Money Management (April 7, 2011)

www.moneymanagement.com.au

The publication for the personal investment professional

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MARGIN LENDING

Diagnosing riskMARGIN lending has been under the

hammer since the global financial crisis.

The collapse of Storm Financial at the

start of 2009 triggered a flurry of

regulation, and is still sending shockwaves

through the sector.

As a result, growth in the sector is

stagnant, with advisers and investors

shying away from the perceived high risks

associated with margin lending products.

While industry figures have welcomed

the new legislation, many also believe the

sector is unlikely to see significant growth

within the next 12 months. Instead, it is

hoped the regulations will lead to a more

focused and targeted approach to margin

lending for educated investors who want to

accelerate their wealth.

FULL REPORT PAGE 16

By Caroline Munro

THE Financial Planning Association(FPA) would like to see a better modelused for pricing individual risk thatwould potentially bring down the costsof professional indemnity (PI) insur-ance, according to FPA chief profes-sional officer Deen Sanders.

The hardening of the PI insurancemarket has continued over the last fewyears, and the easing of certain require-ments by the Australian Securities andInvestments Commission (ASIC) hasdone nothing to bring down the cost ofpremiums, said Sanders.

He addded that PI premiums in thelast year alone have gone up between10 and 20 per cent, even though therehas not been the same level of claimsactivity. He also noted that since theinception of the FPA’s PRO PI servicethere had been no claims by members.

“There is very little pricing for indi-vidual business risk, which is the modelthat we would like to see,” he said,adding that the FPA was disappointedwith the PI insurer under wr it ingmarketplace. “It’s much more of ablanket pooling approach, so all players

seem to be tarred with the same brush.”But Mega Capital managing director

Michael Gottlieb said that insurancepricing went through cycles, addingthat the last few years had seen a hard-ening of the market due to high claimsfrequency and severity.

“We’re starting to see that cycle easeand we’re certainly not seeing the samelevel of increasing rates that we’ve seenover the last two years,” he said.

He argued that risks were assessed

on an individual basis within parame-ters and that generally all forms ofinsurance were based on a poolingmethodology.

“This is arguably the only way thatinsurers can bui ld up a suff ic ientpremium pool to pay claims,” he said.

Gottlieb explained actuaries devel-oped a model based on the claim activ-ity in a sector, and then determined thepremium amount required from thatindustry to satisfy the claims.

“Generally this results in a rangeusually expressed as a percentage ofrevenue, and it is the role of the under-writers to determine the risk profile ofeach individual business and thereforeapply the appropriate rate within theactuarially determined band,” he said.“There is pooling which may not be aperfect solution, but practically I’m notsure that there is another way.”

Sanders said an industry compensa-tion scheme might “address those clearmarket failures that have tended todiscriminate against financial planningpractices”.

“Those practices that breach the lawand go into involuntary administrationcould be catered for by a broader indus-try pool rather than needing to be metby a PI policy,” he said.

Gottlieb said it would make a mate-rial difference if insurers had to pick upfewer claims, but he questioned howthe scheme would be structured. Hesaid i t would make sense dur ingperiods of low claims activity.

“But when the cycle turns, claimscan be severe and frequent, and that’swhat we’ve had in the last two years,”he said.

By Chris Kennedy

INVESTORS should have a goodreason to start up a self-managedsuper fund (SMSF) and have a sig-nificant starting balance. Other-wise, they should be in an indus-try or retail fund, or a managedfund, according to several industrycommentators.

The head of wealth manage-ment at HLB Mann Judd Sydney,Michael Hutton, said his firm gen-erally looked at about $400,000as a minimum starting balance.

There needed to be a weight ofmoney or a weight of money flow-ing in to start an SMSF, along witha specific reason, such as adesire to hold a specific invest-ment that would not be availablein a large fund, Hutton said.

Clients with large balances whodid not wish to be highly involvedmight be better off in a managedfund, although benefits included

the extra flexibility around contri-butions caps for SMSFs with morethan one member, he said.

Chant West principal WarrenChant has said in the past thatthe minimum starting balance foran SMSF should be $1 million,based on the fact that a chiefreason to start an SMSF would

Improve PI risk modelling: FPA

Continued on page 3

SMSFs not to be taken lightly

BIG SUPER FUNDS LOOK TO INCREASE ADVICE: Page 5 | MARKET VOLATILITY: Page 24

Vol.25 No.12 | April 7, 2011 | $6.95 INC GST

“ Those practices thatbreach the law and go intoinvoluntary administrationcould be catered for by abroader industry poolrather than needing to bemet by a PI policy.”- Deen Sanders

Michael Hutton

Deen Sanders

Appealing to natural justice

The Financial OmbudsmanService (FOS) no doubt believesit is doing a good job, and it iscertainly operating within the

guidelines laid down by the AustralianSecurities and Investments Commission(ASIC) – but its decisions should be justas subject to appeal as those made byASIC itself.

If a financial adviser or licensee issubject to sanction by ASIC, that personhas the right of appeal to the Adminis-trative Appeals Tribunal (AAT). Naturaljustice would suggest that decisions ofthe FOS should be similarly open toappeal, if not to the AAT then to anotherappropriate body or judicial authority.

The FOS chief ombudsman, ColinNeave, is quite right in pointing out thathis organisation is acting within the letterand intent of the legislation, regulationand guidelines under which it is requiredto operate. However, that does not meanthe legislation, regulations and conse-quent guidelines are soundly based orthat the absence of a right of appealagainst a FOS decision does not repre-sent a glaring oversight in need ofaddress.

Neave cannot simply assert that thedecisions of his organisation are beyond

reproach thanks to the technical andlegal skills of its staff and members. If thedecisions of the august jurists who sit onthe bench of the State Supreme Courtscan be appealed to the High Court ofAustralia, then it ought to follow that theabsence of an appeals mechanism withrespect to FOS is, at best, an oversightand, at worst, a denial of natural justice.

Those who are calling for the right ofappeal are neither renegades nor

cowboys, they are simply practitionerswithin the Australian financial servicesindustry who are concerned that acertain, negative perception is evolvingamongst planners out of past determi-nations handed down by FOS.

If Neave and his associates within FOSare confident of the “fair, legally robustand transparent” nature of their deci-sions, then they should have no issuewith them being subjected to scrutiny bya higher judicial authority.

Indeed, the elephant in the room withrespect to the lack of an appeals mecha-nism from FOS determinations is justhow many of its decisions would havewithstood the scrutiny of such anappeals process.

The establishment of an approvedExternal Dispute Resolution schemecovering the financial planning industryrepresented good policy when it wasintroduced, and it represents good policytoday. It would be even better policy if itallowed for an appeals process.

It is probably too much to hope thatthis particular Government will facilitatethe necessary change as part of theFuture of Financial Advice process.

– Mike TaylorAverage Net DistributionPeriod ending Sept '1010,183 ABN 80 132 719 861 ACN 000 146 921

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“The elephant in the room with respect to the lack of an appealsmechanism from FOSdeterminations is just howmany of its decisions wouldhave withstood the scrutinyof such an appeals process.”

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By Mike Taylor

THE Federal Government hasbeen warned that its proposedchanges to concessional super-annuation contributions capsfor those aged 50 and over risksrepeating the experience of theimplementation of the Contri-butions Surcharge, when theimplementation costs exceededthe revenue gained.

The warning is contained in astrongly framed submission tothe Federal Treasury from theAssociation of SuperannuationFunds of Australia (ASFA), whichnot only refers to the adminis-trative complexity of the currentprocess around contribution

caps, but warns of increasingcomplexity and the risk of a risein the number of contributioncap breaches.

“Of particular concern is thepotential that implementationof the announced change willresult in increased ATO[Australian Taxation Office]reporting costs for superannu-ation funds,” the submissionsaid. “These costs will be borneby all fund members, not justthe approximately 2.5 per centof members that the Govern-ment has estimated will haveaccess to the extended cap.

“ASFA would be very concernedto not repeat the ContributionsSurcharge experience where the

implementation costs for industryand the ATO were estimated to haveexceeded the first year revenue gainof $500 million,” it said.

The submission also notedthat the implementation of theBetter Super regime had shifted

the regulation and assessmentof superannuation to a ‘contri-butions only’ basis, while imple-mentation of the proposed newmeasure would “move thesystem back to the pre-2007situation of regulating bothcontributions and benefits,making regulation both morecomplex and more costly”.

“It seems somewhat incongru-ous that whilst implementingStronger Super reforms aimed atreducing fund administrationcost by improving back efficien-cy, a measure is to be imple-mented that will increase thecomplexity, and the overall costof administering the superannu-ation system,” ASFA argued.

www.moneymanagement.com.au April 7, 2011 Money Management — 3

News

Government warned on super changes

be to hold a property –which often cost thatamount or more.

Individuals should onlystar t SMSFs if theywanted to own a property,enjoyed trading shares orhad genuine estate plan-ning reasons, he said.

Lots of people have setup SMSFs on the adviceof accountants when theyhad quite small amounts,but even if they’re wellmanaged there are nomonthly return figuresand very few trusteesknow how to calculatereturns, Chant said.

Chant also questionedthe advantages of havingextra control because itmeant either the trusteeor their adviser had to dothe asset allocation usingdata from researchhouses, whereas superfunds had extensiveresources, he said.

The Association ofSuperannuation Funds ofAustralia chief executive,Pauline Vamos, said themajor issue with SMSFswas how returns weremeasured and whetherthey were gross or net.

“It’s very important thatanyone who starts anSMSF understands whatthe net returns are andwhat it costs. There is notenough understanding ofthe costs, returns andrisk,” she said.

SMSFs with balances

under $500,000 were moreexpensive to run than indus-try or retail super funds,according to Cooper Reviewdata, she added.

The Self-ManagedSuper Fund Professionals’Association of Australia(SPAA) national technicaldirector, Peter Burgess,said the issue of peoplestar ting SMSFs whoshouldn’t was becomingless of an issue as bal-ances trended upwards.

In 2004 the averageSMSF balance was$247,000, but that is nowcloser to $500,000, hesaid.

“We would suggest theright people are being putinto these funds and that’sbeen the case for a numberof years now,” he said.

While the SPAA doesnot subscribe to a setminimum star ting bal-ance, Burgess acknowl-edged there were manyflat-dollar costs involvedthat made SMSFs morecost effective as their bal-ance grew.

SMSFs not to betaken lightlyContinued from page 1

Warren Chant

“ A measure is to beimplemented that will increase thecomplexity and thecost of administeringsuperannuation. ”

News

By Jayson Forrest

MONEY MANAGEMENT willbe launching its series of highquality education workshopswith a Retirement Incomesseminar scheduled for 7 June inSydney.

The Retirement Incomesworkshop will feature a range ofinteractive sessions that willprovide financial planners with

genuine alternatives to tradi-tional retirement incomesstrategies.

The team at Money Manage-ment has put a lot of effort andthought into developing thisworkshop’s program.

Dynamic and authoritativespeakers have been selected topresent on high-level topics thatwill provide planners with signif-icant information they will be

able to use in their practices andwith their clients.

Topics featuring at the Retire-ment Incomes workshopinclude a review of the Produc-tivity Commission’s report on‘Caring for Older Australians’and the likely effects this willhave on the industry; top retire-ment incomes strategies thatwork, incorporating case-studies, and a review of some of

the lesser known strategies thatplanners should consider; a lookat how financial plannersshould manage risk for retireesby looking at dynamic forms ofasset allocation; and a review ofthe future trends and develop-ments in retirement incomes,and what new products arelikely to hit the market andwhen.

Confirmed speakers include

Peter Hogan (MLC Technical),John Zavone (AMP Capital),Assyat David (Strategy Steps)and Wendy Schilg (NationalInformation Centre on Retire-ment Incomes). An early birdregistration rate is now availableat $180 for the full day workshop.

For more information ontopics and speakers, go to:www.moneymanagement.com/seminars

Related partyrules tightenedBy Mike Taylor

THE Australian Securitiesand Investments Commis-sion (ASIC) has tightenedthe rules regarding relatedparty transactions, issuingnew guidance directlyaimed at company direc-tors.

The new guidelines moreclearly define the votingrestrictions applying todirectors involved in arelated party transaction,and the exceptions andrelief that the regulator maydetermine is appropriate.

Commenting on the newregulatory guide, ASICdeputy chair BelindaGibson said the regulatorbelieved directors had topay close attention to thequality of information mem-bers received about thecommercial involvement ofdirectors and other relatedparties in a company.

“By definition, manyrelated party transactionsinvolve a conflict of inter-est,” she said. “Relatedparties are often in a posi-tion to influence the deci-sion on a proposal, theterms under which it mightproceed, and the sharingof economic benefitsbetween stakeholders.”

Gibson said investorswho were making decisionsabout whether to acquire asecurity, or a managedinvestment product, wereentitled to be fully informedabout all ongoing relatedparty arrangements withthe entity.

Money Management launches Retirement Incomes workshop

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News

By Ashleigh McIntyre

UP TO three-quarters of superan-nuation funds are looking tosubstantially increase their adviceoffering over the next three years,while almost a quarter will lookto marginally increase theiradvice.

The survey, undertaken byparticipants at the Conference ofMajor Superannuation Funds

(CMSF) on the Gold Coast, foundthat advice is certainly on the radarfor funds looking to increase theirservices for members as a meansof retention.

But David Whiteley, chief execu-tive of the Industry Super Network(ISN), told delegates the financialplanning industry was concernedabout the plans for growth.

“It’s an irony lost on me thatindustry funds are now advertising

and promoting financial advice,when we have often beenportrayed as being anti-advice –which has never been the case,” hesaid.

Whiteley said that over the lastfew weeks, intra-fund advice hadbeen portrayed as ‘McDonald’sadvice’.

