportive of the16 Coalition amendments toimprove the FOFA bills.

“That includes our strong andunequivocal recommendation thatopt-in be rescinded,” he said.

FPA chief executive Mark Rantalllast week denied his association hadchanged its views on opt-in, but saidthe FPA was continuing to negotiatein the best interests of its members.

Senator Cormann urged finan-cial services organisations to holdthe line on opt-in, pointing outthat the opt-in concept had been

the brainchild of ISN.Money Management last week

obtained a document purporting tobe a “FPA and ISN joint position onFOFA”, within which the two organ-isations appeared to agree on “a jointapproach to future regulation of abest interests test and ongoingcharging by advisers, and disclosureof advice fees”.

The document stated the follow-ing: “It is proposed to present theirjoint position to Government.

(a) Joint FPA/ISN support forbiennial ‘opt-in’ for a period of atleast four years from the commence-ment date and applying to newclients only.

(b) The support for opt-in (a) isconditional on (c) & (d) being met.

(c) That the Government agree topresent and table legislation inParliament by 1 July 2013 that will:

(i) enshrine the term ‘financialplanner’ in law; and

(ii) require financial planners tosign up to an approved code ofprofessional practice which explic-itly requires financial planners toprovide ongoing financial planningservices where an ongoing fee ispaid; and

(iii) the proposed law will adoptthe recommendations of the Advi-sory Panel on Standards and Ethics

made in November 2011 creatingthe obligation for all providers tosubscribe to, and licensees to partic-ipate in, an approved Code;

(d) The government must activelyfacilitate the introduction of this legis-lation, and ASIC (Australian Securi-ties and Investments Commission)must actively progress the opera-tionalising of the legislation to marketapplication, and the professionalcommunity must develop appropri-ate standards solutions, within thefour years of the opt-in period.

(e) Licensees and professionalcommunities that have advancedtheir application of these processes,and have put in place appropriateprofessional regulatory manage-ment practices to obviate the needfor legislative opt-in requirements,as independently assessed by ASIC,will be able to receive class orderrelief from the provisions of the opt-in requirements.

For clarification – the partiesacknowledge that those providerswho do not satisfy the requirementsunder (e) or who do not meet therequirements of future legislationdeveloped in accordance with (c)continue to be subject to opt-inrequirements under FOFA.”

For full document text,see InFocuson page 13.

Equity Trustees debates thepitfalls of cash investmentBy Bela Moore

CURRENT debate about investorsshifting to bank deposits does nothighlight the capital risk associ-ated with it, especially in the caseof long-term investors, accordingto Equity Trustees head of assetmanagement Shaun Manuell.

“Long-term investors in particu-lar need to be very cautious aboutmoving out of growth assets intocash for a number of reasons,”he said.

Manuell said investors need tobe aware that a “no risk” bankdeposit approach to capital, whileensuring there is no short-termcapital loss, also ensures thereis no possibility of capital gain.

“Being massively overweightin cash guarantees that the pur-chasing power of existing capi-tal will be eroded by inflation inthe medium to long-term,”Manuell said.

Short-sighted investmentstrategies are detrimental tolong-term needs, and investorswaiting for favourable marketconditions do not fully under-stand the ramifications of sitting

on the sidelines, according toManuell.

“Few investors are able to pickmarket highs or lows, and anyonewho thinks they can sit on theircash for now, and then buy intothe market in good time for thenext rising market, is likely to findit is an approach that will costthem dearly,” Manuell said.

He said the best strategy forlong-term investors remains oneof diversification to take advan-tage of growth and to providesome protection from inflation-based capital erosion.

Shaun Manuell

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News

Aussies still in the dark on super fund investmentsBy Mike Taylor

MANY Australians still do not understandenough about their superannuation funds,including how they’re actually invested orwhether they’ll have enough in retirement.

This is one of the bottom lines of an Essen-tial Media poll commissioned by the AustralianInstitute of Superannuation Trustees (AIST)and released at the Conference of Major Super-annuation Funds last week.

The poll found that many Australians do

not have a clear idea where their fund investstheir super savings, with 45 per cent sayingthey “didn’t know” how superannuation ina balanced fund was typically invested.

It also found only 15 per cent of respon-dents thought correctly that a ‘balanced’default investment could have more than 50per cent in growth investments.

The poll showed that while more than 75per cent of fund members had opened andread their most recent annual or half-yearlystatement, less than half read it thoroughly

or noted their investment returns.Commenting on the poll, AIST chief exec-

utive Fiona Reynolds said it highlighted theneed for funds to better communicate withtheir members using plain language to givea clear understanding of how and wheresuper savings were invested.

“As we head towards 12 per cent andaccount balances rise further, people willneed to start thinking more about their super,particularly as they get closer to retirement,”Reynolds said.

“Clearly, intra-fund financial advice has arole to play here – as does meaningful disclo-sure about super investment options onwebsites and elsewhere,” she said.

However, the poll suggested that socialmedia might not be the ‘silver bullet’ to betterengagement, with 50 per cent of super fundmembers saying they would not use a smartphone application that enabled them to lookup their super fund investment returns andother information. Younger people, however,were more likely to use an app (53 per cent).

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ASIC announcesnew guide forresearch houses THE Australian Securi-t ies and InvestmentsCommission (ASIC) willre lease a new guidecover ing the ro le ofresearch and ratingshouses later this year.

The move to releaseupgraded guidance wasannounced by ASICchairman Greg Med-craft during the Confer-ence of Major Superan-nuation Funds (CMSF)in Brisbane.

Medcraft told dele-gates that since releas-ing its CP171 documentwhich strengthened therules around researchproviders, the regulatorhad undertaken furtherconsultations with theindustr y and hadreceived 29 submis-sions on the issue.

He referred to theneed to segregate theresearch and non-research act iv i t ieswithin companies andto remove so far as pos-sible the conflict inher-ent in some remunera-tion models.

Medcraf t sa id thenew guide would beissued later in 2012.

Greg Medcraft

Rafael Calhau

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News

Cormann slams anti-competitivedefault super arrangementsTHE Government should act imme-diately to improve the competitive-ness of default super arrangementsrather than waiting a year for theProductivity Commission review,according to Shadow Assistant Trea-surer and Shadow Minister forFinancial Services and Superannu-ation Mathias Cormann.

Coalition members of the Parlia-mentary Joint Committee on Corpora-tions and Financial Services recom-mend that any authorised MySuperproduct should be able to competefreely in the default superannuationmarket, Cormann said.

“The current closed shop, anti-competitive arrangements for theselection of default superannuationfunds through Fair Work Australiaset up by the Labor Party are anational disgrace,” Cormann saidin a statement.

He said the current process is nottransparent, not competitive andinappropriately favours union-domi-nated industry super funds. Ministerfor Financial Services and Superan-nuation Bill Shorten has been tooslow to act, and has been favouringthe vested interests of his friends inthe union movement rather than

standing up for the public interest,Cormann said.

Since any authorised MySuperproduct must comply with consumerprotection requirements, there is noneed for an additional “secretive anddiscredited process through FairWork Australia” to further determinewhich MySuper products should beincluded as default funds under var-ious modern awards, Cormann said.


By Chris Kennedy

THE Association of Independently Owned Financial Plan-ners (AIOFP) has selected the OneVue platform as anew private label solution to partner with its privatelyowned Personal Choice Management platform.

Personal Choice Management is a platform joint ven-ture company that is 98 per cent owned by AIOFP mem-bers and 2 per cent owned by the AIOFP on behalf of itsmembers. The OneVue deal is the second private labelpartnership the AIOFP has initiated since last year.

OneVue chief executive Connie McKeage said shewas pleased the AIOFP had selected OneVue’s unifiedmanaged account platform which would deliver broadersolutions to AIOFP members, particularly in the instanceof establishing self-managed super funds (SMSFs).

OneVue would be providing AIOFP with a wholesaleprice which is the administration fee – the same as itdoes for all its customers, McKeage said. The deal wasa good fit because OneVue already supplied a numberof the AIOFP’s members, she added.

In a statement, AIOFP executive director Peter John-ston said the real draw card was that the OneVue plat-form could administer numerous assets and liabilities,and therefore provide an end-to-end SMSF solution foradvisers and their clients.

“Through the OneVue platform advisers can alsomanage separately managed accounts, fixed interestsecurities and term deposits, traditional wrap accounts,managed funds, listed securities and cash all on the oneplatform,” he said.

AIOFP signs up OneVue

Mathias Cormann

By Tim Stewart

THE superannuation guarantee (SG) willgradually increase from 9 per cent to 12per cent over the next seven years, follow-ing the passage of the Minerals ResourceRent Tax (MRRT) through the Senate.

The increase in employer contributionsto super was broadly welcomed by theindustry, with BT Financial Group head ofsuper and platforms Melanie Evans sayingit will close the retirement savings gap andleave “more super in peoples’ hip pockets”.

Financial Services Council chief executiveJohn Brogden said the retirement savings gapwould be reduced from $1.02 trillion to $836billion under a 12 per cent SG.

The Australian Institute of Superannu-ation Trustees and the Association ofSuperannuation Funds of Australia alsowelcomed the boost to the SG, along withthe superannuation tax rebate forAustralians earning less than $37,000.

The revenue from the MRRT willaccount for the cost to the budget of super-annuation being taxed at 15 per cent(rather than at the peoples’ higher margin-al tax rate), according to Minister forFinancial Services and Superannuation BillShorten.

Industry welcomes12 per cent SG

AAT affirms ASIC’sbanning decisionBy Andrew Tsanadis

THE Administrative Appeals Tri-bunal (AAT) has affirmed theAustralian Securities andInvestments Commission’s(ASIC’s) decision to ban formerCommonwealth Financial Plan-ning (CFP) adviser Don Nguyenfrom providing financial serv-ices for seven years.

The decision was handeddown on 14 March 2012 afterthe AAT found that Nguyen failedto comply with relevant sectionsof the Corporations Act 2001 inrelation to the provision of finan-cial services.

According to ASIC, the “deci-sion to hand a seven-year banwas appropriate for the protec-tion of the public, and maintain-

ing public confidence in thefinancial services profession”.

Nguyen was employed by CFPas an authorised representativebetween 1 October 2003 and 6July 2009.

Following an ASIC investiga-tion, he was disqualified fromproviding financial services inMarch 2011.

AAT affirmed ASIC’s findingsthat Nguyen failed to provide areasonable basis for advice, astatement of advice, product dis-closure statements, or additionalinformation when recommend-ing clients switch from one finan-cial product to another.

The tribunal also affirmed thatNguyen made statements orforecasts that were misleading,false or deceptive.


News

Co-contribution change couldaffect insurance strategiesBy Tim Stewart

CLIENTS who have relied on thesuperannuation co-contributionto fund their insurance premiumscould be faced with a shortfallfrom 1 July this year, according toIOOF technical services managerDamian Hearn.

The Government has proposedto cut the co-contribution match-ing payments to 50 cents in thedollar, meaning that peopleearning under $31,920 could be$500 worse off, said Hearn.

Clients who hold insurance-only superannuation accountsmay be faced with the prospect ofhaving their insurance lapse, headded.

However, clients with accountsthat also have an investment

component have other optionsopen to them, Hearn said.

“Investment returns can helpyou pay for those premiums, oryou could look at contributionsplitting with a higher income-

earning spouse,” he said.Adjusting the asset allocation of

the portfolio to change therisk/return ratio is another option,but that would be difficult in thecurrent market, Hearn said.Finally, the least desirable optionwould be to reduce the level ofinsurance, he said.

While the reduction of the co-contributions was “very likely” togo through parliament, lowerincome earners will be compen-sated by the Government’sproposal to refund the 15 per centcontribution tax.

“You can potentially see that thenext step may be a full phase-outof the co-contributions and moremoney being allocated back intothis refunded contributions tax,”Hearn sad.

Fixed interest strategies still workBy Bela Moore

FIXED interest strategies are still best placed to provide an ‘insur-ance policy’ when risky assets like equities suffer, according toMorningstar’s Sector Wrap-Up for fixed interest funds.

Questions about the need for fixed interest sleeves in invest-ment portfolios have abounded due to the rising popularity ofterm deposits, hybrids and annuities. Morningstar’s report indi-cated that these products have shortcomings as dedicated defen-sive anchors, and fixed interest sleeves were still the best way toleverage risk.

Morningstar found that both Australian and global fixed inter-est strategies have pros and cons, and stressed the importanceof choosing strategies based on how these coexist with a port-folio’s existing fixed interest allocation.

The report said global fixed interest strategies could greatlyincrease a portfolio’s diversity, especially in the non-financialcredit sphere. However investors needed to be mindful of theincreased credit and liquidity risks involved, as well as the added

risk of disruptions to income distributions as a result of curren-cy hedging.

Morningstar said a global fixed interest indexer was also moresusceptible to moves in bond yields than a purely benchmark-neutral Australian offering, and could offer high credit qualityselection – although not to the same degree as an Australian-only vehicle.

Morningstar found that passive Australian fixed interestinvestors are heavily exposed to Australian government, semi-government, and supranational issuers.

In the face of an increasing array of flexible fixed interest strate-gies and a preoccupation with income return, Morningstarwarned investors and advisers to remain focused on a portfolio’stotal return rather than just its yield.

The report assessed 44 individual strategies and awarded threethe highest possible Morningstar Analyst Ratings of Gold. PIMCOEQT Diversified Fixed Interest, PIMCO EQT Global Bond andTyndall Australian Bond received the accolade, while SchroderFixed Income was upgraded and new coverage was initiated on

AIST defends trusteeboard arrangementsBy Mike Taylor

THE Australian Institute of SuperannuationTrustees (AIST) has mounted a strong defence ofthe trustee board arrangements applying to not-for-profit superannuation funds.

Opening the Conference of Major Superan-nuation Funds in Brisbane, AIST chief executiveFiona Reynolds claimed the not-for-profit equalrepresentation model had been placed underattack by vested interests.

It was a claim backed by AIST presidentGerard Noonan, who claimed the equal repre-sentation model was capable of withstandingmore scrutiny than that applying to the “forprofit” sector.

However, Reynolds argued that the gover-nance model applying to banks and other finan-cial institutions was not suited to the not-for-profit funds sector.

She said the requirements with respect to not-for-profit funds were “fundamentally different”, butnonetheless delivered transparency and disclosure.

“Profit before member interests is the ulte-rior motive of our critics,” she said.

“The benefits which flow from the not-for-profitsector are clear for everyone to see, and wereachieved via equal employee and employer rep-resentation on trustee boards,” Reynolds said.

She said those who were arguing for changehad yet to provide justification for their claims.

Damian Hearn

Adviser match-making service launchedFINANCIAL advice and licensee match-making service My Dealer Group waslaunched in Brisbane last week, with aview to marrying advice practices andlicensee groups.

The match-making service launched byPinnacle Practice director Anne Fuchs aimsto deliver independent, unbiased licens-ee/adviser compatibility assessments andfacilitate these new partnerships.

Fuchs believes advisers need a way totest compatibility and assess a partner-ship’s chance of long-term success in anenvironment where advisers are “spoiltfor choice”.

Licensees who seek to partner with anadviser group can pay a fee for the MyDealer Group service which involvesdetermining the company’s value propo-sition and promoting their offering tosuitable advisers.

“We believe that what doesn’t suit oneadviser will suit another, so we are confi-dent we can help make the right

matches,” Fuchs said.The compatibility of advisers and

licensee groups is assessed through aconfidential ‘fact-find’ which rankspriorities such as commercial terms,culture, systems and processes, andlead generation.

“The fact-find also gathers informa-tion around where the adviser’srevenue comes from, what kind of busi-ness they specialise in, the markets theyare targeting, the product manufactur-ers they use to implement their advice,

and so on,” Fuchs said. As regulatory requirements force more

businesses to seek external sources forexpensive services and resources, MyDealer Group says it provides a servicefor advisers and licensees wanting tomake an informed decision about thepartnerships they enter into.

“What we ultimately deliver tolicensees are qualified leads for their busi-ness development managers, or, if theyprefer, actual introductions to advisers –just like a dating agency,” Fuchs said.

Fiona Reynolds

Gary Burns

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News

Strengthen super standards,says Actuaries InstituteBy Bela Moore

GOVERNANCE standards forAustralian superannuationfunds are not strong enoughand should be brought in linewith existing standards forbanks and insurers, accordingto Actuaries Institute chiefexecutive Melinda Howes.

Howes believes the growthof the industry calls for thesuper regulatory scheme tomove closer to governanceregarding other f inancialinstitutions like banks andinsurers.

According to AustralianPrudential Regulation Author-ity (APRA) figures from Febru-ary 2012, the largest four fundseach manage assets of morethan $40 billion, and thelargest 10 manage a combinedamount of $348 billion.

In response to the currentdebate surrounding superfund governance, Howes saidthat current standards do notreflect the growth of super

funds and believes the currentscheme and proposals are notenough.

“Given the size and signifi-cance of the sector, APRAshould be provided with thepower to impose the higheststandards of transparency andgovernance to our public offersuper funds,” Howes said.

Howes’ demands reflectconcerns the Institute raised

in December 2011 in responseto a discussion paper fromAPRA on prudential standardsfor superannuation.

The Actuaries Instituterequested new standards thatforce public offer funds to havea critical mass of independenttrustees.

“We support the represen-tational model of selectingsuperannuation trusteeswhere there is a strongcommon interest between thetrustees and the members – forexample, a corporate-spon-sored super fund,” said Howes.

“However we believe thismodel is less relevant in thecase of large public offer fundswhere trustees are remunerat-ed and have no direct link orclose affinity to the members.”

The Actuaries Institute’ssubmission also called forheightened disclosure require-ments and financial conditionreporting to ensure trans-parency and increased respon-sibility to members.

Academic backs opt-inBy Chris Kennedy

SYDNEY University has weighed intothe debate on the Government’sproposed Future of Financial Advice(FOFA) reforms, with associate pro-fessor from the Sydney Law SchoolJoanna Bird saying those who argueopt-in is unnecessary don’t under-stand the reforms.

“There is nothing in the pro-posed ban on conflicted remuner-ation, where advisors receive com-missions for products they sell, orthe new best interests duty foradvisers that will prevent adviserstaking fees out of their clients’investment products on an ongo-ing basis,” Bird said.

“Periodic disclosure of fees willalso not help the large number ofdisengaged clients,” she added.

Failure to retain opt-in woulderode the wealth of Australians,who would wind up paying for littleor no advice on an ongoing basis,she said.

“Those who see a financialadviser may soon forget – if theyever fully comprehended – theyhave agreed to pay their financialadviser a regular advisory fee out oftheir investment products and thatthis will happen every year until

they actively stop it or sell theirinvestment product,” she said.

Bird acknowledged the measurewould increase advisers’ costs butsaid this had to be weighed againstthe cost to consumers.

And those who argued themeasure was unnecessary failedto understand there is nothing inthe proposed ban on conflictedremuneration or the best interestsduty that will prevent adviserstaking fees out of their clients’investment products on an ongo-ing basis, she said.

According to Sydney University,Bird is an expert on financial regula-tion and has prepared written sub-missions on FOFA on behalf of con-sumer groups, and has previouslyworked for the Australian Securitiesand Investments Commission.


Melinda Howes


SMSF WeeklyATO ruling confirms contribution arrangementsBy Mike Taylor

SMSF specialist companyCavendish Superannuation hasclaimed vindication from arecent Australian TaxationOffice ruling (ATO ID 2012/16)which it says confirms its analy-sis around concessional contri-bution arrangements.

In an analysis issued to clientsthis month, Cavendish head ofeducation David Busoli said theruling "confirms our analysisthat concessional contributionsfor both the current and follow-ing year may be made in thecurrent year, and though seem-ingly in excess of the caps, won't

trigger a cap breach providedcertain conditions are satisfiedand it results in a tax deductionfor both contributions in thecurrent year".

Busoli cited as an example amember of a SMSF making apersonal contribution of $25,000

to their fund on 4 April 2011 andthe trustees of the fund immedi-ately allocating this contributionto the member in accordancewith sub-regulation 7.08(2) of theSuperannuation Industry (Super-vision) Act 1993.

The member made a further

personal contribution of $25,000on 28 June 2011. The trusteesapplied this amount to an unal-located contributions accountthat had been established inaccordance with the governingrules of the fund.

On 4 July 2011, the trusteesresolved to allocate the amountcredited to the unallocated contri-butions account to the member.

The member satisfied all theconditions necessary to deductboth personal contributionsmade in the 2010-11 income yearand was allowed a deduction of$50,000 in his income tax assess-ment for that year.

The member's concessional

contributions cap for the 2010-11 financial year was $25,000.

Busoli said the key assump-tions in the scenario were that:

• the fund's deed must allowthe practice;

• the sum of the concessionalcaps for both the current andfollowing year are not breached;

• the contributions applicableto each cap were made separately;

• the contribution that is to beallocated in the following year ismade in June;

• an unallocated contributionsaccount – not a reserve – isreferred to, thus removing theneed to construct a separateinvestment strategy.