“We need to ensure that adviceprovided by super funds … is notseen in any way as second rate or

substandard. “We have to consistently

promote the benefits of the advicethat we provide our members, aswell as the appropriateness of theadvice,” he said.

Kay Thawley, chief executive ofIndustry Fund Services, said thebest way for funds to achieve theexpansion of their advice offeringwas through leveraging the work-place even further.

Aussiesnot readyto retireBy Caroline Munro

THE majority of pre-retireesin Australia expect to worklonger, while 39 per centfeel they are unlikely tomeet their retirementincome needs, according toCoreData research.

CoreData’s RetirementReport, which revealed theresults of a survey of 1,690Australians aged over 55conducted in February,showed that 69 per cent feltoverwhelmed by their superand retirement finances,while 86 per cent plannedto work part-time. One inthree stated that they didnot believe they had the abil-ity to choose the date oftheir retirement, and thoughtthey would be forced towork as long as possible.About 39 per cent said theywere unlikely to meet theirretirement needs.

“Our research showsAustralians in the pre-retire-ment phase are clearlyoverwhelmed by theirapproaching retirement,”said CoreData head ofadvice, wealth and super-annuation, Kristen Turnbull.“The less knowledgeableand educated they areabout their choices, themore likely they are to feeloverwhelmed.”

Turnbull said Australianswere open to receivingassistance, information andreassurance through theirsuper fund.

“The findings showsuper funds and financialadvisers need to do abetter job engaging pre-retirees about the productsand services available tothem in retirement, sincethis is the time they mostrequire assistance, informa-tion and reassurance,” shesaid.

Increased advice offering on super funds’ radars

*Standard & Poor’s Information Services (Australia) Pty Ltd (ABN: 17 096 167 556, Australian Financial Services Licence Number: 258896) (“Standard & Poor’s) Fund Awards are determined using proprietary methodologies. Fund Awards and ratings are solely statements of opinion and do not represent recommendations to purchase, hold, or sell any securities or make any other investment decisions. Ratings are subject to change. For the latest ratings information please visit www.standardandpoors.com.au

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News

State Streetadds ETFsBy Chris Kennedy

STATE Street Global Advisors(SSgA) has added a smallcap exchange-traded fund(ETF) and two sector ETFs toservice the growing AustralianETF market.

The sector ETFs are aresources and a financialsETF, each based on theS&P/ASX 200 Index, whilethe small cap fund is basedon the S&P/ASX300 less theS&P/ASX100.

The financials ETF willexclude Australian real estateinvestment trusts and isaimed at investors who wantexposure to growth cycles andhigher franking credits withstable dividends. The smallcap ETF is aimed at investorswho want a slightly higher riskand return opportunity, thefirm stated.

Based on historical ASXdata and extrapolating thegrowth seen in the US marketin the past 10 years, SSgApredicted the Australian ETFmarket would grow from itscurrent level of around $4.5billion by around 50 per centper year to more than $35 bil-lion in 2015, according toSSgA’s senior managing direc-tor in Australia Rob Goodlad.

With the proliferation ofSMSFs it was important forSSgA to find products thatwere relevant to the retailmarket in Australia, he said.

It is even possible somepersonal investors may bethinking it would be cheaperto organise their SMSF portfo-lios themselves using ETFsrather than pay an adviser ona fee-for-service basis to do it,he said.

SSgA Australia senior prod-uct engineer Jonathan Sheadsaid that by identifying keythemes for the current marketnew products would attractmore liquidity, hence beingmore efficient and more likelyto last.

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AXA announces new-look NorthBy Milana Pokrajac

JUST days before the completion of the AXA/AMP merger, AXAAustralia has unveiled its updatedNorth platform offer.

The company said the updatedplatform had been developed basedon adviser research and wouldaddress the changing landscape ofboth financial advice and clientdemographics.

AXA’s general manager sales and

marketing, Adrian Emery, said theinvestment platforms of the futurewould also need to deliver differentsolutions for clients’ changing needsover their life.

“Early in your life you will havesignificant human capital toprotect, so long-term retirementfunding is often considered adistant priority,” Emery said. “Inthis phase, income and life insur-ance is critical while investmentoptions need to be simple ‘low

maintenance’ options.”As clients become more estab-

lished and their discretionaryincome grows, their needs andpriorities would change, accordingto Emery, as would be the casewhen they approach and enterretirement.

He said the new North platformwould address all four life stages,eliminating the need for advisers tomove their clients into differentplatforms once their investment

strategy changes.North will now offer 144 funds,

direct share trading and exchange-traded funds capabilities as well as24/7 access to news and research.

AMP’s managing director, CraigMeller, who had also been part ofadviser briefings around thecountry, said that once the mergerbetween the two businesses wascomplete, the North platformwould be the first wrap owned by AMP. Craig Meller

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News

SPAA rejects Govt approach to capsBy Caroline Munro

THE Self-Managed Super Fund Professionals’Association (SPAA) has rejected the FederalGovernment’s proposal to raise the conces-sional superannuation contribution cap to$50,000 for all those over 50 with less than$500,000 saved.

The SPAA stated that the raising of the capshould apply to all over 50s regardless of theirsuper balance.

The SPAA chief executive, Andrea Slattery,said an arbitrary and unindexed $500,000balance threshold would be overly complexand impose unnecessary costs, and rancounter to the Cooper Review’s aim to improveefficiency.

Slattery added that it would also discrimi-nate against people who make voluntary non-concessional contributions from after-taxdollars, and may also result in an increase inthe number of people inadvertently breaching

the contribution caps.Some super members may also mistake the

$500,000 threshold figure as an adequateamount for retirement, whereas researchshowed that retirees needed significantly morethan that, she said.

“As an alternative to the $500,000 threshold,SPAA has recommended the concessional capbe increased from $25,000 to a suitably higheramount for all individuals over age 50 to givethem the opportunity to contribute more tosuper in the years leading up to retirement,”said Slattery.

“If the Government decides to retain the$500,000 threshold, SPAA recommends thatonly concessional contributions and invest-ment earnings be counted against it. Given thatonly concessional contributions and fundinvestment earnings are subject to concession-al tax treatment, SPAA believes only themember’s concessional contributions shouldcount against the $500,000 threshold.”

MySuper size requirement bad for small fundsBy Ashleigh McIntyre

THE size and scale requirements for supportinga MySuper product could cause superannua-tion funds to consider unnecessary mergers inorder to remain in the game.

This comes as fund trustees are being urgedto consider whether they have sufficient scaleto support a MySuper fund, a requirementmany believe will come down to sheer size andassets under management.

Russell Actuarial senior consultant TonyMiller said he believed funds could not bejudged on size alone, and that factors likepotential growth, membership numbers, consis-tent out-performance, fee ratios and operatingreserves all needed to be taken into account.

“If you just look at size alone, a lot of fundswould have to start considering mergers.

“A fund that would otherwise be quite capa-ble of serving its membership could getpushed or encouraged or cajoled by othersinto merging when in actual fact they were agood solid fund in their own right,” Miller said.

Other unintended consequences of creatingan arbitrary size-based requirement for MySu-per funds would be creating a barrier to entryfor new funds, according to Miller.

“While we agree trustees should ensure theyhave the scale benefits to support a MySuperoption, focusing purely on current size maycause the industry to lose some of its betterperformers, to the detriment of members,” hesaid.

ATO should getclearing houseBy Mike Taylor

THE superannuation contributionsclearing house established withinMedicare should be transferred to theAustralian Taxation Office (ATO).

That is the recommendation of thechief executive of superannuationadministration company AAS, JohnMcMurtrie who told the Conference ofMajor Superannuation Funds (CMSF)such a transfer made good sense.

He said the Medicare clearing housewas doing good work for employerswith fewer than 20 workers but did notrepresent an instinctive choice.

McMurtrie said that in circumstanceswhere the ATO handled BAS reportsand withholding tax it represented anatural home for the clearing house.

Further, he claimed employers weremore likely to access a clearing housebased in the ATO.

McMurtrie also called for a June 30,2015 date for the abolition of chequeprocessing in the super industry and a2013 date for the abolition of paper-based transactions.

Conflictingagendas muddysuper reformTHE superannuation industry needs toput aside differences and worktogether on the impor tant reformissues to achieve a consensus or riskhaving the government make decisionsfor them, according to Stronger Superchair Paul Costello.

“From a government perspective, aconstructive consensus opinion ismuch easier to work with than peoplein corners disagreeing with eachother,” Costello said.

Where a consensus can’t beachieved, Costello said the StrongerSuper Peak Consultative Group willdocument differences, and it will beup to the government to decide on thebest course of action.

Costello said this would not be theideal option for the industry, as itwould take the reform agenda out oftheir hands.

He added that it was also importantfor the industry to focus on the mostimportant issues as there was onlylimited time before a paper must behanded to government.

“We cannot deal with all the issuesin this timeframe. We must achievethe key features that need to beresponded to for changes in govern-ment policy like MySuper and gover-nance,” he said.

“It is important that we don’t getdistracted by side issues,” he added.

AMP/AXAmerger arealityTHE merger of AMP andAXA Asia Pacific Holdings(AXA APH) Australian andNew Zealand businesseshas gone through.

The cash component ofthe share scheme consid-erat ion has been dis -patched and new sharesissued to the AXA APHminor i ty shareholdersunder the share scheme,AMP stated.

Share scheme partici-pants wi l l receive theequivalent of $6.43 pershare.

AMP expected the pur-chase of AXA APH’s Asianbusiness by AXA SA to beconcluded by Friday, 1April.

MySuper to take lifecycle approachAS MYSUPER forces trustees tolook at catering to the masseswith their default fund, manywill look to lifecycle investing tomeet members’ needs.

Speaking at the Conferenceof Major Superannuation Funds (CMSF), Towers WatsonAustralia managing directorAndrew Boal said he believedmany funds would look to life-cycle investing for their defaultoption, as not every membercould be serviced by a one-size-fits all approach.

“Funds need to have ananswer when it comes to lifecy-cle investing.

“I’m not that fussed aboutwhich solutions a fund chooses,but for MySuper, the fund has tohave a default so that if themember doesn’t know what todo with their money when theyreach a certain age then some-thing happens automaticallythat they can then opt out of,”he said.

Michael Drew, managing

director of QIC Lifecycle Strate-gies, said typical balanced‘default’ funds did not take intoconsideration rolling timeperiods.

This meant the risk at certainages and during a certain periodin time (such as the global finan-cial crisis) were not considered,making lifecycle investment animportant factor for trustees toconsider.

However, one of the chal-lenges to having a fund with alifecycle investment focus as aMySuper fund could be theneed for transparency, accord-ing to Boal.

“If you are moving between80 per cent equities to 20 percent equities then the cost isgoing to change and so you haveto report those costs tomembers in a way they willunderstand,” he said.

Boal said that while lifecycleinvesting might not be for everyfund, it was important fortrustees to consider all options

when it came to servicing themass market.

“They won’t get advice, orvery little, and this is the mostimportant decision they willprobably ever have to make.Helping them manage that forthe mass market is the criticalthing,” he said.

Andrea Slattery

Tony Miller

Michael Drew

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News

Count targets small business financingBy Caroline Munro

COUNT Financial has formed an alliancewith Centrepoint Finance, which willexpand Count’s asset finance service tosmall business clients and help it over-come funding issues as a result of theglobal financial crisis (GFC), according tochief executive Andrew Gale.

“The GFC restricted our existing assetfinance sources, which meant Count’smembers were sometimes forced to sendtheir small business clients elsewhere,”

said Gale, who added that the new alliancewould significantly increase the numberof available asset finance lenders.

Centrepoint chief executive, StephenDay, said the group was delighted that ithad been chosen to assist Count advisersand their clients in sourcing asset financeproducts, “notwithstanding the currentmarket sentiment”, he added.

“The emphasis that lenders now placeon reporting means the accountant’s rolein getting funding approved is vital,” hesaid.

Excess contribution tax targets wrong peopleTHE severe tax penalties forexcess super contributionsare not necessarily targetingthe people the Australian Tax-ation Office (ATO) intends,according to the director ofKeep it Simple Super, JulieTaylor.

Taylor’s business offersself-managed super fund(SMSF) administration andcompliance support, and shehighlighted the case of ablue-collar worker who mayface a 46 per cent taxpenalty of his entire retire-ment savings. Panicked bythe loss of thousands of dol-lars every week from hissuperannuation account

during the market downturn,the man set up an SMSF.Ignorant of the law he with-drew his savings and placedit into his SMSF instead ofrolling the money over, incur-ring an excess contributionpenalty tax. Taylor said anapplication had been sent tothe ATO to show discretionas the man faced seriousfinancial hardship. However,she was not certain whetherthe ATO could show discre-tion in this case.

Taylor believed thatinstances of those uninten-tionally breaching contribu-tions caps was likely toworsen, since not only had

the contributions caps beenlowered, but the ATOappeared to have broadenedthe definition of what a con-tribution constituted. Shesaid that things that in thepast the industry would nothave considered remotely ascontributions were beingbrought into doubt as aresult of the wording of newtax rulings.

“That really makes theadviser’s job more difficult,because they are trying toprovide for something thatthey have no control over,”said Taylor. “You just don’tknow how much of a bufferyou have to leave there. And

what if their clients weretrying to get the most in?Were the advisers doing thebest by their clients if theyleft a buffer for somethingthat may never happen?”

Taylor said the statisticsshowed that more peoplewere getting caught out, andyet they were most often theones who had no intention ofbreaching their caps. She saidthis created a disincentive tocontribute. The case of theblue-collar worker was not onlyan example of this, but alsohighlighted the need forgreater education and adviceregarding super and especiallySMSFs, Taylor added.