SPAA welcomes FOFAimplementation delayFINANCIAL advisers and other specialists in delivering advice around SMSFs will welcome theadditional preparation time delivered by theGovernment's decision to delay formal implemen-tation of the Future of Financial Advice changesfor 12 months.

The chief executive of the Self-Managed SuperFund Professionals' Association (SPAA), AndreaSlattery, welcomed the announcement that FOFAwould not be formally applied until 1 July 2013.

"The deferral date is a sensible approach, givenother major changes that are taking place in thefinancial services industry," she said.

"We are pleased to see that the Government isprepared to introduce the reforms in good time.The extension will be a relief to SMSF advisors,auditors and accountants as they will now haveadequate time to prepare for the reforms."

However, at the same time as welcoming thetransition period, Slattery said SPAA requiredclarity around whether the extension covers allFOFA Peak Consultation Group reforms (includingthe Accountants' Exemption and Auditor Registra-tion), and also the FOFA Expert Advisory Panelissues such as competency standards and SMSFspecialisation.

SMSFs to defy doomsayerswith continued growthTHOUGH the death of SMSFsmay have been regularlypredicted in years past,modelling within Deloitte'sDynamics of the AustralianSuperannuation Systemreport released in Januarysuggests they will continue togrow, and grow strongly forsome time yet.

A current common practice,according to the report, wasfor people to create their ownSMSF upon retirement orearlier, potentially when theyreceived large sums of moneyfrom their existing corporateor public sector superannua-tion plan.

"There are a number offactors that suggest this willcontinue, including the taxbenefits available within anSMSF structure for those tran-sitioning from pre-retirementto post-retirement," it said.

"(There is also) the poten-tial that Future of FinancialAdvice (the Future of Financial

Advice reforms) makes SMSFsmore attractive to financialadvisers than the MySuper orchoice products found in theretail sector generally."

As a final comment,Deloitte's report said that bylooking at the asset allocationof the SMSF sector in aggre-gate, it was clear that retireesdid not want to take as muchinvestment risk as thosesuperannuants in the accu-mulation stage.

"While this may reflect thepsychological impact of theGFC [global financial crisis], itwill continue to affect the babyboomers as they move intoretirement over the next 10-15years," it said.

"Those institutions wishingto fight back against thecontinuing growth in theSMSF sector would do well toconsider this issue, and poten-tially offer more innovative,lower volatility products to thissegment of the market."

ETFs continue to grow:BetaSharesFEBRUARY saw the local exchange-traded fund(ETF) industry continue to grow, according to theBetaShares Australian ETF Review for February2012.

The growth was modest, with approximately$9 million of new money and the overall marketcap increasing $91 million to $5.2 billion. How-ever, a notable trend among investors wasincreased flows into Australian equities and yield-based ETFs.

Looking forward to March, BetaShares' reviewpredicted that the introduction of fixed income prod-ucts would likely lead to approximately 75 ETFslisted on the Australian Securities Exchange by mid-2012 compared with 60 at the end of February.

Commenting on the trends the review hadrevealed, Drew Corbett head of investment strat-egy for BetaShares said March would be remem-bered as a milestone month for the local ETFindustry with the launch of the first cash and fixedinterest ETFs.

"With investors increasingly focused on yield,BetaShares is predicting strong inflows duringMarch and the rest of 2012, with investors nowhaving access to income-focused cash and bondproducts," he said.

"As a result of Australian ETF providers lookingto add fixed interest and income-based offerings,we expect awareness of ETFs to increase.

"This is another positive step forward for the industry."

Much attention waslast week focused ona document purport-ing to be an agree-

ment between the Financial Plan-ning Association (FPA) and theIndustry Super Network (ISN)which had the potential todramatically alter the tenor of theGovernment’s Future of FinancialAdvice (FOFA) bills and, ultimate-ly, favour the professionalismagenda of the FPA.

The chief executive of the FPA,Mark Rantall, consistently deniedthe validity of the document or thatthe FPA had ever changed its posi-tion of strongly opposing the two-year ‘opt in’.

Perhaps, ironically, on the finalday of the debate over the FOFAbills, the Minister for FinancialServices, Bill Shorten, announcedthe substantial delivery of the keyelements of that document.

It was this outcome, despiteRantall's insistence in interviewswith Money Management that theFPA’s position remained totallyunaltered from that which it hadoutlined in a letter sent to theindependents in the House ofRepresentatives a week earlier,which gave rise to accusations ofa side-deal sufficient to ensurethe independents Tony Windsorand Rob Oakeshott supportedShorten's FOFA agenda.

By the closing hours of Thursdaylast week, those fighting for keyamendments to the original FOFAlegislation had conceded their casehad been substantially lost on thebasis of the changes announced byShorten and originally outlined inthe document.

In the interests of transparency,Money Management now publish-es the text of the documentacknowledging the FPA’s denialsand asserting no view as to itsorigins or validity.

InFocus


Amid all the furore over a document purporting to be an agreement betweenthe FPA and the ISN, Money Management's Mike Taylor publishes the contentsof the document.

32%

AFA Corporate Social Networking Event30 MarchEuropean Bier Cafe, Melbournewww.afa.asn.au/profession_events.php

Leveraging Technology inFinance: Strategy and Innovation11 AprilSofitel Melbournewww.finsia.com/Events

ACFS Funds Management: Feesand Performance Panel13 AprilRACV Club, Melbournewww.australiancentre.com.au/acfs-events

2012 Money Management FundManager of the Year Awards10 MayFour Seasons Hotel, Sydneywww.moneymanagement.com.au/events

2012 Annual StockbrokersConference31 May Crown Promenade, Melbournewww.stockbrokers.org.au

By phone

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LIFEINSURANCESNAPSHOT

The document in question

Preferred channels for communication

with provider

FPA and ISN joint position on FOFAISN and the FPA have agreed a joint approach to future regulation of a best interests test andongoing charging by advisers, and disclosure of advice fees.

It is proposed to present their joint position to Government.(a) Joint FPA/ISN support for biennial “opt-in” for a period of at least 4 years from the

commencement date and applying to New clients only.(b) The support for opt-in (a) is conditional on (c) & (d) being met.(c) That the Government agree to present and table legislation in Parliament by 1 July 2013

that will:(i) enshrine the term “financial planner” in law; and(ii) require financial planners to sign up to an approved code of professional practice which

explicitly requires financial planners to provide ongoing financial planning services where anongoing fee is paid; and

(iii) the proposed law will adopt the recommendations of the Advisory Panel on Standardsand Ethics made in November 2011 creating the obligation for all providers to subscribe to, andLicensees to participate in, an approved Code.

(d) The government must actively facilitate the introduction of this legislation and ASIC mustactively progress the operationalising of the legislation to market application and the profes-sional community must develop appropriate standards solutions, within the 4 years of the opt-in period.

(e) Licensees and professional communities that have advanced their application of theseprocesses, and have put in place appropriate professional regulatory management practices toobviate the need for legislative opt-in requirements, as independently assessed by ASIC, will beable to receive class order relief from the provisions of the opt-in requirements

For clarification - The parties acknowledge that those providers who do not satisfy the require-ments under (e) or who do not meet the requirements of future legislation developed in accor-dance with (c) continue to be subject to opt-in requirements under FoFA.

Best interests(a) The proposed note in the government’s amendments be amended to say “Nothing in s961B(2)is inconsistent with a provider limiting the subject matter of the advice where this is consistentwith the client’s relevant circumstances. To be clear, the adviser can exclude from their inquiryany client circumstances which are not reasonably relevant to the identified subject matter.”

(b) ISN will support the FPA’s proposed amendments to 961B(2)(g). [Note: this is subject tominor mutually agreed wording amendments, if any, to ensure the integrity of the intent of theamendments]

(c) ISN proposes that the regulation making power be expressed more broadly to allow regu-lations to be made to clarify how scaled advice can be delivered consistent with the requirementsof 961B(2) including defining expertise and relevant circumstances. [Note: this is subject to minoragreed wording amendments, if any, which ensure the integrity of the intent of the amendments].

Supplementary comments:We confirm that the intent is very clear that both the FPA and ISNagree to a joint position on Best Interest and agree that amendments will be made as intendedin (a), (b) and (c) subject to final negotiations on wording to ensure the intent.

Annual disclosure(a) The annual disclosure for existing clients will apply to advices fees only and excludes disclo-sure of trail commissions.

(b) Annual disclosure to New clients will exclude trail commissions on insurance products onthe understanding that these commissions are fully and clearly disclosed in annual renewalnotices provided by the insurer or super fund to clients.”

24%In person

21%Online/web

15%By letter

7%By text/SMS

Source: Ernst & Young's Global InsuranceCustomer Survey


Australian Equities

ANY investor still waiting for abroad upswing in Australian

equities will be left stranded. Itisn’t coming.

The realisation that the mining sectoris booming at the expense of everythingelse is causing Australian equities tobehave as erratically as the economy.Global economic turmoil is continuing toimpact share market performance and

weighs heavily on advisers, but despite itsdangers, investors seem increasingly blaséabout its potential impact. Earningsdowngrades across the share market arecommon, while a high Australian dollarhas made sector investment impossible.

Every other day fund managers releasea statement claiming cautious optimismabout Australian equities, as if they don’twant to seem too committed to it in casetheir predictions turn out to becompletely off the mark.

But the erratic market is also creatingopportunities for active managementoutperformance, and fund managers areswitching to stock selection and boostingtheir research to take advantage of it.

Patchy economy, patchy equitiesThe Australian economy is in less thanperfect shape. Global economies are inturmoil, a high Australian dollar is causinghavoc with exporters, and the miningsector continues to boom in the west evenas the retail sector grapples with emptyshopping malls in the east.

This patchy economy is being reflectedin the performance of the share market.Fund managers are avoiding whole sectorsof the Australian Securities Exchange,while the earnings expectations of thosecompanies that are still doing relativelywell have dropped by nearly 60 per cent.

“While the market will perform relative-ly strongly this year, the main reason isthat it’s off a very low base, and earningsexpectations are very conservative,”Bennelong Australian Equities Partnerschief executive Paul Cuddy says.

Domestic equities have already gained7 per cent since last year, but that’s an easyenough return considering from where theshare market is starting.

A patchy economy will also causepolarised performance inside sectors ofthe share market, according to GreencapeCapital director Matt Ryland.

As the economy becomes more unsta-ble, making good decisions is paramount,and those companies that are managedwell will survive and prosper, while thosethat have structural issues, cultural issues

The unpredictability of the Australianshare market has created opportunitiesfor active managers. Competition among fund managers forhigh-quality Aussie equities researchheats up.Global turmoil continues to impactdomestic share market performance.The irregular performance of Australianequities has been exacerbated by ashallow upswing in the share market.