Macro issuescloud equitiesoutlookBy Jayson Forrest

DESPITE the Australian sharemarket(as measured by the S&P/ASX300 Accu-mulation Index) only retur ning amodest gain of 1.9 per cent over the2010 calendar year, Australia remainsvulnerable to recent global events, withcontinued uncertainty surrounding themacroeconomic environment expect-ed to cloud the outlook in 2011.

This was one of the key findings toemerge in Lonsec’s latest Large CapAustralian Equity Fund sector review,which included 36 active funds withinthe peer group that it considers ‘main-stream’ funds.

According to Lonsec investmentanalyst Andrew Scifo, last year’sAustralian sharemarket could best bedescribed as “lacking direction in 2010,with large deviations in month tomonth performance”.

Scifo said the second half of 2010 sawthe re-emergence of the resourcessector, which outperformed relative toindustrials, and small and mid-capstocks outperformed relative to largecap stocks.

“A key factor inf luencing fundperformance during 2010 was thedisparity in returns delivered by small,medium and large cap stocks,” Scifosaid. “Some of the better performingfunds for the year exhibited a biastowards smaller stocks.”

Another trend to emerge last yearwas the continued move towards low-cost, passive alternatives in Australianequities, with retail fund flows towardsactive strategies being relatively flat.

“ The increasing popular ity ofexchange-traded funds and the avail-ability of separately managed accountshas created increased competition forthe traditional managed fund,” Scifosaid.

However, looking forward, Scifowarned that the key macro factors likelyto affect the Australian market this yearinclude “the recent events in Japan,impediments to US recovery, China’sinflationary pressures, ongoing Euro-pean debt issues and the highAustralian dollar [for exporters]”.

High barriers to group risk marketBy Ashleigh McIntyre

SMALLER companies thinkingof dabbling in group insuranceshould think again, since highbarriers to entry and smallmargins make the sectorincreasingly a playground forbig insurers.

The $3.1 billion group insur-ance sector is increasinglybeing shared among fewer andfewer insurers, according tokey industry players speakingat the 2011 Conference ofMajor Superannuation Funds(CMSF).

The top two group insurers

now hold approximately 33 percent of the market, while thetop four have increased theirshare from 54 to 64 per cent –a total of $1.8 billion in premi-ums, up from $1 billion in2007.

Damien Mu, chief distribu-tion and marking officer for AIA,said he found the figures unsur-prising as he was seeing aspecialising of group risk in themarket.

“Group risk used to be seenas a poorer cousin, but nowthere is a genuine need forspecialisation, with a need forinfrastructure, separate invest-

ment and products and serv-ices, as well as technology tosupport the group insurancechannel,” he said.

Head of group market andactuarial at OnePath, RobinKnight, said he felt that as thesector went through speciali-sation, it was being faced withthe need to make big invest-ments in technology.

“It’s almost an all or nothing.Are you going to spend the $20million plus to play in thatmarket?

“It’s harder for the smallerplayers faced with those deci-sions to get the scale to justify

the spending for specialist serv-ices. It’s a lot easier if you are abigger player to spread the costof the technology across differ-ent areas of the business,”Knight said.

Global equities looking attractiveBy Tim Stewart

WITH price to earning (PE) ratios fallingdramatically over the last decade, now isthe time to buy global stocks, accordingto Insync Funds Management senior port-folio manager Bob Desmond.

Desmond pointed in particular to USequities: “Over the last 10 years large capglobal shares have gone from being wildlyoverpriced to reasonable value. This is seenby the S&P500 moving from a PE of 35 times

to a current PE of 14 times,” he said.The drop in the PE ratio had resulted in

a paltry return from the S&P500 of 1.3 percent per annum, he added.

But the key factor that should pushinvestors towards US equities was the re-rating of the Australian dollar, which hadgone from 50 US cents in 2001 to paritytoday, Desmond said. To illustrate hispoint he gave the example of Microsoftshares. They had a PE ratio of 50 in 2001,whereas they have fallen to 10 in 2011.

“This shows for each dollar invested inthe company, an Australian investor isgetting 10 times more ‘bang for his buck’.Investors as a group are always lookingand always want to buy ‘what has goneup’,” he said.

In 2000, investors were fleeing fromresources companies and emergingmarkets, and instead buying technologyand US large cap stocks – and 10 yearslater they are doing the opposite,Desmond said.

Damien Mu

Andrew Gale

News


SG rise linked to Mineral Resource Rent Tax: ShortenBy Mike Taylor

THE Assistant Treasurer and Minis-ter for Financial Services, BillShorten, has made clear that deliv-ering an increase in the superannu-ation guarantee to 12 per cent is inex-orably tied to the delivery of aMineral Resource Rent Tax (MRRT).

Addressing the Conference ofMajor Superannuation Funds(CMSF) on the Gold Coast, Shorten

asked superannuation fund trusteesto drive home the message thatpassage of the MRRT legislation wasdirectly linked to ensuringAustralians did not grow old inpoverty.

He described the MRRT as “a reallygood tax” based on the special pros-perity of the mining boom.

“They [the mining companies] canafford it, but Australians can’t afford togrow old poor,” Shorten said.

In doing so, Shorten and theGovernment appear to have steppedaway from the promise of the Hawkeand Keating Governments that thesuperannuation guarantee alwaysneeded to be viewed as a non-wagebenefit rather than as a tax.

Shorten, referring to the policiesof the “Gillard/Swan Government”said he did not believe that a decentretirement issue should be a parti-san political issue.

“It is not a partisan issue, it is anAustralian issue,” he said.

The minister exhorted CMSF dele-gates to direct some of their time andattention to prosecuting the benefitsof the MRRT as a means of under-writing the increase in the superan-nuation guarantee to 12 per cent.

He said that to do so would be toensure that they would not regret inthe future that they had not doneenough.

AllianceBernstein acquires Aussie businessBy Caroline Munro

GLOBAL fund manager AllianceBern-stein LP announced it will acquire fullownership of AllianceBernstein Aus-tralia, in which it is an equal joint- venture partner with AXA Asia-PacificHoldings.

The announcement came following

an agreement with AMP that Alliance-Bernstein LP would acquire AXA’s 50per cent share once AMP completedits acquisition of AXA.

“This is an investment we aredelighted to make,” said AllianceBern-stein Australia chairman and chiefoperating officer of AllianceBernsteinLP, David Steyn.

“Australia is the fourth-largest marketfor managed funds in the world. Wesee a long and secure future for thefirm here,providing global and domesticinvestment services to both institutionaland retail clients.”

The Australian business is Alliance-Bernstein’s fourth largest source ofassets under management.

Trustees must work with GovernmentNOT-FOR-PROFIT superannuation fund trustees have beenwarned that if they do not agree on fund governance guide-lines they risk having them imposed by the Government.

The Australian Institute of Superannuation Trustees(AIST) released the draft guidelines last week, but theorganisation’s chairman, Gerard Noonan, admitted therehad been disagreement and divisions.

The AIST’s call for support for a voluntary principles-based approach stands in contrast to industry fund calls forfinancial planners to be subject to a tighter regulatoryapproach directly overseen by the Australian Securitiesand Investments Commission (ASIC).

Opening the Conference of Major SuperannuationFunds on the Gold Coast, Noonan argued a voluntary, prin-ciples-based code had to be preferable to one imposed bythe Government.

“We have to agree on a voluntary code because, if wedon’t, the Australian Prudential Regulation Authority(APRA) will step in to impose a Governance code,” hesaid.

Noonan said he felt sure a voluntary, principles-basedapproach was in the best interests of the industry andwould garner the respect of the current Government andfuture Governments.

MySuper not precluded from financial adviceTHE provision of financial advice with respect toMySuper is not entirely off the agenda, accordingto the chairman of the Government’s StrongerSuper peak consultative group, Paul Costello.

Costello told the Conference of Major Super-annuation Funds (CMSF) on the Gold Coast lastweek that while the Government’s response tothe Cooper Review recommendations clearlyruled out fully-fledged financial advice withrespect to MySuper, this was not necessarily the

end of the issue.He said that there was clearly a need for people

to engage, and that this was something thatneeded to be accommodated.

Costello said that while it was clear that thecosts associated with comprehensive advicecould not be included in any MySuper product,this does not prevent members acting on theirown behalf.

He said that the advice issue was therefore not

at end with respect to MySuper“It is a subtle process to calibrate but we are

working on that,” Costello said.The peak consultative group chairman had

earlier warned CMSF delegates that they shouldnot allow themselves to be distracted by the cost-saving elements of MySuper, but on returns.

“Do not fall into the trap of delivering thelowest cost product – that would be inconsistentwith value for money,” he said.

Bill Shorten

Paul Costello

AMP has launched a range ofproduct upgrades and new serviceinitiatives across its retail andgroup insurance offerings, follow-ing similar moves by its competi-tors.

The main changes have been toits retail trauma and incomeprotection cover, as well as thegroup offering.

The trauma insurance upgradeincluded changes to five keytrauma definitions, includingangioplasty and cancer, according

to AMP head of wealth protectionproducts, Michael Paff.

“Cancer is the most commonform of trauma claim with 6 percent of AMP claims in 2010 attrib-uted to cancer, so we wanted tobroaden the cover available to ourcustomers,” Paff said.

AMP has also increased themaximum monthly benefit underthe ‘guaranteed future insurabili-ty’ feature for income protectionfrom $1,000 to $1,500. The insureralso added the occupationally

acquired HIV and Hepatitis B or Cas part of the inbuilt traumafeature.

Covering both retail and groupinsurance is the launch of anonline claims concierge service –an extension of the phone-basedservice launched in May last year.

The product upgrades and newservice initiatives will come intoeffect immediately and will beoffered to all new as well as over170,000 existing customers at noadditional cost.

AMP upgrades risk insurance

By Mike Taylor

THE superannuation indus-try wants an increase in thesuperannuation guaranteeto 12 per cent, with orwithout the implementationof a Mineral Resource RentTax (MRRT), according toAustralian Institute of Super-annuation Trustees (AIST)chief executive FionaReynolds.

Reynolds has told a Q&Asession at the Conference ofMajor SuperannuationFunds (CMSF) on the GoldCoast that notwithstandingthe Assistant Treasurer BillShorten’s call for superannu-ation industry support for anMRRT, her organisation wassimply supporting anincrease in the SG.

“We are not saying wewant a mining tax – we wantan increase in the superguarantee. If the MRRT fellover we’d still want an

increase in the super guar-antee,” she said.

Earlier, the chief executiveof AllianceBernstein,Michael Bargholz, said hecould see the logic in usingthe profits from the miningboom to fund improvedsuperannuation.

However, Bargholz alsowarned that there existed arisk of the proposed newMySuper regime creating a“housing commissionversion of superannuationin Australia”.

At the same time, themanaging director ofFranklin Templeton inAustralia, Marie Wilton,warned there was a dangerthat the appropriate deliv-ery of a workable MySupercould be jeopardised by the“big personalities” involvedin the debate.

“They are adopting adver-sarial positions that couldthreaten reform,” she said.

Fiona Reynolds

Lift super guaranteeregardless of MRRT: AIST


News

FOS rubbishes planner calls for appeal processBy Benjamin Levy

THE Financial Ombudsman Service (FOS) has hit out atrecent industry suggestions that planners should have theright to appeal against determinations brought againstthem by the Ombudsman.

In a FOS statement sent to Money Management, ChiefOmbudsman Colin Neave expressed surprise at recentcomments by planners that they should be able to appealdetermination decisions against them to the High Court in thecase of large amounts of compensation.

Some advisers also suggested that FOS was operating onunwritten law, and was allowed to award too much compen-

sation to consumers in determination cases. Neave defended FOS’s Ombudsmen and panel determina-

tions as “fair, legally robust and transparent” and decided byindividuals with years of industry and legal experience.

Neave said he was “astounded” at industry claims that caseswere being decided by people without any legal training.

“All FOS Ombudsmen are selected on the basis of theirlegal experience and many years of industry experience. Inaddition, FOS has a large team of legally trained staff whohandle complains on behalf of consumers and small busi-ness,” Neave said.

Most of their consumer representatives are also legallyqualified and industry representatives are experienced prac-

titioners, Neave added. FOS’s decision-making process wasdesigned to meet Australian Securities and InvestmentsCommission guidelines, Neave said.

“It is a requirement of ASIC Regulatory Guide 139 that anapproved External Dispute Resolution Scheme is able to makebinding decisions,” Neave said.

FOS expects advisers to adhere to their legal obligationsand to give advice that meets industry standards, he added.

FOS Ombudsman for Investments, Life Insurance andSuperannuation Alison Maynard said that in all cases, FOSconsidered the relevant law and investigated the legal obliga-tions of advisers, good industry practice and what was “fairunder the circumstances”.

*as at 31 December 2010. AMP Capital Investors Limited ABN 59 001 777 591 AFSL 232 497. An investor should, before making any investment decisions, consider the appropriateness of the information in this document and seekprofessional advice, having regard to the investor’s objectives, financial situation and needs.

Think

Some fund managers think in boxes. Whatever asset class they work in, that’s their box. And when they think, they only think inside that box. But the worlddoesn’t work like that. That’s why at AMP Capital Investors we believe in thinking wide. Before we look at an opportunity, we look beyond that opportunity– we look around it, above it, below it. We have over 250* investment brains spread across every asset class that matters, managing $98 billion* of funds.Thinking wide is more than a philosophy, it’s what we’ve been doing for over 40 years. Think wide – it can help you and your clients own tomorrow.To find out more speak to your Key Account Manager, call us on 1300 139 267 or visit ampcapital.com.au

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Attitude towards super improving, but gaps in knowledge remainBy Caroline Munro

AUSTRALIANS have the right attitudetowards their super, but many are still notaware of the additional services their fundprovides, according to research by theAustralian Institute of SuperannuationTrustees (AIST) and Russell Investments.

The research was released at the sametime as AIST and Russell launched theirinaugural Super Engagement Index, whichenables super funds to track memberengagement.

The research revealed that 85 per centof respondents agreed that super wasimportant to their retirement, and six in 10

placed importance on it, said managingdirector of corporate superannuation atRussell Investments, Geoff Peck. Theresearch also revealed that many put superon par or ahead of most other financialand investment decisions, he added.

“The findings from the research showthe work being done by the industry is start-ing to have an effect and not just with thoseapproaching retirement,” he said. “Althougholder members place more importance onsuperannuation, saving for retirement is alife-long journey and many are recognising itneeds to be a priority as soon as we startworking.”

AIST chief executive Fiona Reynolds said

one-third of the survey respondents wereaware of the proposal to raise the superguarantee to 12 per cent. The survey alsorevealed the level of concern among supermembers that they would not have savedenough for retirement. Over half of respon-dents in each of the age groups over 46years felt their super balance was low andtime was running out, and 31 per cent werenot confident their retirement income goalswere on track.

“Longevity risk is a concern for manyfund members so it’s concerning 36 to 45-year-olds – a crucial time for saving forretirement – are not making the time toengage with their super,” said Reynolds.

Geoff Peck

News


wide.

ISN campaign simplisticBy Milana Pokrajac

THE Association of Financial Advisers (AFA)has hit back at the industry super funds’campaign against adviser fees, saying theirapproach is simplistic and draws attentionaway from their own conflicted fee struc-tures.

The AFA national president, Brad Fox,responded to the Industry Super Network(ISN)-commissioned research releasedrecently, which asserted consumers wouldbe $82,000 better off over a 40-year periodwithout paying fees to financial advisers, bysaying that was a “blatant attempt to shiftattention away from industry funds’ ownopaque administration fees”.

“That’s less that the cost of a cup ofcoffee and a biscuit a day, and yet the differ-ence that strategic financial advice canmake to a client’s financial situation overthe same period of time can translate tomuch higher superannuation balances andsignificantly better protection against thefinancial impact of early death, disable-ment and serious illness,” Fox said.

Fox said the industry funds’ rhetoric pur-posely ignored the impact and value ofstrategic financial advice to further its ownagenda.

“It’s hypocritical on their part to arguefor transparency around adviser remunera-tion when they do not themselves disclose

how they are spending the admin fees theycharge their members,” Fox said.

“The wages of call centre advisers provid-ing intra-fund advice to members must bepaid somehow. If not from member fees,then how?”

Responding to the ISN chief David White-ley’s recent comments about the ‘crisis ofconfidence’ in the financial planning indus-try, Fox said the AFA-commissioned con-sumer research issued last year foundexactly the opposite.

Bank sales targets under fireBy Caroline Munro

THE Reserve Bank of Australia (RBA) missed a key issue when it advised banks to expectlower credit growth: banks’ propensity to push debt through employee sales targets,according to the Finance Sector Union (FSU).

The FSU’s acting national secretary, Rod Masson, said the RBA clearly had concerns aboutthe high levels of personal debt, but it missed the problem that banks continued to push debt.

The FSU’s statement followed the release of the RBA’s biannual Financial Stability Review,which advised banks to accept changed market conditions. The review warned that attemptsto sustain earlier rates of domestic credit growth could induce banks to take more risks.

Masson stated that volume-based sales targets, like Westpac’s ‘Deal a Day’ expectation,ran counter to the RBA’s advice.

Planners treading carefullyBy Chris Kennedy

FINANCIAL planners and fund managersare wary of risks in the global economy, butare still open to market opportunities andlooking at how to get clients into moreactive investments.

These were among the findings from livesurveys conducted at van Eyk’s recent confer-ence in Sydney among more than 400 plan-ners and fund managers.

Asked to choose from four potentialeconomic scenarios, a majority still believedthere is around a 25 per cent possibility of ahard landing for the global economy as aresult of a slowdown in China, a sovereign

credit crisis in Europe and natural disasters inJapan.

A majority of respondents said there wasa less than 30 per cent chance of a ‘stronggrowth, low inflation’ scenario evolving overthe next year, while throughout the day atten-dees lowered their expectations of a strongdeveloped market growth outlook from a 22per cent chance down to 17 per cent.

The anticipation of a high inflationscenario or of a ‘muddle through’ scenariofeaturing continued deleveraging, saving,quantitative easing and low interest rates,together represented a probability of nearlytwo-thirds in respect to the likely investmentenvironment by the end of the day.

Brad Fox

Important information: This publication has been prepared for distribution to professional fi nancial advisers only and is intended to provide general information. It is not intended to be distributed or made available to existing or potential investors. AXA Australia does not authorise the distribution of this publication to or use by existing or potential investors. It is not intended to take the place of professional fi nancial and taxation advice and you should not take action on specifi c issues in reliance on this information. AXA Australia products will only be accepted on receipt of an online application form accompanying a current Product Disclosure Statement (PDS). This information is provided for persons in Australia only and is not being provided for the use of any person who is in any other country.

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When I was growing up in Pakistan,they came begging at our door,or they would accost us at trafficlights and hover at the car

window until the lights changed. They werevictims of cluster bombs from the Soviet occu-pation of Afghanistan. Sometimes they wouldpush their broken bodies along in a little trolleythat you could hear rattling down the road. Someof them were stunningly beautiful children, butwhat was most striking about them was theirmissing limbs: a hand, a foot, or a leg.

Cluster bombs have been used inAfghanistan, Iraq, Lebanon, Vietnam, Laos andevery other major conflict since World War II.They have caused incredible suffering and leavebehind a deadly legacy even after the conflict isfinished.

The bomb itself consists of many – oftenhundreds – of small explosive bomblets. Theyare like landmines, but worse because they havea wide area of effect. They remain live fordecades after the conflict and since they areoften brightly coloured, children mistake themfor toys and pick them up. In Laos, nearly 40years after the war, American cluster bombs liescattered across the countryside rendering ituninhabitable. In Lebanon, Israeli cluster bombsdropped in 2006 still claim victims today.

Australia will soon ratify the Convention onCluster Munitions – a landmark internationaltreaty that prohibits the use, production, stock-piling and trade of cluster bombs. The Govern-ment is rightly taking measures to honour thisConvention with the Criminal Code Amend-ment (Cluster Munitions Prohibition) Bill, butit has a loophole. There is no prohibition oninvestments in companies that produce clusterbombs.

The Bill makes it illegal for a person or bankto provide financial assistance to, or invest in, acompany that develops or produces clustermunitions – but only where that person or bankintends to assist, encourage or induce the devel-

opment or production of cluster munitions bythat company. This drafting implies that finan-cial assistance is illegal only if it is provided forthe purpose of cluster bomb production. Inother words, while direct financial assistance forcluster bomb production may be deemed illegal,indirect financial assistance to a company thatproduces cluster bombs will still be regarded aslegal under this provision.

The fact is that none of the companies makingcluster bombs source their finance directly. Noneof them advertise that they are raising money toproduce cluster bombs. They are diversifiedconglomerates with interests in areas like aero-space, defence and electronics. They raisemoney through corporate loans, syndicatedloans, bond issues and share placements, andthey allocate this money to their operations asthey see fit.

Their financing is indirect. Unless there is amechanism to restrict weapons’ producers fromusing such financing towards the production ofcluster bombs, the legislation will not be effec-tive in complying with the spirit of the Conven-tion, which is to ban these weapons.

The Australian Council of Super Investors(ACSI) was the only investor group at thehearing of the Senate Foreign Affairs, Defenceand Trade Committee last week seeking to closethis loophole. Among the non-governmentorganisations, we drew some surprised looksfrom the senators. It is not often that they hearinvestors asking to be regulated, but it may benecessary because otherwise, ethical and moralconcerns can be overlooked by the industry. Ina groundbreaking report produced by IKV PaxChristi (the Netherlands) and Netwerk Vlaan-deren (Belgium) in April 2010, 146 financialinstitutions from 15 countries around the worldhave been identified as providing over US$43billion worth of investments and financial serv-ices to seven producers of cluster bombs. Thisis an appalling indictment of the finance andbanking sector.

The fact that ACSI was campaigning inCanberra in recent weeks is not surprising. In2007 a documentary, The Cluster Bomb Feeling,sparked debate in the Netherlands when it drewattention to the fact that many Dutch pensionfunds had investments in companies thatproduced cluster bombs. ACSI represents theinterests of over 39 not-for profit super fundsthat manage over $250 billion of Australianretirement savings for two-thirds of theAustralian workforce. The organisation is onlytoo well aware of the reputational risk that thisissue poses.

Banks, brokers and fund managers cannotafford to be complacent either. There are sevenpublicly listed companies overseas that producethese weapons. How many of them are lendingmoney to these companies, trading their shares,and putting the savings of ordinary Australiansto finance what they do? Without legislativeprohibition, how many of them will carry onproviding finance to these companies? Ofcourse, some enlightened boards may chooseto divest, but many will do nothing, even whenpublic opinion is against them.

The Bill offers Australia the opportunity to cutoff the supply of Australian capital to thesecompanies once and for all. This is not a radicalproposal. New Zealand, Ireland, Luxembourgand Belgium have all introduced legislation toban providing financing towards and invest-ment in cluster munitions.

Simply, the Bill should prohibit the directand indirect financing of companies involvedin the production of cluster munitions. Anamendment in line with the recommenda-tions made by the Joint Standing Committeeon Treaties in August 2009 will fix this loop-hole. Requiring Australian institutions tocomply with this prohibition should not beonerous. It would be a missed opportunity ifAustralia ratifies the Convention but does notprohibit indirect investment in companiesmaking cluster bombs. We are one of theworld’s largest pension markets. Surely we cando better than have our retirement savingstainted by human suffering.

Azhar Abidi is a member of the Committee ofManagement, ACSI and Director, ResponsibleInvestment at Industry Funds Management.The views in this article are the author’s own.

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Few Australians would endorse investing inhuman misery but, as Azhar Abidi writes,investors need to be conscious of precisely wheretheir money is being directed.

Keeping investment ethical

SINCE the collapse of StormFinancial at the beginning of

2 0 0 9 , t h e m a rg i n l e n d i n gmarket has come to something of astandstill. Fraught with complexitiesand possessing a questionable reputa-tion, margin lending as a practice hascome under a great deal of scrutinyfrom regulators, advisers and investorsalike.

The fallout from the Storm saga illus-trated the perils of margin lending forthose who are uneducated about theworkings of the stock markets. Clientswho took out large margin loans in abid to accelerate their returns foundthemselves with considerable debtwhen the markets plummeted andfailed to bounce back to pre-globalfinancial crisis (GFC) levels.

Stemming from this, a flurry of regu-

latory reforms were introduced withthe aim of protecting investors fromt h e r i s k s a s s o c i a t e d w i t h m a rg i nlending and the volatility associatedwith gearing as a practice. While thei n t ro d u c t i o n o f t h e re f o r m s w a sdesigned to protect consumers fromthe perils of such high-risk invest-ments, it would seem the regulationswe re s o s t r i n g e n t t h e y s t i f l e d t h emarket, resulting in a fairly stagnantmarket for the past two years.

Although the regulations were areaction to the devastation caused bythe collapse of Storm, many wouldargue they are also crucial to the futuresuccess of the sector. As with all finan-cial services products, margin loans arenot for everyone. Therefore, enforcingregulations that ensure clients are welladvised about the benefits and the

pitfalls seems to be common sense inthe current economic climate.

Licence to margin lendOne debate that continues to rage inthe financial services arena, however, iswhether planners actually want toadvise on margin loans given the prob-lems that have ar isen in the past .According to figures released by theAustralian Securities and InvestmentsCommission (ASIC) late last year, only7 8 1 l i c e n s e e s a p p l i e d f o r m a rg i nlending authorisation as of November2010.

Op i n i o n a m o n g t h e a d v i s o r ycommunity varies as to why licenceapplications are so low. Some cite theinability to secure professional indem-nity cover for margin lending as areason to steer clear of the products,

while others simply state it is due tothe conservative nature of advisers orthe simple fact that the product is notfor everyone.

Whatever the reason, it appears thatconservatism is continuing to reignamong the advisory community – evenfor those with a credit licence, accord-ing to Innoinvest Consulting principalSu-King Hii. He says that many plan-n e r s a p p l y i n g f o r a c re d i t l i c e n c einclude margin lending products ontheir application, yet shy away fromactually selling the products.

“A lot of planners include marginlending products when applying for a


Margin lending

No margin for errorCollapsing institutions and a loss of wealth have combined to give themargin lending industry a bad reputation. Angela Faherty explains whyincreased legislation and a more targeted approach could get the sectorback on track.

• The GFC exposed the danger margin loanspose to uneducated investors.

• Reserve Bank figures show that marginlending debt has fallen significantly.

• If used properly, margin loans can be usedto accelerate wealth creation.

• Tightening regulations make it unlikely thesector will grow quickly in the future.

Key points


Margin lending

licence and they do it for the purposeof having the option to advise on themin the future,” he says. “However, a loto f t h e m , e v e n t h o u g h t h e y h a v eadvised on margin loans previously, areshying away because they are awaitingthe outcomes of court cases and thef a l l o u t f ro m t h e m a rg i n l e n d i n gdebacle that we experienced post andduring the GFC.”