Key points “It’s taken some time forthe analysts to accuratelyreflect the challengingbusiness environment wecurrently have in Australiain their earningsestimates.”– Matthew Reynolds

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Swings and

roundabouts

A patchy economy and global turmoil has left the industry grappling with a jumpy share marketand turning to active management in a bid to stave off negative returns. Benjamin Levy reports.


Australian Equities

or simply don’t have the talent to run thecompany, will struggle.

That makes it difficult for investors toinvest funds into the share market withany clear idea of how it is going to performoverall in the next 12 months.

Financial planners are pessimistic.Investment Trends’ Adviser Product NeedsReport found that advisers expect thevalue of the share market to increase byjust 8 per cent during 2012. That’s an evenworse result than in previous years, whenthey expected a rise of 10 per cent for 2011and 14 per cent for 2010.

Fund managers aren’t overly confidentof a sudden improvement in the economyduring the year, so investors should takeclaims of better earnings from some listedcompanies with a grain of salt.

“There are going to be lots of risks outthere. There are a lot of stocks out therethat even though earnings expectationshave rebased, they’re still expecting strongsecond-half earnings growth numbers tojustify the current valuations, and we thinksome of those are going to be tested,”Cuddy says.

Colonial First State (CFS) expects amixed performance from Australian equi-ties for the balance of the year.

Colonial has watched many listedcompanies who have been expecting good

results downgrade their earnings. Thoseearning downgrades were also releasedduring the February reporting season,meaning that some of the analysts havedowngraded earning forecasts for the nextnine months, as well as factoring them into company results.

Head of Australian equities core andsenior investment specialist at CFS GlobalAsset Management Matthew Reynoldsbelieves earnings expectations for manycompanies have been unrealistic.

“It’s taken some time for the analysts toaccurately reflect the challenging businessenvironment we currently have inAustralia in their earnings estimates,”Reynolds says.

Colonial senior investment specialistChris Robertson suggests that in anuncertain environment such as the oneAustralia is facing, analysts “struggle” tocapture the full extent of the informa-tion in their forecasts.

A high Australian dollar, frugalconsumers, and the rising cost of rawmaterials all play a part in company earn-ings, and analysts tend to wait untilcompany results are released before theysee the full impact.

With company results coming out everyquarter, that means a three-month waituntil investors know with clarity how bad

things are – a long time given the recentshaky performance of the share market.

There is no telling when funds will startflowing back to the sectors of the sharemarket that are currently experiencingdifficult conditions. The retail sector andthe export sector are being avoided likethe plague, with funds instead beingploughed into resources, mining services,and health care.

The stratified structure of the sharemarket has contributed to some sectorsbeing hit harder than others, according tovan Eyk senior investment analystMatthew Olsen.

“Some industries have done muchbetter than others because their earningshaven’t been as affected by a highAustralian dollar,” he says.

Other sectors that rely more on over-seas currency payments are also doingbetter than others. Listed tourism compa-nies, companies that compete withimports, and the manufacturing sector areamong those who are suffering.

“Those companies that rely purely onexports are in a world of pain,” Cuddy says.

Data provided by Colonial highlights howdifficult things are for equity investment.

Over the last 12 months to February thisyear, nine out of the 11 share marketsectors shown suffered negative totalreturns. Surprisingly, the materials sector,which includes resources, suffered theworst negative 12-month total return outof all sectors, at minus 18.85 per cent.

Consumer discretionary stocks, infor-mation technology and financials allsuffered losses as well, at 15 per cent, 16per cent and 12 per cent respectively.Only telecommunications and utilitiesrecorded positive returns over a 12-month period.

Time for action This erratic behaviour in the Australianshare market has put active managementin the driver’s seat.

“Particularly at times when you’reseeing high levels of volatility in themarket, what that tends to do is createopportunities for astute investors,”Olsen says.

Investors should refrain from makingsector bets in favour of stock picking,Ryland says.

“That’s a function of the patchiness ofthe economy,” he says.

Standard and Poor’s (S&P) signalled tothe market in late 2011 that fund

managers should switch to an activemanagement approach to bring dividendsin the next year.

Compressed company valuations willgive fund managers opportunities to buyquality shares at attractive prices, accord-ing to the research house.

Many stocks which have been sold downheavily will also rally as volatility passes andtheir earning outlook improves.

“The volatile market conditions we arecurrently experiencing are generally veryfavourable to active management,” S&PFund Services analyst James Gunn said.

Fidelity Asset Management also flaggeda more activist approach to Australianequities at the end of last year.

Fidelity Australian Equities manager PaulTaylor encouraged investors to look for struc-tural growth when choosing companies.

“There are several listed companies thatare paying dividend yields that are wellabove that of bank term deposit rates andthese will increasingly be in demand frominvestors seeking consistent income fromthe market,” he said.

Many companies are trading atdiscounts compared to historical shareprices, and are even discounted comparedto the earning stream of the cash flow theygenerate, according to Olsen.

Prime Value Asset Management expectssmall and mid-cap companies to be lessinfluenced by global events and is toutingtheir greater flexibility.

“Small and medium cap stocks are oftenthe first movers in a recovery. We thinkthese smaller stocks are reasonably wellplaced for 2012, as they often have greaterflexibility in their operations and theability to achieve in tough markets,” saysPrime Value senior investment analystFiona Clark.

Stock picking needs a strong stomach.There are opportunities to be found evenin retail – a sector most people would ratheravoid – if they look for the right company.

The kind of stocks suitable in an activemanagement market are those companieswith strong yields, good cash flow, andwhich won’t require releveraging to drivetheir growth.

Prime Value also places importance onthe ability of companies to execute theirbusiness plans.

A low-risk appetite can cause investorsto flee to large cap companies for theirperceived safety, but large cap companiesare large and unwieldy, which can lead tounderperformance. Investors have to beprepared to bet on smaller, more flexiblecompanies, even if they are naturally moresusceptible to economic downturns.

The top 20 to 30 companies don’t havethe right risk-reward balance, accordingto Cuddy.

“We’ve been seeing a lot of opportuni-ties for active management outside of thetop 20 to 30 names,” Cuddy says.

For many fund managers, that perform-ance is relative. Australian equities haven’timproved markedly, but the situation forother investments has gotten worse.

Interest rate cuts by the Reserve Bankand less competition from the banks onterm deposits in recent quarters havemeant that returns have come down,while at the same time stability in equi-ties has improved slightly.

Continued on page 16

Matthew Olsen



“Net return, they’ve improved in termsof their attractiveness relative to otherasset classes over the last six months,”Ryland says.

ResearchWhat active management needs in orderto be successful is research, and lots of it.

There is a lot of high quality researchbeing done in the industry, but thatresearch is widely available to all investors,and fund managers need to consult asmany sources as they can to gain an edgeover their rivals, Olsen says.

To go above and beyond the competi-tion, those managers who don’t use exter-nal consultants need to engage them,Olsen says.

Most fund managers insist that theirresearch processes are robust enough toget the best returns possible.

Greencape verifies its research bytalking with competitors, customers andsuppliers, and sometimes industry bodiesand regulators, to gain confidence andconviction in its stock selection.

“We spend vast amounts of time track-ing down information that can help in thatverification process,” Ryland says.

Colonial’s internal analyst team is well-resourced, Reynolds says.

“We meet regularly with listed compa-nies we invest in, but also the companiesthey compete with, their suppliers. Wetravel extensively overseas to review theiroverseas operations, and we take noticeof what’s happening in other markets,” hesays.

S&P has backed the research process ofthe funds management industry, singlingout the quality of that research in a posi-tive performance for the equities sector inOctober last year.

There are strong competitive forces atplay in the Australian market, and a toughenvironment for retail flows is makingfund managers plough money into theirresearch process to get an extra returnpoint over their rivals.

Some fund managers are boosting thequality of their research, or launching newAustralian equities capabilities.

AMP Capital appointed two analysts toits equities team last month in an attemptto combat staff turnover and keep itsfundamental equities capability strong.The team now comprises 13 investmentprofessionals.

T. Rowe Price announced plans in Junelast year to launch an entirely newAustralian equity division, with the aim ofgrowing its non-US client base.

Part of the launch is to cover a gap in T.Rowe Price’s own research capabilities,which have never had a presence here. Theresearch generated will feed into its globalresearch platform.

Investors are looking at the stability oflisted companies, their risk framework andtheir debt levels, and unless fundmanagers are globally integrated withtheir research they won’t be able to coverthose stocks sufficiently, said T. Rowe Pricedirector for Australia and New ZealandMurray Brewer.

The launch of T. Rowe Price’s Australianequities division is a reflection of theattractiveness of the Australian share

market to overseas investors, Olsen says.The $1.3 trillion superannuation market

is a key magnet for overseas managers.“Capital always flows to where it’s

achieving a good risk-adjusted return, andif overseas investors perceive Australia isa safe haven because we have a strongcurrency and strong performing indus-tries, then they may feel that Australia is asafe place to invest,” Olsen says.

Global concernsAustralian investors’ approach to globalevents seems to be contradictory. They areclosely watching overseas turmoil, butseem less and less concerned about itsimpact at the same time.

“I think investors are acutely focused onwhat’s happening overseas,” says Cuddy.

But at the same time, investors arestarting to ring-fence what’s happeningin Europe, and the gathering momen-tum of the United States recovery as wellas receding concerns about Chineseinflation means that investors can be abit more confident about the future ofequities, Cuddy says.

The key issue is whether Europe willimpact on the earning power ofAustralian-listed companies, according

to Cuddy.“Unless you’re an exporter, earning

power is becoming less and less relianton Europe, and more reliant on emergingmarkets,” he says.

Many of the issues surroundingEurope have also been discussed adnauseam, to the point where investorsfeel they have their heads around theissue and can therefore afford to go oninvesting regardless.

Some fund managers are cautiouslyoptimistic about the future performanceof equities, and claim global concernswon’t be too much of an impediment.

Clark admits that while market volatil-ity is likely to be a “fact of life” for equityinvestors through the year, it appearedthat negativity surrounding global issueshad already been priced into Australianequities.

Dividend yields are still very attractive,Clark says.

Investor sentiment needs to strength-en before funds start flowing back intoequities, according to Robertson.

While the news coming out of Europecontinues to weigh on investor sentiment,funds will continue to wait on the side-lines – but not for long.

Reynolds says that the impact fromEurope on investors will begin to fadethroughout the year.

“In the near term, we’ll continue to havesome of the uncertainty surroundingEurope and Greece in particular impact-ing Australian equities, and I suspect thatwill fade,” he says.