Indeed, there has been a great dealof change in the regulatory environ-m e n t s i n c e t h e c o l l a p s e o f St o r mFinancial, so it is understandable thatadvisers are treading with caution. Lastyear, those wishing to continue to lendor advise on margin loans were givena six month window from 1 Februaryto 30 June to apply to ASIC for anAustralian Financial Services Licence(AFSL). Failure to do so meant thatthose not l icensed had to cease toprovide or advise on margin loans. Inaddition, new responsible lendingrequirements were also imposed onmargin lenders.

The legislation also sought greaterprotection for consumers by providingdirect access to external dispute reso-lution services, as well as providingclarity about responsibility for notify-ing clients in the case of a margin call.All these changes have created anxietyin the market both among advisers andconsumers, says Hii.

“There are a lot of factors affectingt h e m a rg i n l e n d i n g m a rk e t a t t h e

moment, such as the Government’s[Future of Financial Advice] reformwhich talks about statutory fiduciaryduty as well as the suitability assess-ments under the margin lending provi-sions,” he says.

Hii adds that the feedback he hasbeen receiving from advisers is thatthey are simply taking a step back fromm a rg i n l e n d i n g a n d h a v e e i t h e rstopped offering the products to clientsor are making referrals to specialistsconfident in the sector.

Investors are also reluctant to takeout margin loans, according to recentf i g u re s f ro m t h e Re s e r v e Ba n k o fAustralia that show the total marginlending debt fell to $17.7 billion bySeptember 30 2010, down from $18.8billion on 30 June. This was the lowestdebt level since March 2005.

Despite figures showing growth inthe margin lending market has cometo a halt , ANZ head of investmentlending David Crundall says the firmhas witnessed solid growth over thepast 12 months. He attributes this tothe conservative approach adopted byANZ when it comes to lending.

“Since the recover y of the stockmarket post-GFC, we have capturedgreater market share and I think one ofthe main reasons for that is historical-ly, our client base is relatively conser-vative. Our credit losses in investmentloans during the GFC were insignifi-cant and we have been very carefulwho we lend to. Our retail book meanswe lend smaller loans rather than thelarger stock lends that are available,”he says.

Despite the growth seen at ANZ,Crundall admits the market is unlikelyto be heading for a period of acceler-a t e d g row t h i n c u r re n t e c o n o m i cconditions, and says it is likely to be atleast a year or so away from risingstrongly. However, he says during thistime ANZ plans to focus on streamlin-ing its investment lending productsand processes and gearing itself up forcontinued growth.

EducationDi s c u s s i o n s o f g row t h i n a s e c t o rplagued by negative press may seemodd, but the financial services indus-tr y is confident of the role marginlending can play during the wealthaccumulation stage. It is getting thismessage across to consumers thatappears to present the biggest chal-lenge.

“People really need to understandthe product,” says Hii. “If you use itcorrectly, you can accelerate yourwealth creation. Ultimately, it is a caseof educating the clients and educatingt h e p u b l i c a b o u t t h i s p a r t i c u l a rproduct.”

Crundall agrees: “Margin loans are agood vehicle for wealth acceleration forthose who know what they are doingand have a sound knowledge of equitymarkets. However, it is important tounderstand they are not for everyone.

“Fo r e x a m p l e, a re t i re e s e e k i n gfinancial advice is looking to preservewealth not accelerate it, so a marginloan would not be suitable. Once youstart el iminating those cl ients for

whom a margin loan is not really suit-able, you actually end up with a muchsmaller and more appropriate clientbase,” he says.

The futureWith t ighter regulations and rulesc o n t i n u i n g t o g ov e r n t h e m a rg i nlending sector, it is unlikely the sector

will grow at any great speed in the nearfuture. However, this is not necessari-ly a bad thing. Much of the furoresurrounding the margin lending sectorhas been the result of bad advice andbad judgement – and the result hasbeen stringent rules, tighter regula-tions and reluctance from advisers andinvestors to get involved.

Yet most industry players agree therewas always a need for legislation andwelcome the new proposals to tightenrules and offer greater protection toconsumers, particularly in the shadowof the GFC.

“As a business we are fully support-ive of the new regulations and havea l w a y s b e e n c o n s e r va t i v e i n o u rapproach. We plan to continue this,”says Crundall.

Hii also welcomes the legislation ands a y s i t s h o u l d h e l p t o e l i m i n a t eproduct pushing and ultimately benefitt h e a d v i s e r c o m m u n i t y a s we l l a sconsumers. He says: “The market is stillin the early stages of the new regimeand I think the balance is just right inthat all advisers are required to belicensed or authorised and carry outsuitability checks on their clients.

“That said, I don’t think now is thetime to add more regulations. Theindustry is going through a waitingperiod. Everyone wants to see the dustsettle before deciding whether theregime is working.” MM

“ Margin loans are agood vehicle for wealthacceleration for thosewho know what they aredoing and have a soundknowledge of equitymarkets. ”- David Crundall

Margin lending became a dirtyword after the collapse of StormFinancial. Legislation is current-ly under revision to fix the

mistakes of the past, but it remains to be seenwhether the sector will ever truly recover.

Slater & Gordon practice group leader inBrisbane, Damian Scattini, says thatalthough legislation is in the works, it can’tchange human nature.

“There will be some other Storm on thehorizon – that’s just a fact. There are alwayspeople trying to gain from the system,” he says.

Even once legislation is introduced, Scat-tini feels that these retrospective measureswill never be enough to fully protectconsumers.

“Like in many things, people fight the lastwar. So this will have an effect to stopsomeone being ‘Stormified.’”

If a person falls into the same trap, Scatti-ni says, it will effectively become their ownfault. However, there he says there is no wayto stop similar schemes in the future.

“There will always be some other way torelieve people of their hard-earned savings,”he says.

The chair of the parliamentary inquiry intothe financial services industry, Bernie Ripoll,says that while that may be the case, regula-tion is a very important step in protectingconsumers.

The biggest change for margin lending sofar, Ripoll says, has been that for the first timeit is regulated at a Commonwealth level andit is now under the supervision of theAustralian Securities and InvestmentsCommission (ASIC).

There have also been a range of othermeasures such as updates to the RG146qualification to include margin lending, aswell as need for a specific margin lendingapproval for Australian Financial ServicesLicences (AFSL).

But more changes to legislation are yet tocome with the proposed introduction of theGovernment’s Future of Financial Advice(FOFA) reforms, which is largely based onthe Ripoll Inquiry.

Ripoll says that these changes have, andwill, go a long way to addressing the prob-lems that arose out of the collapse of StormFinancial.

Those problems included the fact that

many people involved in the collapse didn’teven know they had a margin loan, whichRipoll says he found very disconcerting.

“Also, a lot of people didn’t understandwhat a margin loan was, what it meant andwhat would happen in the event of a sharemarket collapse or fall.”

It is this lack of understanding and engage-ment with investments that FOFA is tryingto target, he says.

“But that doesn’t mean that people can’tstill get themselves into trouble,” he says.

“The capacity for a margin loan for peoplewho don’t fully appreciate or understand itsfeatures and its downsides is a very danger-ous tool.”

This perception of margin loans as‘dangerous’ has created a fear of borrowingto invest, which when combined with tight-ening regulations, has led to a slump in fundsgoing into the sector.

But Eric Blewitt, general manager Bendigoand Adelaide Bank subsidiary LeveragedEquities, believes that margin lending shouldstill be considered as part of any long-termwealth accumulation strategy.

“I think the general fear of borrowing toinvest, while it is appropriately cautious, inthe majority of cases is unfounded.

“There is good value in the market and ifpeople are dealing with advisers to puttogether a long-term strategy, it should defi-nitely be discussed,” Blewitt says.

“So long as you understand the risks andyou can meet the appropriate contingenciesto not only service the debt but, if required,pay back part of the debt, then it should atleast be considered.”

Blewitt believes that margin lending issimply the enabler to invest – the problemlies with advisers and lenders to ensure thatthe product is appropriate for the client.

Scattini agrees that it is up to advisers andlenders to ensure the person they are givingadvice to has the capacity to understandwhat they are doing, but that ultimately it

comes down to getting independent advice.“Storm has been very topical and it has

made people sceptical of the advice given tothem by financial planners, which is unfor-tunate because there is nothing wrong withfinancial planners, per se, it’s the unethicalones who are the problem,” Scattini says.

He hopes the changes from commissionsto a fee-for-service will take away the incen-tives for schemes like this to happen.

“Fee-for-service has to be a sensible thing,as that makes it clear whether [a planner] isa salesperson or a professional – and that’sthe crux of the matter,” Scattini says.

But Ripoll believes he is already seeing achange in the financial services industry,which is working to make amendments toprocedures ahead of legislative changes.

“I don’t know if it’s said often or if it is saidat all, but we really need to congratulate thewhole financial services sector. They reallyhave adopted this, they have accepted thatchange was necessary and they have done agreat job,” Ripoll says.

“I think that cultural shift is as important asthe regulation itself.” MM


Margin lending

The more things changeMany in the industry feel that the legislationtargeting margin lending has only served tomake investors more fearful of the practice.Ashley McIntyre reports.

“ The capacity for a marginloan for people who don’tfully appreciate orunderstand its features andits downsides is a verydangerous tool. ”- Bernie Ripoll

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The compulsive hoarder searches out shiny objects for their portfolio.

Facts may change, markets may change but their stocks don’t. Unable

to let go of the past, they blithely look to acquire more rather than cull.

How do you acquire the discipline to sell old favourites?

Bernie Ripoll

The number of self-managed super-annuation funds (SMSFs) in exis-tence is steadily increasing. Addi-tionally, many industries are

moving towards a more ‘global’ workforce,which means there will be a rise inAustralians being based overseas for workpurposes.

It therefore follows that many SMSFmembers will be moving overseas for workpurposes. There are a number of factors thatadvisers should consider when they hear theirclients with SMSFs are moving overseas.

This article outlines some of the require-ments in order to keep the fund as a comply-ing superannuation fund and avoid adversetax consequences.

Residency requirementsWhere an established SMSF has a memberwho will be based overseas, the SMSF mustcontinue to meet the definition of anAustralian superannuation fund for thepurposes of the Income Tax Assessment Act1997 (‘ITAA 1997’) for the fund to continue asa complying superannuation fund. There arethree rules that must be considered. Theseare outlined below.

Rule 1 – established in AustraliaEither the SMSF must be established inAustralia, or any asset of the SMSF must besituated in Australia. This rule is almostalways met.

Rule 2 – central management and controlThe central management and control of theSMSF must ordinarily be in Australia.Because Central Management and Control

isn’t defined in the ITAA 1997, its definitionhas evolved from case law.

Case law defines central management andcontrol as being where the real business iscarried on (De Beers Consolidated Mines Ltdv Howe [1906] AC 455, 458), and the locationwhere the SMSF’s operations are controlledand directed (Koitaki Para Rubber EstatesLimited v FCT (1941) 64 CLR 241, 248).

The Commissioner has agreed with thisinterpretation and has issued guidance thatis in line with the case law above. He hasstated that the strategic and high-level deci-sion-making processes must remain inAustralia. Some of these processes include:

• Formulating the investment strategy forthe fund;

• Reviewing and updating or varying thefund's investment strategy as well as moni-toring and reviewing the performance of thefund's investments;

• If the fund has reserves: the formulationof a strategy for their prudential manage-ment; and

• Determining how the assets of the fundare to be used to fund member benefits.

Further, the Commissioner is of the viewthat the day-to-day operations of the fund’sactivities will not necessarily constitutecentral management and control.

Rule 3 – contributionsThere are a number of rules concerning theconcept of an ‘active member’ (a memberwho makes contributions to the SMSF). If nocontributions are made by any of themembers of the SMSF during the time anSMSF member is based overseas, then thisrule will be satisfied. We recommend that

specific advice be sought if contributions areplanned to be made while any SMSFmember is a non-resident of Australia.

ImplementationStrategies can be put into place in order tomeet the requirements of rules 2 and 3 above.

Enduring power of attorneyA common strategy to keep the SMSF’scentral management and control in Australiais for the overseas member to execute anenduring power of attorney in favour of anAustralian resident.

The nominated attorney can also act inthe non-resident’s place as a trustee (or direc-tor of a corporate trustee) of the SMSFwithout contravening the trustee–memberrules (Superannuation Industry (Supervi-sion) Act 1993 (Cth) s 17A(3)(b)(ii)).

As mentioned above, the nominated attor-ney must undertake the strategic decisions ofthe SMSF, which may include re-formulat-ing the SMSF’s investment strategy andtaking an active role with asset managers,bankers and the fund’s administrators. Theymust not act as a ‘mere puppet’ of the SMSFmember, otherwise the central managementand control of the SMSF may be consideredas not being in Australia and the SMSF couldbe rendered non-complying.

Exercise caution with contributionsWe have outlined above that it is possiblefor contributions to be made to an SMSFwithout it becoming non-complying, whileone of the members is a non-resident ofAustralia. We recommend that caution isexercised and advice is sought before anycontributions are made for an SMSF in thissituation.

A conservative approach would be tocease all contributions while a member is anon-resident of Australia. Contributionscould instead to be made to a large public

offer superannuation fund. Then, when themember is an Australian resident again,those benefits rolled into the SMSF.

Effects of non-complianceThis article, so far, has focused on strategiesto stop an SMSF from becoming non-complying. The significance of these strate-gies is that if an SMSF were to become non-complying, it would result in adverse taxconsequences for the SMSF. These conse-quences are broadly outlined below.

• The market value of the SMSF as at theend of financial year before it became non-complying, less the value of any undeduct-ed contributions, is included in the assess-able income of the SMSF for the year itbecame non-complying;

• The concessional tax rate of 15 per centis lost and the SMSF’s taxable income will betaxed at the highest marginal tax rate(currently 45 per cent); and

• The Commissioner may impose thegeneral interest charge and penalties, whereapplicable.

No discretion for non-complianceOrdinarily, where an SMSF is to be madenon-complying, the taxpayer can requestthat the Commissioner exercise discretionregarding whether the SMSF is non-comply-ing, by considering a range of factors (seeATO Practice Statement Law Administration2006/19 at paragraph 34).

However, where a notice of non-compli-ance is issued by the Commissioner for thereason that the SMSF fails to meet the defi-nition of an Australian superannuation fund,the Commissioner (or any Tribunal) does nothave the power to exercise a discretion.

In CBNP Superannuation Fund vCommissioner of Taxation [2009] AATA709, an audit contravention report for anin-house asset breach was reported to theCommissioner. Upon further investiga-tions, the Commissioner found that thefund was not a resident superannuationfund and issued a notice of non-compli-ance for this reason. The taxpayer request-ed a review by the AAT and ultimatelyargued that the Tribunal should be able toexercise discretion in relation to the fundbeing non-complying. Although theTribunal Member sympathised with thetrustee of the fund, it found that no discre-tion was available and held that the funddid not satisfy the definition of residentsuperannuation fund.

What to doAdvisers should act swiftly if they have clientswith SMSFs who are to be posted overseasin the near future. A small amount of plan-ning (and appropriate structuring) beforethe member leaves for overseas can avoid anSMSF from become non-complying and alsosave a significant amount of tax.

Where an adviser becomes aware of, orinherits, an SMSF which has a non-resi-dent member, the arrangements for thisSMSF should be reviewed to ensurecompliance with the residency require-ments. If there appears to be a contraven-tion, expert advice should be sought to seeif any other avenues exist.

Nathan Papson is a lawyer and Bryce Figotis a senior associate at DBA Lawyers.


SMSFs and residency lawsBryce Figot and Nathan Papsonprovide a practical guide foroverseas SMSF members.

OpinionSMSFs

Insurance bonds were a popular invest-ment in the 1980s, and they are current-ly enjoying renewed interest – possiblydue to an ever-changing landscape, and

the perceived complexity and limitations ofsuperannuation. An insurance bond cancomplement superannuation investmentor even be an alternative to superannuationin your clients’ investment portfolios. Theycan also be appealing from a taxation, estateplanning and Centrelink perspective.

An insurance bond is a type of managedfund offered by insurance companies. Itcomprises a life insurance policy with bothan investment and an insurance component.

Insurance bonds have traditionally beenrecommended for high-income earners whoare looking for tax-effective investments.They are also commonly used for educationfunds for children or grandchildren.However, they can also be an alternative tosuperannuation. In this article, we will lookat situations where an insurance bond maybe preferable to superannuation.

Contribution rulesBoth superannuation and insurance bondsare subject to contribution rules.

Super Anyone under age 65 can contribute tosuperannuation, however some funds may

impose restrictions on minors openingsuperannuation accounts. A work test mustbe satisfied between age 65 and 75. Thereare also limits on the amount of concession-ally taxed contributions that can be made.

Insurance bondsAn individual must be age 16 to take out aninsurance bond in their own name, but thereis no maximum age. Parents and grandpar-ents can own a bond for the benefit of aminor.

There is no limit on the initial investmentamount in an insurance bond. Subsequentcontributions to an insurance bond arelimited to 125 per cent of the previous year’sinvestment amount. Exceeding the 125 percent amount, or stopping and then resum-ing annual investments, restarts the 10-yeartax-free period.

An insurance bond may be a goodoption for individuals who are unable tomeet the work test or are over age 75 orunder age 16. Similarly, an insurance bondmay be appropriate where an individualhas exceeded their superannuation contri-bution limits.

TaxationSuperWhile nothing can beat superannuation interms of overall tax efficiency, insurance

bonds can also offer significant tax benefitsand, importantly, simplicity.

Concessional superannuation contribu-tions are subject to 15 per cent contributionstax upon entry to the fund. Investment earn-ings are taxed at 15 per cent and this tax ispaid by the fund (not by the member). Indi-viduals on marginal tax rates of 37 per cent(over $80,000 per annum) and 45 per cent(over $180,000 per annum) can make a taxsaving of 22 per cent or 30 per cent.

Most tax is effectively deferred until with-drawal of benefits from the superannuationenvironment. Benefit payments prior to age60 are concessionally taxed and are tax-freefrom age 60.

Insurance bondsThe investor does not receive the earningsgenerated by insurance bonds as income.Instead, the earnings are reinvested. Theyare only taxable upon withdrawal prior tothe first 10 years and are tax-paid on or after10 years. Insurance bond income is taxedinternally within the bond at a rate of 30 percent (this may be lower if franking creditsand other tax offsets apply). Investmentsmade after the first year under the 125 percent rule do not need to be invested for thefull 10 years for the earnings to be tax-free.

Additional tax is only payable by theinvestor if a withdrawal is made within 10years of the investment. Investors receive a30 per cent tax offset on the assessableportion of any withdrawal. Individuals onlower tax rates can apply the offset to reducetax on other income.

All the investment income from a with-drawal in the eighth year is included inassessable income and taxed at the

investor’s marginal tax rate. Two-thirds ofthe investment income is included inassessable income in the ninth year, andone-third of the investment income isincluded in assessable income in the tenthyear.

Insurance bonds offer an obvious taxadvantage for higher income earners. Indi-viduals on marginal tax rates of 37 per centand 45 per cent can make a tax saving of 7per cent or 15 per cent. However, the taxsavings available through super investmentare higher.

Access to fundsSuperSuperannuation is generally preserveduntil retirement from the workforce afterpreservation age (55-60). Superannuationcan be drawn down as an income streamwhereas withdrawals from an investmentbond can only be in the form of a lumpsum. A person’s age determines theminimum drawdown from a superannu-ation income stream. For example, aperson under age 65 must draw down 4per cent (2 per cent in 2010-11) of theiraccount balance each year.

Insurance bondsInsurance bonds can overcome the maindrawback of superannuation: preservation.Part or all of an investment in an insurancebond can be withdrawn at any time (subjectto any minimum balance requirement).However, the tax implications should beconsidered if withdrawals are made before10 years.

Centrelink treatmentAn insurance bond can have an advantageover superannuation for some income-testsensitive clients. Structuring an insurancebond in a private trust can potentiallyincrease Centrelink benefits under the


OpinionBonds

An alternative to superInsurance bonds are undergoingsomething of a renaissance, writesSarina Raffo. She explains thebenefits they offer clients.

income test and may alsoreduce aged care costs. Aninsurance bond held withina discretionary trust will notgenerally produce taxable(and therefore Centrelinkassessable) income. Incomeis only assessed based on theamount distributed to trustbeneficiaries.

An insurance bond(outside a trust) is classifiedas a ‘financial investment’ forCentrelink purposes and istherefore fully assets testedand subject to deeming.Superannuation only countsas an asset and is deemedfrom age pension age.

Estate planningFrom an estate planningperspective, insurance bondscan be superior to superan-nuation where a client’s onlybeneficiaries are non-depen-dants (eg, adult children orparents).

Superannuation rulesrestrict who can receive adeath benefit, and tax lawrestricts who can receive deathbenefits tax-free. An insurancebond can overcome theselimitations as they allow theproceeds to be paid tax-free toany beneficiary (includingnon-dependants).

Multiple beneficiaries canbe nominated on an insur-ance bond and this ensuresthat the proceeds will godirectly to the person(s)nominated and bypass theestate. This can be particu-larly important in the caseof separated/divorcedparents. It also means theproceeds cannot be subjectto challenge by disaffectedfamily members. An insur-ance bond, being a lifeinsurance policy, can alsoprovide protection for bank-rupts against claims bycreditors.

Savings for childrenSuperannuation may not bean appropriate vehicle forsaving for children/grand-children due to access issues.

In contrast, insurancebonds can be an excellentsavings vehicle for children.They can be set up asadvancement policies withownership transferring(generally free of capital gainstax) to a child or grandchildat a predetermined age.Switching ownership doesnot reset the originalpurchase date in regard to the10-year tax rule.

Insurance bonds providea tax-advantaged environ-ment for minors as the tax


treatment for a minor is the same as that for anadult. By investing in an insurance bond, penaltytax rates normally applied to a minor’s investmentincome can be avoided.

SimplicityInsurance bond income need not be declared intax returns and is not included in the investor’sassessable income. This may therefore reduceMedicare levy and allow the investor to qualify fortax offsets and family tax benefits.

While there are some key rules around insurance

bonds, they are not nearly as complex as superan-nuation rules and investors are less likely to besubject to legislative risk.

ConclusionThe features of insurance bonds such as their tax,estate planning and Centrelink benefits makethem a valuable strategic tool in financial plan-ning and a real alternative to superannuation forsome clients.

While superannuation is seen as a superiorsavings vehicle, insurance bonds may be more

appropriate for those affected by contributionrules and limits or preservation issues.

Insurance bonds can also be attractive to a widerange of people including those on higher margin-al tax rates, those who wish to avoid the complex-ity of including bond earnings in their tax returnsand those who receive a large windfall (eg, recip-ients of an inheritance, a lottery win or a redun-dancy payout).

Sarina Raffo is a technical services consultant atSuncorp Life.

On 24 March gold reached a recordhigh of $US1,446 per ounce. Ifgold ends 2011 positive it will bethe 11th consecutive yearly rise.

Yet there was little media coverage aboutthis new record or heightened discussion ofwhat has been the most consistent bullmarket of the 21st century.

To the extent that views on gold are high-lighted, they are more likely to be suggestingthat gold is in a bubble about to bust. At therecent PortfolioConstruction MarketsSummit ‘Bubble Bubble toil and trouble’ apanellist, in summing up the day, suggestedthat of all the asset classes discussed, goldwas the only one likely to be in a bubble.

Surely I am not the only one that finds thissituation surprising. How can such a promi-nent financial variable which has been in abull market for more than a decade, risingover five times through that period, still beeither largely ignored or quickly labelled abubble about to bust by the vast majority ofthe mainstream investing industry? It’s notas if most of those calling it a bubble nowwere actively recommending/investing ingold at much lower prices in the early 2000sand are now telling their investors to exit.No, back then most of those sceptics weretotally disinterested and uniformed aboutgold. Today, while interested in jumping onthe ‘gold is a bubble’ bandwagon theyremain just as uninformed regarding what isdriving this bull market.

Is gold a bubble?The reality of any true major asset bubble isthat it eventually sucks in a large proportionof the investing population and the broaderconsensus and media doesn’t recognise itas a bubble until well after it bursts. That isnot happening here, at least not yet. Goldwill almost certainly end as a bubble (andwe are likely closer to the end of the bullmarket than the beginning), but the currentinvestor participation levels, market dynam-ics and sentiment don’t seem to indicate abubble about to bust.

While the gold exchange-traded fundshave attracted significant support in recentyears they still represent a small fraction ofthe money invested globally in moneymarket funds, often earning close to zerointerest. Gold equity funds are not attractingmassive inflows nor growing rapidly innumber. It is true that gold shares and fundsthat invest in them have lagged recently (andat other various times in the bull market) butthey have still been one of the best sectors ofthe sharemarket over the last decade.

Most of the gold sceptics just don’t getgold because they keep looking at the wrongthing. They keep staring at a pile of rare,shiny metal and wonder why people arewilling to pay more than $US1,400 an ouncefor it. They really should be looking at themassive volume of paper dollars that the UScentral bank can effectively print out ofnothing; the various central banks’ manip-

ulation of short-term (and long-term) inter-est rates, towards or below the level ofgrowing inflation; and the dismal fiscal anddebt situations of many western govern-ments, driven partly by the unwillingness offlawed political systems to say ‘enough isenough’.

Gold is a barometer of the level of confi-dence in central bankers and governments,and that confidence remains at low anddeclining levels, especially in the key USeconomy. And it seems unlikely that thisconfidence will be resurrected in the nearterm. Indeed, only a series of crises are likelyto spur actions to solve these issues. Ironical-ly, it is many of the commentators dismiss-ing gold who continue to pay reverence tothe unstable and flawed global monetarysystem around the US dollar and the false‘safe haven’ of US treasuries that are helpingto delay the very crisis the US needs to forceappropriate change.

All this is not saying gold will definitelykeep going up from here. But have investorsand their advisers globally adequately chal-lenged themselves about the possibleeconomic/investment scenarios in comingyears and whether they should have goldexposure? If there was a 1 per cent chance ofhyperinflation in the US how wouldinvestors protect themselves? What if thatrisk were 5 per cent, or 10 per cent?

Maybe this is less of an issue in Australia,where the Federal Government has been

more responsible. The Reserve Bank ofAustralia is not hell-bent on debasing ourcurrency to be ‘competitive’, and interestrates are close to normal. However, it is notas if Australia would be immune from a crisisof confidence in the US or paper currenciesgenerally.

Has the horse bolted?‘It’s too late’ is a common argument againstinvesting in gold now. “Gold was a GFC[global financial crisis] play only – there isno need for gold now,” one of the fundmanager panellists at the PortfolioConstruc-tion Markets Summit said. But why has goldrisen almost 40 per cent since March 2009,when many believe the GFC bottomed?Clearly there is more to it than that. Part ofthe answer may be that the GFC hasn’tfinished yet, as ongoing sovereign debtissues illustrate.

I think a big part of it is that many justlump gold in with other commodities andfeel they probably are already getting enoughcommodity exposure through shares andother investments. While gold struggles toattain converts, the broader commoditystory is attracting strong demand even frominstitutional investors through various indexand enhanced index products.