The strength of market valuationsshould help. The equity market is tradingon an 11 times price-to-earning ratio, sofrom a value perspective, it looks reason-ably valued, while dividends are lookingstrong compared to bank bills.

But one has to wonder how much ofthat optimism is hope rather than consid-ered analysis. A survey of investmentcompanies associated with the FinancialServices Council has shown that mostchief investment officers consider theEuropean debt crisis to be the biggest riskfactor impacting returns in the next 12months. CIO sentiment has fallen sincelast year.

According to van Eyk head of researchJohn O’Brien, investors may be underes-timating how much headwinds overseasimpact markets here.

In a statement released by theresearch house early this year, O’Briennoted that while equities were still atattractive valuations, markets werealmost certainly underestimating thesame risks as in 2011.

“Investors are likely underplaying thepotential for political and economicturmoil to damage markets and otherthreats like a potential breakout in infla-tion,” van Eyk said. Shallow downturn, shallow upswingThe irregular performance of Australianequities has been exacerbated by a shallowupswing in the share market, mirroringthe shallow downturn of three years ago.A factor of the strength of our economy, ithas left investors here at a disadvantagewhen compared to the massive upswingsinvestors have enjoyed overseas.

In the recent US market rally, theS&P500 rallied approximately 20 per cent,while Australia rallied by only half that,


“Unless you’re an exporter,earning power is becomingless and less reliant onEurope, and more reliant onemerging markets. ”- Paul Cuddy

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according to Ryland.However, the shallow upswing in markets

will only lead to more active managementin a bid to boost those returns.

“We seek to add value over and abovethe Australian equities index, and we willrely upon a stock selection, on a stock-by-stock basis, to do so,” Reynolds says.

Stock selection will be very importantfor generating investment performance,

he says.Australian equities can also cater to

those investors who are still wary andlooking at income generation rather thangrowth. A large component of sharemarket returns in Australia are frankeddividends, which are favourable toincome-seeking investors, Ryland says.

In the current risk-averse environment,that should boost investment in equities,

even if their value upswing isn’t as steepas investors would like.

Some fund managers believe that theshallow upswing can be explained by thedefensive structure of the ASX.

The Australian share market is made uplargely of banks, resource stocks and prop-erty trusts, which are more defensivestocks and more likely to perform in amore stable manner. The US share market,

on the other hand, is much more broadlybased, with exposures to tech stocks, anda smaller property trust market.

That natural structure is going to lead toless upside in the Australian market, whileshare markets overseas gain value rapidly.

“There’s going to be less upside just bythe composition of our index,” says Ryland.

Reynolds believes Australia’s strongregulatory environment is responsible forthe shallowness of the downturn here andits subsequent upswing.

By contrast, a weaker regulatory envi-ronment overseas would account for amuch greater performance differential.

Fidelity Worldwide investment portfo-lio manager Kate Howitt believes the flex-ibility of our economy and strength of thelarge banks will eventually re-assert itself.

Historically, the trade-off between themining sector and the household-drivensector has provided stability and growthto Australia’s gross domestic product.

Once growth in mining starts to fade,Australia will have an easing of monetarypolicy and a rebound in other sectors ofthe economy, Howitt said.

Australian banks are some of thestrongest in the world, corporate gearingis at 30 year lows, and earnings are atbelow-cycle peaks, with reasonable valu-ations, yield, and solid fundamentals.

“These factors suggest it may not be toolong until we are back to 2009 when therewas a greater risk to not holding equities,”she said. MM

Australian EquitiesProudly sponsored by

In an age where peopleare increasingly time-poor, many clientsnow look for a one-

stop-shop for theiraccounting and financialplanning needs. This trend –along with the potential forsignificant uplift in revenue andbusiness valuation – has led to anincreasing number of accounting prac-tices looking for help on the best way tointegrate financial advice into their exist-ing business models.

Relationships between accounting prac-tices and financial advisers are nothing new –accountants and planners have long workedtogether with varying degrees of success.

Given the growing complexity of manyclients’ needs, a successful partnershipbetween accountants and financial plan-ners makes even more sense, and the benefitit can bring to all parties is increasing.

So what makes these partnerships work?Often it comes down to addressing the foun-dations of success before the business looksto expand.

Five foundations of a successfulpartnership1. Alignment of interests. Why are bothparties coming together in the first placeand how will the relationship becomemutually beneficial? Is the driver to buildan asset, grow revenue and/or just provide

better service to clients?Once this is agreed upon,then both businesses

need to share similar values in the way theydeal with clients. Generally, it’s this clientexperience that attracts and retains clientsin business, and therefore it’s critical thatboth parties share a similar way of dealingwith clients.

2. Ideal clients and service offer. Assum-ing there is an alignment of interests, thenext logical question when referring busi-ness is what type of clients does the advicebusiness add most value to? While someadvisers offer holistic services, othersspecialise in a niche market – which may ormay not match the needs of the accountingclient base.

3. Experience and understand the offer.If both businesses are committed to creatingan integrated offer, then accountants needto experience the end-to-end advice process– that is, go and see an adviser and learnwhat it’s all about. This has two primarybenefits. Firstly, accountants will know whattheir clients experience when they meet with

an adviser and secondly, they can explainthe process to clients, based on their ownexperience.

4. Referral process. How will the businessintroduce the relationship? Will you hold athree-way meeting with the client, adviserand accountant? Will the accounting busi-ness provide the adviser’s details to the clientand have a follow-up mechanism in place?Ultimately, this approach will have to bedetermined by both parties, but it’s impor-tant there is a defined process and it’s notsomething that is left to chance. The docu-mented process can be refined over time butneeds to be agreed upfront so there’saccountability for both parties.

5. Communication. Finally, the key aspectto any relationship is setting aside the time tohave open and honest communication anddo a ‘pulse-check’ on how the relationship isgoing. In many cases, it’s accountants whohold the trusted client relationship. As such,clear communication is vital. Things to consid-er include agreed turnaround times, thetiming of client updates, how to agree processimprovement and early identification ofpotential client activity.

Assuming all of these above foundationsare present in the relationship and there is aclear commitment from both businesses towork together, then you should start to look atthe best approach to structure the integrated

one-stop-shop for your clients.Businesses essentially have four options

– each of which has its advantages anddisadvantages.

Which path an accounting businesschooses comes down to the needs of thebusiness and often the approach maychange and progress into a more formal rela-tionship over time. Some of the key advan-tages and disadvantages are outlined inTable 1.

No single approach will be right for allbusinesses, but support and assistance isavailable from dedicated teams who workwith accountants looking to explore theseoptions. They can offer advice on appropri-ate licensing solutions for accountants aswell as tools to support integrated account-ing and financial advice businesses.

While the Future of Financial Advicereforms have certainly brought aboutchange, it’s important to remember that withchange comes opportunity.

Adam McGruen is head of MLC New AdviserDevelopment and MLC’s Accountants’AdviceAcademy.


OpinionAccountantsBranching out

There are a number of options availableto accountants wishing to branch out into financial planning.

Adam McGruen outlines the pros and cons of each.

Option Advantages Disadvantages

Establish a • Low costs • Generally no ownership of the financial planning asset being created

referral partnership • Enables you to refer to a panel of experts • Less control

• Potential opportunity for referral fee if desired

• The relationship can be tested before implementing a formal joint venture

Establish • Equity ownership • More expensive than referral to establish

a joint venture • Joint ownership results in more commitment from both parties

• Can allow for common branding

• Formalised agreements around ownership, valuation and exit clauses

Employ someone • Access to dedicated skill set within the business • Recruitment time

who is qualified to • 100% control and ownership • Employment costs

deliver strategic advice • Potentially better cultural alignment • Staff retention

Become qualified to • 100% control and ownership • Significant time invested from an educational point of view, both upfront and ongoing

deliver strategic advice • Cultural alignment • Difficult to wear two hats – generally one of the areas of speciality will suffer from a lack of investment of

time if you’re conducting both the financial planning and accounting functions within the business.

Table 1: Options for integrated business models

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A long-term partnership will help you reach your goal.At AIA Australia, we know that providing quality life insurance solutions is not an overnight proposition. That’s why, when we partner with you, it’s for the long term. Working together, we can help you provide the best possible care and support for your clients. Which in turn helps you take your business to the next level.

To nd out how we can help take your business to the next level please visit AIA.COM.AU/Right Life Partner

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OpinionInsurance


Just as you thought our industry couldnot possibly digest another acronym,along comes two new pieces ofjargon: B2B2C and SoLoMo.

What’s that, you say?The f irst is a relatively simple butimportant term that underscores a newage for advisers and others doing busi-ness in our fast-paced, online world.The rise of hand-held devices such astablets is creating unique opportuni-ties for the simultaneous and transpar-ent interaction between advisers, finan-cial services businesses and the endconsumer.

SoLoMo is an abbreviation for a bigconcept: the convergence of varioustrends (social, local and mobile) andthe enormous potential impact thesehave for doing business in the digitalenvironment.

Imagine the power of location awaretechnology which links you into apreferred social hub, provides customisedsales and customer data, wrapped up withlocal area marketing tools.

All players in the financial servicesvalue chain – from advisers through toproduct providers – must keep a closeeye on these and other emerging tech-nology trends such as the speed bywhich online, tailored insurance prod-ucts are placing more power in thehands of the consumer.

We need to keep pace with theseemerging trends, while also remainingfocused on the big ticket consumerissues, like the ongoing fight to addressAustralia’s chronic underinsuranceproblem.

Prioritise for prosperityOn the face of the raw data, it’s worthreminding Australians we have a some-what peculiar order of priorities.

An over whelming number of us(almost nine in 10) have insured ourmotor vehicle. But only around three in10 Australians have taken out insuranceon their personal incomes. To me,protecting the car but not the bread-winner seems more than a little bitcounterintuitive.

The scale of the nation’s underinsur-ance problem has improved over thepast five years, yet remains a lingeringissue. And the underinsurance problemhas received quite a bit of attentionover recent years. So let’s introduceanother new term - the “under-advised”problem. Only around one in f ive

working Australians receives financialadvice. If we set about solving theunder-advised problem, underinsur-ance will look after itself.

Perhaps a good way to think aboutthis is to step back, control the thingswe can, and – taking the size of theunder-advised or the underinsurancegap as a pr ime example – star t tomeasure the potential upside ofremaining focused.

After all, if you are an adviser, yourfocus is one of the qualities that mattermost to your clients, your business part-ners and probably your own sense of well-being in the current environment.

Another is tr ust . Tr ust that youunderstand and can reinforce withclients the job you are here to do; thetrust that clients place in you to deliverto their specific needs.