The key problem with this approach isthat gold is very different to commoditiesgenerally. Gold is a monetary asset, and hasbeen for thousands of years – even thoughthis is not always officially recognised assuch. Nearly all of the production throughhistory still exists, and only a small propor-tion of gold is used in the manufacture ofgoods. Most is held as investment or storeof value either by private investors or centralbanks. Many see these attributes as nega-tives, but the key point is that gold is a mone-tary asset.

Most other commodities are perishable,get consumed or made into other things thatare consumed; and while these attributesare put forward as their advantage over goldas an investment, it is this ongoing need forcommodities that has encouraged humansto become much more efficient in produc-ing and consuming them though history.Humans have been remarkably successful inbecoming more efficient in producingcommodities (eg, more grain from less land,fatter cows, etc). As a result, commodityprices generally tend to fall in real terms overthe long term. Gold, in contrast, hasmanaged to retain its real value over longperiods of history.

Wise wordsThe arguments were well summed up in arecent piece by Dylan Grice of SociétéGénérale entitled Why this commodity-scepticvalue investor likes gold. Humans havedevoted their ingenuity to producing andconsuming commodities more efficiently. Sowhile commodities can have very strong risesover a period of years or even decades inhistory, simply buying most commoditiesforever as an investment doesn’t make a lot ofsense. This is especially the case when thevery act of many investing in commoditiesin recent years has changed the marketstructure of commodity futures and reducedthe ‘roll yield’ (one of the key componentsof commodity returns historically).

Grice highlights the key difference in the


Observer

The Midas touchDespite negative forecasts, gold has managed to retain its valueduring turbulent market conditions. Dominic McCormickexplains why this metal remains the one to watch.


dynamics of the key driversto gold versus commoditiesgenerally:

“For our ability to passknowledge down throughthe generations applies onlyto the physical sciences. Inthe realms of social decision-making, where humility andrealism are so often the dupeof hubris and self-delusion,each generation is alwayscondemned to relearn themistakes of generations past.It is the systematic tendencytowards precedented follywhich is such a fascinatingfeature of our financialheritage.”

Gold derives its demandfrom the level of confidencein other money alternativesand the stability of financialsystems generally. Our inge-nuity may make us moreefficient producing andconsuming commodities,but it has done nothing toprevent financial crises,which continue to occurregularly through historyand are arguably becominglarger and more destructive.

The inability of the keypeople at central banks andgovernments to predict oreven be aware of the increas-ing risks of crises highlightsthis. Indeed, there is no pointlooking to the central banksfor guidance about whetherbuying gold is a good idea.Many western central bankssold gold all the way downto the $US250 bottom and itis only recently that centralbanks as a whole haveturned into net buyers. Ifhistory is any guide, they arelikely to be aggressive buyerswhen the market tops.

Central banks’ warpedthinking on gold wasrecently highlighted by theDutch central bank’s deci-sion to order a local pensionfund there to sell its entire13 per cent allocation togold on the basis that sucha large allocation to avolatile commodity was“inconsistent with the inter-ests of the funds partici-pants”. Would it be moreconsistent to instead put itinto ‘safe’ governmentbonds of its Euro partnerslike those of Ireland, Spain,Portugal or Greece?

Clearly even some centralbankers don’t understandgold’s monetary value. If weaccepted central banker’srecommendations on whereto invest, US housing wouldhave been a sound investmentin recent years and the GFCwouldn’t have happened.

The way things standIt is true that gold will be a very poor asset to holdat some point in the future. But this will most likelybe when we have both central bankers and politi-cians committed to preserving the value of theircurrencies rather than debasing them, and onlywhen the western political system moves awayfrom the notion that more debt and inflation isalways the easy way out.

The end of the second round of quantitativeeasing in the US (QEII) and the pressure on thecountry to rein in its monetary experiment of

recent years is likely to significantly increase volatil-ity in the gold market, as participants weigh judg-ment about whether the central bank and USgovernment really can move towards ‘normality’without significantly higher inflation or a fiscalcrisis. We hope that they can get it right, in whichcase gold will be one of our poorer performinginvestments.

But we would be going against the lessons ofhistory if we didn’t continue holding some gold-related exposures as a hedge against humanity’sconsistent ability to make a mess of things.

Grice sums it up this way: “Shorting mankind’s ingenuity isn’t a smart

thing to do. But ingenuity isn’t wisdom. Andshorting mankind’s ability to absorb wisdom… well, aren’t you silly if you don’t? With less ofthe technological risk you’re taking when youbuy any other part of the commoditiescomplex, gold is the oldest, purest and simplestway.”

Dominic McCormick is chief investment offficerat Select Asset Management.

Istarted writing this article on themorning of 15 March – just hoursbefore the panic following theradiat ion war ning for Japan’s

nuclear reactors. At that point, we hadseen the tragedies and misery inflictedon the people of Japan and beyond forfour days, but it was the potentialnuclear core meltdown that took theS&P/ASX 200 down by over 100 pointsduring lunch.

My point was going to be quitestraightfor ward – the facts on thebehaviour of the market don’t matchwhat I hear and read in commentaries.Let’s start with something called cross-sectional volatility. It sounds like amouthful but it is just a simple measureof how stock returns move together orotherwise on a given day. If returnsmove largely together, this type ofvolatility will be low. If returns start

going in all directions, this volatility ishigh.

I took data from each day starting inApril 1985 for the top 200 stocks of thatday. Thus, the universe of stocks evolvesover time with the composition of theS&P/ASX 200. This statistic is thencalculated as the weighted standarddeviation of stock returns on a givenday – and the weights are the marketcapitalisations of each stock. Sincethese numbers bounce around a bit, Ihave then taken the average over thequarter.

In previous research, I have foundthis type of volatility to be very useful asa leading indicator of the traditional(time series) stock market volatility. Ishow these data in figure 1. There aresharp peaks around the 1987 stockmarket crash and the global financialcrisis (GFC). Cross-sectional volatility

was also quite high for a number ofyears around the Asian crisis (1997-98),the ‘tech wreck’ (2000) and September11 (2001). There was a smaller blipduring our last recession 20 years agoin 1990-91.

Perhaps the real surprise is how lowcross-sectional volatility was at theclose of March 14th 2011. In fact, therehas only been one quarter when thistype of volatility was lower – and eventhat was only s l ightly lower. I f Icompare figure 1 with the S&P/ASX 200(using a log scale) in figure 2, I see areasonable correspondence betweenlow cross-sectional volatility and strongbull runs. So didn’t our market getstarted after the GFC? Well volatilityhasn’t been that low for long. Memorieshave to heal but behaviour already has.

It is hard for a fund manager to beatthe market when stock returns tend tomove together. As the use of exchange-traded funds and index funds increase,cross-sectional volatility is likely totrend down. An orderly market is whatwe want.

I show the traditional measure of


OpinionMarkets

Following the recent devastation inJapan, Ron Bewley asks: What does it take to shake our market?

“ It is hard for a fundmanager to beat themarket when stockreturns tend to movetogether. ”

Shaken to the core?

market volatility in figure 3 for each dayfrom January 2009 to the close of March14, 2011. The solid black line is the medianlevel of volatility during the GFC and thenthe post-GFC period. The top dotted lineis a simple extension of the GFC level,while the lower dotted line is the medianlevel of volatility pre-GFC.

Volatility was well and truly backdown to pre-GFC days until the earth-quake and tsunami devastated Japanon Friday 11 March, 2011. But even inthese first two days, volatility was onlya little higher – hardly abnormal. Whenwe consider that our senses had beenbattered by f loods, cyclones, theChristchurch earthquake, and count-less uprisings in North Africa and theMiddle East, where was the volatility?People talk about volatility, but you justcan’t find it when you try to measure it.

My fear index is a measure of excessvolatility in the stock market, and itseems to lead the options prices meas-ures that are tied to the Chicago BoardOptions Exchange Market VolatilityIndex ( VIX). I show this measure infigure 4 together with two dotted lines.

In pre-GFC days the index wascontained in this range 66 per cent ofthe time – the ‘normal’ range.

Not only had fear fallen from its GFChighs but, until Friday 11 March, it wasarguably lower than normal – certainlywell within the range most of the time.What now remains to be seen is howmuch fear – and the other types of volatil-ity – will be generated by the radiationlevels in Japan. That is not a topic that aneconometrician or financial analyst cananswer. But what I can say is that, despitewhat has gone on in the world during thefirst quarter of 2011, the market is behav-ing more calmly than it ever has. There isa good chance our market will surviveintact. There would have been almost nochance of that if these natural disastersand geopolitical events had taken placetwo years ago.

As I finish writing, the market hasclosed on 15 March less than 100 pointsdown – on a day when there was a nearmeltdown.

Dr Ron Bewley is an investment consultantwith Infocus Money Management.


1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

1985 1987

1989 1991

1993 1995

1997 1999

2001 2003

2005 2007

2009 2011

Cros

s-se

ctio

nal v

olat

ility

Cr

oss-

sect

iona

l vol

atili

ty

Source: Woodhall Investment Research (2011 Q1 to 14th March)

Figure 1 Quarterly averages of cross-sectional volatility

6.5

7.0

7.5

8.0

8.5

9.0

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

Log

scal

e Lo

g sc

ale

Source: Thomson Reuters (DataStream)

Figure 2 End-of-quarter S&P/ASX 200 price index

Annu

alise

d Vo

latil

ity

Source: Woodhall Investment Research

Figure 3 Daily estimates of times series volatility

Fear

Inde

x

Source: Woodhall Investment Research

Figure 4 The fear index

The Federal Government recentlyintroduced the Paid ParentalLeave (PPL) scheme, which paysa fortnightly allowance to the

primary carer of a newborn baby or recent-ly adopted child where they have given upwork to look after the child. The scheme isavailable for those parents whose child wasborn or adopted on or after 1 January, 2011.

EligibilityTo be eligible for the scheme, the carermaking the claim must have an adjustedtaxable income – including fringe bene-fits, reportable super contributions andtotal net investment losses – of less than$150,000 in the previous financial year.

The claimant must also meet thescheme work test, which requires them tohave worked continuously for at least 295days (approximately 10 months) in the 392days (approximately 13 months) before thebirth or adoption. “Working continuous-ly” has been defined as not having a periodof eight weeks where the claimant neitherperformed one hour of paid work in a daynor received one hour of paid leave in aday.

The carer need not have been employedfull-time to be eligible for the scheme.Part-time and casual workers are also eligi-ble as are self-employed persons andcontractors.

In addition, the claimant must havesubstantially stopped working – either byleaving employment or going on leave toinitially claim the benefit – and mustremain off work to continue to receive it.While they can “keep in touch” with theiremployment for up to 10 days and contin-ue to receive the benefit, the activities thatcan be performed are limited to thosewhich facilitate a return to that employ-ment after the period of leave. The exam-ples quoted include an employee doing ashort course and a self-employed personorganising a repair.

Payment The rate of payment is equivalent to thenational minimum wage (currently $570

per week) and is paid for a maximum of 18weeks, resulting in a potential totalpayment of $10,260. If the carer returns towork before the 18 weeks are up, the enti-tlement will cease and will not restart ifthey subsequently go on leave again. Anyunused portion of the 18 weeks may beused by the carer’s partner, provided theymeet the relevant conditions.

Currently, these payments are made bythe Family Assistance Office (FAO).However, from 1 July, 2011, the FAO willforward the payments to the claimant’semployer and the employer will pay it onto the employee as part of their normalpayroll process.

An important point to note is the PPLpayments are unaffected by any other paidleave the employer is entitled to. Forexample, an employee entitled to receivepaid maternity leave from their employerwould be able to receive that payment andthe PPL payments. Employees entitled toboth should consider delaying the receiptof one of the payments, since doing so mayresult in a lower tax liability.

Baby BonusThe PPL scheme was designed to replacethe Baby Bonus, however due to differ-ences in eligibility criteria and tax treat-ment, some parents would have beenbetter off under the old scheme. To avoid

this situation, the Baby Bonus is still avail-able – and if a parent is eligible for both,they can choose which one to receive.

The Baby Bonus is paid to carers whohave an adjusted taxable income of lessthan or equal to $75,000 in the six monthsafter the birth or adoption of the child. Ifthe carer is a member of a couple, thecouple’s combined income is used.

The Baby Bonus is paid in 13 paymentsof $407.23 per fortnight ($5,294 in total).

Comparing paymentsWhen choosing whether to receive the PPLor the Baby Bobus, clients should consid-er the tax consequences and Family TaxBenefit consequences of each.

The PPL payments are taxable income,and as well as potentially increasing theparent’s tax liability, the payment will beassessed as income when calculating theFamily Tax Benefit. In contrast, the BabyBonus payments are not taxable.

While the PPL provides a much greaterpotential benefit (up to $10,260) than theBaby Bonus ($5,294), there are situationswhere a parent entitled to the maximumPPL would be better off taking the BabyBonus, as the following case study illus-trates.

Case studySharon leaves her employment late 2010for the birth of her second child, who isborn on 1 January, 2011. She plans to be astay-at-home mum for the foreseeable

future to look after her two young children.She expects her employment income to be$37,000 for the financial year and herhusband, Tony, earns $65,000 per annum.

They are entitled to either the PPL or theBaby Bonus and the following tablecompares their tax situation under eachpayment.

Even after tax, the PPL provides thegreater benefit, however the increase in thetaxable income will also reduce theirFamily Tax Benefit entitlements. In thiscase, if Sharon and Tony took the BabyBonus, they would receive a Family TaxBenefit Part A of $1,927. However, by takingthe PPL, they would lose all entitlement.

Therefore, when everything is taken intoaccount, they would be $603 better off bytaking the Baby Bonus.

ConclusionAn interesting point is there is a situationwhere a carer can receive both payments(in the case of multiple births). Forexample, a parent of newborn twins couldtake the PPL for one twin and the BabyBonus for the other.