A little trust goes a long wayIn TAL’s area of focus, life insurance,trust has plenty of upside. Our researchshows that only 5 per cent ofconsumers value their life insurance

Staying ahead of the change curve

Staying ahead of the curve on the technology, consumer and regulatory fronts can help ourindustry to quickly adapt and prosper. Brett Clark writes.

“Just as we think we have ahandle on those customerneeds and wants, enter thenew age of highly selective,value-driven consumers.”


well-educated consumer with awatertight, compliant packageof product and services thatreduces business r isk andheightens client experience.

So as the industry keeps oneeye fixed on Canberra, the other isfirmly following the risk insurancemarket to ensure it continues toprovide the most competitiveproducts and services to bothadvisers and consumers.

These products and servicesmust respond not only to indus-tr y changes, but also to theincreasing cost of l iv ingconfronting consumers. Andjust as we think we have ahandle on those customerneeds and wants, enter the newage of highly selective, value-driven consumers, supportedby a world that moves progres-sively more ‘online’ every day.

With all this change, it wouldbe easy to feel a l i t t le over-whelmed. Yet the most obviousopportunity comes with stayingcalm amid the rapid pace oftechnological, consumer andregulatory developments. Yes,your clients may be increasing-ly tech savvy, price and productconscious. The most scholarlymight even challenge your intri-cate knowledge of policy terms

and conditions.But there is no denying these

empowered, online individualsst i l l value the old schoolcertainty of talking to theirtrusted adviser knowing thattheir personal situation is in thebest of hands – no matter what.

Brett Clark is the chief executiveofficer, retail at TAL Limited(formerly TOWER Australia).

ahead of other insur-ances. The irony in thisnumber is never lost onus, consider ing theimportance of protectingthe most valuableincome-producing asset– that is, the person; notthe home and contents.It’s the human beingrequired for raising theincome to pay for thesethings that deser vesprotecting.

When it comes to lifeinsurance, the conversa-tion about mortality canoften be awkward. At anemotional level, it’s notan area many of us wantto contemplate. But,again, the numbers showthere is a glass half fullwaiting for our response.

The good news is thatthe underinsurance gapi s c l o s i n g . T h e R i c eWarner Underinsurancereport in 2005 showedparents with depend-e n t s w e re c r i t i c a l l yunderinsured by $1 tril-l i o n , b u t by 2 0 1 1 t h efigure had dropped toj u s t $ 6 6 9 b i l l i o n ,according to a repor tfrom Rice Warner Actu-aries. Using this positivestory to help close theg a p e v e n m o re i s o u rbiggest opportunity.

Change at warp speedThe idea of a world livingwith omnipresentchange is now socommon it has become abit of a cliché. Yet dealingwith change is no lesschal lenging, and inrecent years the financialser vices industr y haswitnessed (and beenforced to react to) changeof an unprecedentedscale and speed.

At a granular level forour industry, the FederalGovernment wrestles withhow it should best intro-duce the changes outlinedby a raft of related regula-tory reform.

That acronym oneveryone’s lips – FOFA[Future of FinancialAdvice] – has provided anatmosphere for changewhere we all hope thatthe real task of doingbusiness is not starved ofoxygen.

Again, thinking aboutthe benefits of any newregulat ion, i t seemsprudent to focus on theopportunities to deliverto a better infor med,

February saw a return to relativecalm in financial markets. Thelong-term refinancing operationin Europe has allayed concerns

over a l iquidity crisis and allowedSpanish and Italian banks to borrowfunds from the European Central Bankat negligible interest rates and reinvestthe proceeds in their respective coun-tries’ government bonds.

Distressed government bonds in thesejurisdictions have thus rallied, improv-ing funding costs for governments, andcarry trades are improving the apparentprofitability of suspect banks.

Everyone’s happy. Those professingthe ‘muddle through’ prognosis canclaim success for the moment (despitehaving offered no explanation of how a‘muddle through’ thesis might manifestitself), and rallying markets have provid-ed policymakers some breathing space.So how comfortable should we feel?

Risk, from our perspective, remainselevated and is becoming increasingly

so. The possible scenarios and outcomesare numerous; however, those whichappear genuinely good for investors areelusive (other than for the ‘muddlethrough’ proponents where ignoranceand lack of thought remove the need forconcern).

Will the quantitative easing and near-zero interest rate policies prevalentacross much of the world cause an infla-tionary spiral? Will the liquidity beretained by banks to erode the cost ofbad loans and therefore not facilitatenew lending? Is there demand for newlending from an ageing populationanyway? Will aggrieved capital providersrebel against disguised theft and precip-itate renewed financial crises?

I certainly fall miserably short of thelevels of wisdom necessary to answerthese questions: however, I wouldsuggest that those professing greaterclarity are even less wise.

Mark Twain, as always, captures theissues better than most: “When I was 14,

my father was so ignorant I could hardlystand to have him around. When I gotto be 21, I was astonished at how muchhe had learned in seven years”.

Policymakers, having operated in acalm and reassuring environment for anextended period, pronounced the deathof inflation, forecast endless stronggrowth and an end to economic cycles.Reality has shown them up as cockyteenagers with a whole lot to learn.

The remedy of ultra-low interest ratesand quantitative easing concerns usgreatly and is a major reason we remainwary. The list of potential problems islong, but a number are now readilyobser vable, both in investor andcompany behaviour.

Low rates encourage demand to bebrought forward and discourage savings.They also spur asset price inflation andapparent wealth, fuelling an increasedrisk appetite for financial leverage. Ascapital searches for return, low interestrates incite currency wars, distort

exchange rates and risk the wastage ofvast amounts of capital.

As these distortions occur, most arewelcomed by investors as signs ofrenewed economic growth and return-ing market activity. Company-levelexamples of such activity were plentifulduring February. Billabong was theleading performer as prospective privateequity bids at progressively higher pricespropelled the share price, while PacificBrands also saw an unsolicitedapproach. Takeover speculation droveEcho Entertainment as Crown accumu-lated a 10 per cent holding and soughtregulatory permission to move higher,and Goodman Fielder rose courtesy ofWilmar International accumulating a 10per cent stake.

Fortescue Metals was also buoyed onspeculation that cashed-up globalminers would prefer to overpay for exist-ing mines than through the hard workof growing organically. Not a lot of jobsor new assets are likely to be created by


Market commentary

Band-aids to the rescueDisaster in Europe seems to have been averted – for now. However, improved equity performanceshould not evoke a newfound sense of optimism and risk appetite. The world has applied a band-aid to a deep wound, according to Martin Conlon.


any of these transactions, but they’ll puta bit of cheap debt to work. Companieswill claim to be targeting 15 per centreturns through such deals; however, thetemptation of cheap debt and earningsaccretion means they’re likely to settlefor far less.

The potentially greater mischief inultra-low rates lies in the longer term.Despite the fact that policymakers areexperimenting in unknown territory,theories applied to investment remainlargely unaltered. We continue to use andcalculate terms such as weighted averagecost of capital, net present value, equityrisk premiums and risk-free rates asthough nothing much has changed.

Most of this theor y rests on thepresumption that future value will beworth far less than today’s value,meaning that long-duration assets andliabilit ies are vastly reduced whendiscounted to today. We are less thansure that these traditional assumptionswill prove well-founded.

The recent decade’s experience ofr ising asset prices and subduedconsumer prices could well be inverted.Challenging these assumptions hasprofound implications.

Businesses with excellent duration,pricing power and low gearing couldbecome worth far more. Companies and

governments with shorter-dated cashflows and large liabilities (particularlypensions) could be worth far less, as timefails to erode the value of these liabili-

ties. We have not even come close tosolving these problems from an invest-ment standpoint, but we’re fairly surethat blindly following accepted wisdomwill prove debilitating from a wealthperspective.

The results season proved relativelyunsurprising, with far more of the moresubstantial price moves driven by corpo-rate activity prospects rather thanmundane factors such as earnings andcash flow. Mining services providersgenerally fared well, with buoyant activ-ity flowing through to exceptional activ-ity levels and expanding margins formany.

Although many businesses have donean excellent job capitalising on theresource sector’s desperation for volumegrowth, we are less than convinced thatmany have suddenly become excellentlong-term investments. Share prices ofNRW Holdings, Boart Longyear, Macma-hon and Campbell Brothers would indi-cate that many do not share our longer-term caution.

The other side of the ledger was gener-ally characterised by a significantnumber of slightly disappointing results,rather than a raft of disasters.

The concerns aired above shouldlargely explain why the somewhatstronger performance of equity markets

over the past couple of months has notimbued us with a newfound sense ofoptimism or risk appetite. This is no wayreflects an inability to find businessesthat we believe will be very sound long-term investments, but more an overar-ching landscape which remains devoidof appetite for trying to resolve longer-term problems and instead focuses onapplying band-aids to deep wounds.

The band-aids may be justifiable, butcoinciding efforts need to be made toaddress the root cause of the problems.Our views on the types of businesseswhich will thrive in a challenging globalenvironment remain largely unchanged.

Despite muted reactions to results,meetings with companies such as Bram-bles, CSL and Cochlear gave us greatconfidence that there remain manycompanies that are genuinely managingtheir businesses to sustain their durationand grow value in the long term ratherthan purely optimising short-term earn-ings and pay packets.

If, as we expect, duration and qualitybecome more important themes in thefuture, these efforts will undoubtedly payoff.

Martin Conlon is head of Australianequities at Schroder InvestmentManagement Australia.

“The band-aids may bejustifiable, but coincidingefforts need to be made toaddress the root cause ofthe problems. ”

As the effects of the global finan-cial cr isis begin to fade,investors are increasinglyseeking ways to improve the

returns from their equity portfolios. Thisis leading to growing demand for greatertotal returns from Australian equityproducts.

One way to improve total returnoutcomes from an Australian equityportfolio is to increase the alpha gener-ated. That is, the value created by skilfulactive investment managers in additionto a relevant market exposure. Thecompounding effects of consistent alphageneration are particularly importantwhen market returns are low or volatile.

In their search for additional alpha,investors are increasingly turning toconcentrated equity products. Concen-trated portfolios allow an investmentmanager to focus their stock selection,taking large active positions in a smallnumber of stocks which they believe willoutperform across the relevant oppor-tunity set.

While a concentrated approach has arightful place in many equity portfolios,investors need to be mindful that, dueto lower diversification, they can carrygreater risk than more diversified equityportfolios.

A long-short equity portfolio providesan alternative for investors that do not

want to sacrifice diversification forhigher alpha.

Historically, long-short portfolioshave been associated with hedge funds,but in their quest to develop higheralpha offerings, many traditional fundmanagers are increasingly utilisingshort-extension strategies, also knownas long-short or 130/30 strategies. Thesestrategies seek to increase the invest-ment opportunity set and generate addi-tional alpha using their existing invest-ment management processes.

While this discussion does not seek topromote one strategy over another, asthe right option is dependent on indi-vidual investors’ circumstances, it doesaim to outline both strategies, thusenabling investors to make an informeddecision.

Concentrated portfolios: sacrificingdiversification on the alpha altarWithout relaxing the long-onlyconstraint to allow shorting, traditionalfundamental long-only managers havetypically used concentrated portfolioswith higher tracking errors to increasetheir alpha generation. By limiting thebreadth (defined as the number of inde-pendent active positions held) of stocksthe manager invests in, stock selectionefforts can be focussed to invest only intheir highest conviction ideas from

across the relevant opportunity set.This sounds simple in theor y;

however, there is a trade-off, the discus-sion of which will require a digressioninto an important principle of equityportfolio management: the fundamentallaw of active management.

In summary, the fundamental law ofactive management tells us that success-ful active management depends on twokey ingredients:

1. Investment management skill; and 2. The investment manager’s oppor-

tunity to utilise that skill.For the more technically minded, the


Thesearch

for alpha

Toolbox

Higher alpha Australian equityproducts are back on the agenda formany investors, as they seek to

improve the returns from the equity portfolios,writes Chris Robertson.

“There is an alternativeway for an investmentmanager to increase alphawithout compromising thebenefits of diversification.That is, relaxing the long-only constraint. ”



fundamental law of active managementstates that the information ratio (IR) isequal to the information coefficient(investment manager stock selectionskill) multiplied by the square root ofbreadth.

The fundamental law is a powerfulconcept. Among other things, it impliesthat the risk-adjusted active returnwhich an equity strategy can expect toyield, is positively related to the numberof independent active positions.

All things being equal, what thatmeans for a concentrated equity port-folio is that limiting the number of hold-

ings in the portfolio will see an increasein tracking error, i.e, active risk. Thisactive r isk can be greater than theincrease for expected return from stockselection skill, the result of which is alower portfolio information ratio.

This outcome goes against theprimary objective of an investment port-folio, which is to maximise the informa-tion ratio by sourcing alpha with a lowerlevel of risk.

To maintain the portfolio’s informa-tion ratio, a concentrated portfoliomanager would need to compensate forthe decrease in the number of stocks

held with a corresponding increase in theirstock selection skill (information coeffi-cient). This can be achieved by concentrat-ing their efforts on stocks with which theyhave the highest conviction.

However, over the long term, even topquartile investment managers can find itdifficult to maintain a consistent informa-tion coefficient or “hit rate” (the propor-tion of stock calls that they get right). Thisis compounded by the larger stock posi-tions for concentrated portfolios and, itmeans that when the manager gets a callwrong, its negative impact on portfolioperformance can be significant.

In addition, concentrated portfoliostypically have a lower level of sectordiversif ication, which can exposeinvestors to a higher degree of unintend-ed and unwanted sector risks in theportfolio.

Diversification of holdings is animportant concept in modern invest-ment theory which is based on reduc-ing risk and volatility. Diversificationseeks to balance the best- and worst-performing stocks, achieving overallreturns that will never be as high as thebest performer or as low as the worst.Diversification also allows investmentmanagers to remove unwanted sectorexposures from the portfolio.

Countering this, there is a school ofthought which suggests the risks ofconcentrated portfolios are not substan-tially different from their diversifiedpeers, as equity portfolios gain littlediversification benefit beyond holdingaround 25 stocks.

However history has provided manyexamples of how sector risk can resultin very unfavourable return outcomes.The dot-com bubble and the perform-ance of some financial services stocksduring the global financial crisis aresome relatively recent examples. Sectorallocation can be difficult, and it is hardto identify the systematic pricing abnor-malities that occur from time to timewithin sectors.

Concentrated portfolios may be morelikely to contain unwanted sector biasesthat are affected by these abnormalities,with limited scope for the manager tohedge the associated industry risk. Anunder-diversified portfolio could resultin the unintended sector exposuresadversely impacting the entire portfolioin a downturn.

The ‘long’ and the ‘short’ of itThere is an alternative way for an invest-ment manager to increase alpha withoutcompromising the benefits of diversifi-cation. That is, relaxing the long-onlyconstraint.

This approach increases investmentbreadth by allowing shorting within theportfolio. In addition, it provides aninvestment manager with an alternativeway to deliver higher risk-adjusted alphathan concentrated stock selection.

Traditional investment managementarrangements typically constrain theinvestment manager’s opportunity set.The long-only constraint is usually

“Concentrated portfoliostypically have a lower levelof sector diversification,which can expose investorsto a higher degree ofunintended and unwantedsector risks .”

Continued on page 26

imposed in traditional equity mandates,which prevent an investment managerfrom taking short positions.

The long-only constraint limits theinvestment managers’ opportunity setand creates asymmetry in their abilityto apply their skill, as they are unable totake advantage of their extreme nega-tive views. This can create inefficienciesin an equity portfolio.

Short extension such as 130/30 strate-gies allows managers to maximise theirstock selection skills. They can generateadditional alpha from their long-onlyinvestment processes by taking largeractive positions in the stocks theybelieve will outperform. In addition,alpha can also be generated by estab-lishing larger active positions in stocksthat managers believe will underper-form through short selling, whereby asecurity is sold beyond its weight in therelevant index. Importantly, this can beachieved without comprising portfoliodiversification.

A growing body of academic researchis strengthening the case for loosening

the long-only constraint for more effi-cient portfolio performance. Clarke,de Silva and Sapra (2004), for example,clearly identified the long-onlyconstraint as being responsible for thegreatest information loss, or inefficien-cy, in a portfolio.

Relaxing the long-only constraint

increases a manager’s investmentopportunity set (breadth), as under-weight positions can be as large for everystock in the universe as overweight posi-tions. The increased investment oppor-tunity set allows long-short funds toincrease their alpha targets while main-taining the portfolio’s information ratio.

This is made possible by incorporat-ing a greater number of high convictionideas into the portfolio, while maintain-ing a high level of portfolio diversifica-tion (potentially lowering risk) and thesame level of overall market exposure.Using a core long-short strategy alignswith the primary objective of Australianequity portfolios, which is to increasethe information ratio by sourcing alphawith a lower level of risk.

Util ising a long-short portfolioconstruction approach also allows forincreased sector diversification, provid-ing greater scope for the investmentmanager to remove unintended andunwanted sector risks. This reduces thelevel of systematic risk within the port-folio. An example of this is “pair trades”.That is, going long in one stock andshort in a similar stock in the sameindustry so as to hedge out the industryrisk. This strategy allows the manager toprofit from views on the relative invest-ment quality of two companies in thesame industry, without being exposedto industry risk.

For investors looking for additionalalpha, the use of concentrated portfo-lios certainly provides an appealingalternative to traditional long-onlyinvestment. However, for investors thatdon’t wish to reduce portfolio diversifi-cation, long-short strategies provide anappropriate alternative.

While they do carry their own uniqueset of risks, when managed correctly theuse of long-short strategies can allowinvestors to increase the efficiency oftheir blended Australian equity portfo-lios, and potentially generate superiorrisk-adjusted returns.

Introducing short positions into aportfolio al lows managers to fullyexpress their insights on both over-weight and underweight stocks, result-ing in improved portfolio efficiency andreturn outcomes. In addition, the use ofshorting allows portfolio managers totarget a higher level of alpha for acomparable level of risk than a tradition-al long-only portfolio. Long-short port-folios typically target a similar level ofalpha to concentrated portfolios, butimportantly, they exhibit a lower level ofrisk.

Chris Robertson is senior investmentspecialist, Australian equities atColonial First State Global AssetManagement.


1.True or false: long-only portfolioscan already underweight securitiesby holding them at less than theirbenchmark weights, so short-selling offers little incrementaladvantage.

2. The definition of informationratio is:a. A measure of the risk-adjustedreturn of a financial security (or assetor portfolio) and is defined asexpected active return divided bytracking error.b. A measure of the information anactive manager incorporates intotheir investment decision-makingprocess.c. A measure of the level of stockcoverage by equity brokers.

3. True or false: tracking error is ameasure of the active risk an invest-ment manager takes versus theirbenchmark.

4. True or false: all things beingequal, limiting the number ofstocks in an equity portfolio will seean increase in the portfolio’s track-ing error (active risk).

This activity has been pre-accred-ited by the Financial PlanningAssociation for 0.50 CPD credit,which may be used by financialplanners as supporting evidenceof ongoing professional develop-ment. Readers can submit theiranswers onl ine at www.moneymanagement.com.au.

CPD Quiz

If you are experiencing technicalproblems, please call our customer

service centre on 1300 360 126.

For more information about theCPD Quiz, please contact Milana

Pokrajac on (02) 9422 2080 or emailmilana.pokrajac@reedbusiness.

com.au.

“For investors looking foradditional alpha, the use ofconcentrated portfolioscertainly provides anappealing alternative totraditional long-onlyinvestment. ”

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PRACTICE MANAGER/ADVISER Location: MelbourneCompany: Fortrend SecuritiesDescription: A boutique financial servicesfirm is seeking a wealth managementpractice manager/adviser.

The business is a specialist internationalinvestment-banking firm, and in this roleyou will build on an existing business ofmedium-high net worth clients.

You will be comfortable dealing with Cclients, professionals, executives,entrepreneurs and self-funded retirees.

To be considered, you will have aminimum of 8-10 years experience as afinancial adviser, and be DFP or AdvancedDFP and RG146-compliant.

For more information and to apply, visitwww.moneymanagement.com.au/jobs, orcontact Fortrend Securities – (03) 9650 8400.

FINANCIAL ADVISER - BUSINESSRISK SPECIALISTLocation: PerthCompany: Terrington ConsultingDescription: A Western Australian businessadvisory firm is seeking a financial adviserspecialising in risk to join its wealthmanagement team.

In this role, you will be responsible forproviding detailed risk insurance advice forthe firm’s business clients. An excellentknowledge of tax structure, entities, estateplanning and SMSFs is therefore essential.

You will also be required to identify newavenues of business to help grow the firm.

To be successful, you will have a proventrack record in a similar financial planningrole and a demonstrated ability to buildand maintain effective client relationships.

For more information and to apply, visitwww.moneymanagement.com.au/jobs, orcontact Myra at Terrington Consulting - 0404835 895, [email protected]

SENIOR FINANCIAL PLANNERLocation: SydneyCompany: Financial Success AustraliaDescription: A financial planning firm isseeking a senior financial planner toprovide services to existing clients.

To be successful you will be fullyqualified, preferably CFP or intending to beso, be strong on technical strategies andhave excellent interpersonal skills.

You will be supported with back officestaff and an office manager.

A competitive salary and incentive is

available, and an options scheme will beintroduced to enable equity participationbased on your ability to assist in clientgrowth and retention going forward.

To find out more and to apply, visitwww.moneymanagement.com.au/jobs, orcontact Financial Success Australia,[email protected]

RISK ADVISERLocation: SydneyCompany: Principle Edge FinancialServicesDescription: A wealth advisory firm isseeking a risk adviser to build long-termrelationships with clients and help themreach their personal goals and objectives.

In this role, you will seek out newclients, maintain and grow this client basefrom the portfolio and provide ongoingadvice.

You will also provide advice on personalbusiness protection strategies and workwith clients to review their current riskinsurance needs and ensure they haveappropriate cover.

The minimum qualification requirementis DFP 1-4, so the role would suit a recentgraduate or someone of mature age

seeking a new profession.There will be the opportunity for the role

to develop into a full adviser position.For more information and to apply, visit

www.moneymanagement.com.au/jobs, orcontact Principal Edge Financial Services,[email protected]

FINANCIAL PLANNERLocation: MalaysiaCompany: MontpelierDescription: A South-East Asian-basedfinancial services firm is seeking a financialplanner to join its Kuala Lumpur team.

With an Australian expatriate-focusedclient base, the opportunity is open to aqualified financial planner with a provensales record.

The successful candidate will besupplied with a support package, includingaccommodation to get you started as wellas an existing client base to work with.

You will be able to make the role yourown through your own initiative, along withexperiencing the lifestyle of Kuala Lumpur.

For more information and to apply, visitwww.moneymanagement.com.au/jobs, orcontact Montpelier,[email protected]

NATIONAL Australia Bank(NAB) has appointed DanielLowinger national manager –financial planner banking,NAB.

He replaces Shane Kirsch,who is now NAB state opera-tions manager for NAB busi-ness bank across SouthAustralia and the NorthernTerritory.

Lowinger has over 8 years’exper ience in providingbanking solutions to theindustr y, and pr ior to hisappointment headed up thefinancial planning bankingstrategy for Victor ia andbanked a number of privatelyheld professional ser vicesfirms within Australia.

Global bond manager PIMCOhas announced the appoint-ment of John Valtwies as aportfolio specialist within theglobal wealth managementgroup.

Working alongside fellowportfolio specialist MichaelDa l e and PIMCO head ofglobal wealth managementPeter Dorrian, Valtwies willcommunicate the elements ofPIMCO’s fixed income invest-ment strategies to its advisermarket c l ients, includingprivate banks, financial plan-

ners and dealer groups, thegroup stated.

Valtwies was most recentlya senior research analyst withMorningstar, where he provid-ed analysis and investmentadvice to large financial servic-es institutions, investmentcommittees, dealer groups,and advisers on asset alloca-tion, portfolio construction,investment manager selectionand approved product l istmanagement.

Prior to this, he worked in arange of investment analystroles, which included stints atSk a n d i a , C l o s e We a l t hManagement, and GoldmanSachs.

Dorrian said Valtwies’ skilland expertise will build onPimco’s posit ion in theAustralian adviser market,including through dealergroups and wrap platforms.

Following an organisationalrestructure and cost-reductionprogram, Praemium Limitedhas announced a number ofkey changes to its board ofdirectors.

The company’s chief execu-tive officer Michael Ohaness-ian has been appointed asmanaging director, having onlyserved as CEO since August

last year. Praemium has also

announced that non-executivedirector Don Stammer hasretired from the board, effectivefrom last week. Stammerserved on the board for sixyears, and was previously thePraemium chairman from July2005 to August 2011.

Me a n w h i l e, Pra e m i u mnon-executive director JohnBryson has notified his inten-tion to retire from the boardprior to the end of the currentfinancial year and once a suit-a b l e re p l a c e m e n t c a n b e

identified. He has served onthe board since August 2007,as chairman of the company’sr i s k c o m m i t t e e, a n d m o s trecently as chairman of theaudit, risk and compliancecommittee.

nabInvest has confirmed theappointment of Rob Sullivan asglobal head of institutionaldistribution.

Reporting to nabInvest execu-tive director investment solu-tions Stewart Hancock, Sullivanwill work with the nabInvest and

asset management leadershipgroup to develop solutions inrelation to the distribution ofinvestment strategies to institu-tional clients globally.

Before joining the company,Sullivan headed global distri-bution at Treasury Group andhas managed the distributionoperations for their boutiquepartners since 2006.

Prior to that, he held seniorproduct development andinstitutional distribution rolesat Credit Suisse Asset Manage-ment and portfolio managerresponsibilities at ESSSuper.

Move of the weekTHE Self-Managed Super Fund Professionals’ Association ofAustralia (SPAA) has appointed former Count Financial chiefexecutive officer Andrew Gale as a director of the board.

With over 30 years’ experience in financial services, Gale wasmost recently managing director and CEO of Count and was keyin leading the scheme of arrangement process following theCommonwealth Bank of Australia’s acquisition.

Prior to that, he was a managing partner of Deloitte Actuariesand Consultants, and has held senior executive roles in distribu-tion, marketing and strategy with MLC and AMP.

He was previously a member of the Financial Services Counciladvice board committee, and was chair of the Accountant Finan-cial Adviser Coalition.

SPAA CEO Andrea Slattery said Gale’s expertise will providevaluable input to SPAA policy efforts, while Gale added thathaving the opportunity to enhance the association’s service offer-ing was particularly important in a period of industry change.

Andrew Gale

““

OUTSIDER acknowledges that last weekproved tumultuous for many in the finan-cial services industry, not least the likes ofFinancial Planning Association chief exec-utive Mark Rantall, Financial ServicesCouncil chief John (Broggers) Brogden andAssociation of Financial Advisers chiefRichard (Klippo) Klipin.

The reason, of course, was the passageof the Future of Financial Advice billsthrough the House of Representatives –something which even precluded Broggersfrom opening his own, very well-attendedFSC Insurance Conference in Sydney.

While the FOFA bills were the centre ofattention, so too was a document whichpurported to be an agreement struckbetween the FPA and the Industry SuperNetwork which, remarkably, seemed toform the basis of legislative amendmentsannounced by the Minister for FinancialServices, Bill Shorten, at the eleventh hour.

Mark Rantall spent much of last weekdenying the FPA had changed its opposi-tion to opt-in and denying knowledge ofany agreement between his organisationand the ISN – and far be it from Outsider

to question the veracity of those statements.But, as Outsider sees it, the amendments

introduced by Shorten will certainly assistthe FPA in its push towards making the title‘financial planner’ a restricted profession-al designation, and towards making the FPAsomething of an arbiter of professionalstandards.

Little wonder, then, that Broggers andKlippo were less than ecstatic about theamendments and the manner in which theyfinally passed the House of Representatives.

Broggers was even moved to refer to a"last minute deal between the FinancialPlanning Association and Industry SuperNetwork" which saw the Government dropthe requirement for opt-in "but will not giveany certainty to consumers and adviserson the operation of the best interest dutyand scalable advice".

Outsider senses a bitterness has devel-oped in relations between the major finan-cial services organisations and wondershow long it will be before he witnesses areturn to sweetness and light – perhaps thesame time the next election rolls round inlate 2013.

Outsider


“While we've been talking abouta second Sydney airport, theChinese have built 100 airports.”

Industry Funds Management chiefGarry Weaven laments a lack of infra-

structure investment at the Conferenceof Major Superannuation Funds.

“Today, if you make enoughmoney for the firm (and are notcurrently an axe murderer) youwill be promoted into a positionof influence.”

Former Goldman Sachs executiveGreg Smith sets the tone for the invest-

ment bank after his resignation.

“Indeed, the US could be the new

China!”

AXA global fund manager Mark

Tinker on the increase in infrastructure

spending in the United States.

Out ofcontext

Gray anatomises investor IQ

Well, clip my assets andbotox my balances!An incredible

coincidence, Minister

WHILE all his colleagues were distracted bythe kerfuffle of Future of Financial Advicewheelings and dealings last week, Outsidertook himself off to the far more placid envi-ronment of a Tyndall adviser update at theWestin Hotel.

And following some handy tips andcautions about over-investing in cash andterm deposits, Outsider was treated to halfan hour of the pure eccentricity that is Profes-sor Jack Gray.

For those of you who have not had thepleasure (and therefore have clearly notattended as many financial services confer-ences as Outsider has), Gray is a public

speaker specialising in economics, a notedacademic and an adviser to major pensionfunds in the US and in Australia.

While Gray is no doubt a brilliant intellect,Outsider once again found himself shakinghis head at some of Gray’s crazier remarks.Smart phones are useless as they do nothingbut distract us, so we should all throw themaway (Outsider shall be hanging on to hisBlackBerry, thanks Jack). Google doesnothing but brainwash us (the top results arepaid ads or simply confirm biases by present-ing popular opinions, he argues).

Outsider is curious as to what Tyndallexecutives made of Gray’s comment (possi-

bly sourced from Warren Buffett) that highIQ and investment success are not well corre-lated (temperament is the key, he claims).

Outsider can get on board with his quip(also not a Gray original) that “thinking is hardwork. If it wasn't, everyone would do it”.

Outsider was also given pause to wonderwhat Gray’s friend Paul Kelly at TheAustralian would make of Gray’s abjectdismissal of all Australian newspapers as“good for wrapping fish. Not even that.” (TheEconomist spins a fine yarn however, accord-ing to Gray).

Outsider himself can only assume Gray isyet to stumble across Money Management.

AS much as he loves writing aboutissues currently faced by financialplanners (especially at times likethese), Outsider understands finan-cial planning might not be one of themost exciting or interesting occupa-tions out there.

This is why he was quite surprisedwhen he heard an ad promoting a skincare product which also used a “financialadviser” as a narrator.

The perky adviser told his audiencethat he cares about his clients’ financialwellbeing, but also that he cares aboutthe health of their skin. So if you wereto invest in this particular skin careproduct, you would have the chanceof $5,000 being deposited straight intoyour bank account.

“Now I can ensure my cl ientsheave healthy skin AND a healthybank balance,” said the perkyadviser.

Given that the financial planningindustry is still trying to recover itsimage after a few corporate collaps-es some years ago, perhaps attend-ing to their clients’ vanity could bethe right solution for the problem.

In fact, upon hearing this radioadvertisement, Outsider immediate-ly placed a call with his own finan-cial planner, demanding a day spa-like treatment next time he goes infor an annual client review!

Though Outsider only likes to keepcertain parts of his skin soft andsupple.

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

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Money Management (March 29, 2012)