In summary, while the higher paymentfrom the PPL would appear initially to givethe greater benefit, consideration shouldbe given to taking the Baby Bonus, whichin some situations results in a better netbenefit.

David O’Connell is head of technicalservices at Fiducian Portfolio Services.


Bringing up baby

Toolbox

Table 1 Paid parental leave versus Baby Bonus

Sharon’s income Paid parental leave ($) Baby Bonus ($)

Employment income 37,000 37,000

Paid parental leave 10,260

Taxable income 47,260 37,000

Income tax (7,627) (3,985)

After-tax income 39,633 33,015

Baby Bonus 5,294

Net income (before Family Tax Benefits) 39,633 38,309

Difference 1,324

“When choosing whetherto receive the PPL or theBaby Bobus, clients should consider the taxconsequences and FamilyTax Benefit consequences ofeach. ”

Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (Colonial First State) is the issuer of interests in FirstChoice Wholesale Personal Super offered through the Colonial First StateFirstChoice Superannuation Trust ABN 26 458 298 557. Avanteos Investments Limited ABN 20 096 259 979, AFSL 245531 (Avanteos) is the issuer of interests in FirstWrap Plus and FirstWrap offered through the Avanteos Superannuation Trust ABN 38 876 896 681. This is general information only and does not take into account any individual objectives, financial situation or needs. Investors should consider thePDS available from Colonial First State before making an investment decision. Colonial First State and Avanteos are owned ultimately by Commonwealth Bank of Australia ABN 48 123 123 124 through theColonial First State group of companies. Commonwealth Bank of Australia and its subsidiaries do not guarantee performance or the repayment of capital of Colonial First State or Avanteos. CFS2001/STRIP

We’ve lowered the minimum investments for FirstChoice Wholesale Personal Super and FirstWrap, giving more of your clients the ability to benefit from lower fees and great features which may have previously been out of reach. Contact your Business Development Manager, call 13 18 36 or visit colonialfirststate.com.au/lowerfees

Great value for More of your clients.

The introduction of paid parental leave last year enablesparents to claim a fortnightly allowance for their recentlyborn child. David O’Connell explains the eligibility criteria,and compares the new scheme to the Baby Bonus.

Appointments


Please send your appointments to: [email protected]

Opportunities For more information on these jobs and to apply,

please go to www.moneymanagement.com.au/jobs

FINANCIAL PLANNERLocation: SydneyCompany: ANZDescription: ANZ Financial Planning is looking torecruit a financial planner who will beresponsible for the provision of comprehensivefinancial planning services and advice.

You will work on a fee-for-service basis andreport to a practice manager.

Specifically, you will provide strategies, accessto a diversified product range and ongoingservices. You are expected to have extensiveknowledge of the financial planning industry, witha strong focus on managed investments andinsurance strategies. Personally, you display high-level influencing skills, strong business planningskills, exceptional communication, proven clientmanagement skills and come with a track recordof performance.

Academically you will have completed, ormade significant progress towards completing arecognised tertiary qualification in a business-related field such as business, commerce oraccounting. You have also completed ADFS andare progressing towards your CFP qualification.

Please send applications onwww.anz.com/careers quoting ref number:AUS110934. For a confidential discussion,please call Sue Cusdin on (02) 9226 4567.

BUSINESS ANALYST – FUNDS MANAGEMENTLocation: Melbourne

Company: Kaizen RecruitmentDescription: Our client is a leading fundsmanagement business and is currently seekingan experienced business analyst to assist witha back office systems implementation.

Reporting to head of operations, you will beresponsible for engaging with front officeinvestment teams to assist with the conceptualdesign of data and reporting requirements withthe aim to improve their portfolio reportingcapability.

The ideal candidate will have previousexperience working as a business analystwithin a funds management business with asolid understanding of middle office processesand performance calculations for differentasset classes. Previous experience with fundsmanagement systems HiPortfolio, Charles Riveror Simcorp Dimensions will be highlydesirable.

If you are interested in learning more aboutthis opportunity then please contact KaizenRecruitment on (03) 9095 7157.

REGIONAL PLANNER MANAGERLocation: Sydney, MelbourneCompany: AMP HorizonsDescription: Due to business growth we havetwo exciting opportunities for a regionalplanner manager to join us at AMP HorizonsFinancial Group in the Docklands, Melbourneand St Leonards, Sydney.

Working closely with another regional

planner manager and reporting to the head ofpractice, this role will see you utilising yourfinancial planning knowledge with yourcoaching, mentoring and leadership skills.

To be successful in this role you will have athorough understanding of financial planningand hold your CFP or ADFS/DFS qualifications.You will have experience of managing salariedfinancial planners and have a strong coachingfocus throughout your career.

For more information and to apply, head toour careers site at www.amp.com.au/careersand apply by entering job reference 5780512or visit www.moneymanagement.com.au/jobs

HEAD OF CASH MANAGEMENTLocation: MelbourneCompany: Kaizen RecruitmentDescription: Our client has created anopportunity for a manager to head up their cashmanagement team.

The cash management team deals with FXand cash management trust products. The roleis to coach, mentor and lead a team of highlyexperienced professionals within an operationalcontext.

You will be able to review, understand andclear reconciliation breaks; communicate andmanage expectations authoritatively withexternal clients and internal counterparts; andprovide inspiration and leadership to a team ofjunior staff.

The ideal candidate for this role must have a

solid understanding of cash managementprocessing and operational flow as well asproven experience leading teams.

This role is available immediately so pleaseapply right away by visitingwww.moneymanagement.com.au/jobs. If youhave any questions please feel free to [email protected]

FINANCIAL PLANNERLocation: Hong KongCompany: ipacDescription: Our professional and client-focused team is looking for a top-calibrefinancial planner to join it in Hong Kong. Inthis role, you will offer all-round financialsolutions and be responsible for providinglifestyle financial planning advice, investmentand portfolio management, risk management,retirement planning, insurance and employeebenefit planning, as well as businesscontinuity and succession planning. In return,you will get an attractive salary and bonuspackages. To be successful, you must betertiary educated or above with a minimum ofthree years financial planning or relevantexperience. You must also be self-motivated,have leadership qualities, be able to developbusiness and have had a stable employmenthistory.

For more information and to apply, forwardyour résumé to [email protected] or visitwww.moneymanagement.com.au/jobs

TYNDALL Investments hasrecruited Aaron Russell as itsnew national key accountmanager. Russell will be respon-sible for building and maintain-ing relationships with financialplanners and intermediaries inNSW, ACT and Western Australia.

Russell’s appointment followedthe recent promotion of AndrewJulius, who previously held theposition, to Tyndall’s head of retail.

Russell joined the companyfrom Vanguard Investments,where he was a business devel-opment manager.

He started his career as afinancial planner in the UnitedKingdom and worked as anequities investments specialistwith Charles Schwab Stockbro-kers before moving to businessdevelopment roles.

NATIONAL Australia Bank(NAB) Private Wealth hasexpanded its capabilities inAustralia, snatching talent frominternational banks.

The former head of privatewealth management division atDeutsche Bank in Australia,Michael Parsons, has beenappointed general manager forNSW and ACT, with AnnaMcCreery from Credit Suisse

joining his team.Parsons moved to NAB from

boutique wealth manager FirstUnity, where he was managingdirector. He has previouslyworked with private clients at BTbefore becoming Invesco chiefexecutive officer for Australia andNew Zealand and moving ontoDeutsche Bank.

McCreery has been appointedhead of private clients at NABPrivate Wealth, having moved fromCredit Suisse Private Bank AGAustralia, where she was a marketleader. She began her career atCitibank investment bank and wasposted to Singapore.

McCreery also managed clientportfolios at Prudential PrivateBank in Singapore, beforemoving to UBS Wealth Manage-ment AG Singapore.

SYNCHRON has appointed busi-ness strategist Michael Harrisonas independent chair.

Harrison has been Synchron’sbusiness strategy and marketingconsultant since 2007 and haspreviously consulted Citibank,the STAR Alliance Network, theAustralian Competition andConsumer Commission andZurich Financial Services.

Synchron director Don Trap-

nell said he was looking forwardto Harrison’s more formalinvolvement in the business.

“Michael has made an enor-mous contribution to Synchronand in many ways has helped usreinvent the business to success-fully retain our highly valuablesenior advisers while also attract-ing and engaging with youngeradvisers,” Trapnell said.

CLEARVIEW has appointedChris Robson as its generalcounsel and company secretary.Robson will head up Clearview’slegal, secretariat and corporate

governance functions.Robson has over 20 years of

experience in the financial plan-ning industry. He spent the lasteight years as general counseland group company secretary atChallenger. Before that, heworked for Barclays, theCommonwealth Bank and theAustralian Securities andInvestments Commission inlegal roles.

ASTERON has appointed ING’sKhanh-vy Ho to the role of Victori-an sales manager. She will betasked with increasing the insurer’s

profile in Victoria’s independentfinancial adviser market.

Ho’s role will include assistingadvisers with their wealth protec-tion strategy and suitable solu-tions, and providing marketingassistance.

Ho, who will report toAsteron’s Victorian state managerPaul Chapman, joined thecompany from ING where shewas a senior business develop-ment manager in its Victoriansales team.

Over the past decade, she hadalso worked for MetLife, AXA andAMP in business developmentand client service positions.

Move of the week

THE managing director of Treasury Group, MarkBurgess, has resigned following his appointment tothe Future Fund Management Agency.

Burgess has been appointed general manager of theFuture Fund Management Agency, which is responsi-ble for the development of recommendations to theFuture Fund Board of Guardians on the most appropri-ate investment strategy for each fund and for theimplementation of these strategies.

Burgess will remain with Treasury Group until 24June and former managing director, David Cooper,will work in an interim executive capacity alongsidehim during this transition, according to chairman MikeFitzpatrick. Mark Burgess

OUTSIDER is the first to acknowledge that aFederal Minister’s diary is a pretty crowdedplace but he also knows that ambitiouspoliticians will always find ways to pressthe flesh and gab to those who reallymatter.

So he can only assume that the AssistantTreasurer and Minister for Financial Ser-vices, Bill Shorten, was so keen to pressthe flesh and gab to delegates at the Con-ference of Major Superannuation Funds onthe Gold Coast last week that he forgot thegig clashed with a Cabinet meeting (thingswill no doubt change when he calls the Cab-inet meetings).

The result was that when it came to kick-

ing off the opening plenar y of the conference, delegates had to make do withbeing addressed as ‘comrades’ by the chair-man of Australian Institute of Superannua-tion Trustees and former journo, GerardNoonan, whose reference to ‘comrades’might have meant more had he not previ-ously earned a generous Fairfax editor’ssalary.

Noonan assured the delegate comradesthat the minister would address them thatafternoon, but events in Canberra onceagain got the better of Shorten because ofa longer than expected Parliamentary ques-tion time. He finally fronted the delegates inthe ballroom at Jupiter’s Casino at 7pm

while they washed down finger food with ahealthy supply of alcoholic beverages.

And just as the minister was getting intostride with a speech littered with historicalallusions and references justifying the Gov-ernment’s decision to link the rise in thesuperannuation guarantee to the impositionof a Minerals Resource Rent Tax, his mobilephone went off prompting him to the quipthat “it’s probably Paul Keating telling meI’m wrong”.

The minister may have been a little lessflippant if he had heard the number of com-rades standing near Outsider who said theywished the “bloody minister” had takenKeating’s call.

““AS an old hack from the CanberraPress Gallery, Outsider fondly recallshis days reporting on the antics of ourelected representatives. It goeswithout saying that he likes to keep hisear out for the odd bit of politicalscandal or faux pas.

So it was with a good measure ofrelief to Outsider and the long suffer-

ing voters of the emerald state, thatNSW Liberal leader Barry O’Farrellmanaged to bring a bit of comic reliefto an otherwise decidedly beige stateelection campaign the other week.

While out on the hustings, O’Farrellvisited a Chinese herbalist. Nothingstrange there, you’d think.

O’Farrell then asked the herbalist

for a remedy for ‘a winning election’.The herbalist suggested all manner

of exotic ingredients and startedreaching for the rhino horn.

“No, no,” replied O’Farrell. “I said‘election’.” Boom-tish!

It would seem the Coalition’s recentwin in NSW delivered O’Farrell both.

Outsider


“Qantas is getting the most out ofthis merger.”

AMP managing director Craig Meller

explained just how much travel between

Sydney and Melbourne was needed to

finalise the AXA/AMP merger.

“I’ll get through my part quickly,so I can eat when others takeover.”

AXA general manager of sales and

marketing,Adrian Emery,did not want

his medium rare to go cold just because

he had to present new features of the

North platform to a bunch of journalists.

“That’ll be Paul Keating callingto tell me I’m wrong ... or maybeit’s mum.”

Bill Shorten joked with delegates at the

Conference of Major Superannuation

Funds that the person on the other end of

his ringing phone was probably calling

about the Government’s decision to tie

the lifting of the super guarantee to the

Mineral Resources Rent Tax.

Out ofcontext

Worth the wait?

Subtle as a steamroller

A potent remedy

THOSE who know Outsiderwell are aware of his uncon-trollable habit of sayingexactly what he thinks, espe-cially to the faces of others –which is why Mrs O alwayscarries a muzzle in her purse.

But it seems Outsider isnot alone in this habit and,unfortunately, Mrs O wasn’tat hand when MoneyManagement managingeditor Mike Taylor spoke hismind this time at the Confer-ence of Major Superannua-tion Funds on the Gold Coast– much to the horror of agood number of public rela-tions professionals.

While addressing a room

filled with fund trustees andspin doctors during a ‘Meetthe Trade Press’ session,Taylor was asked how thefunds could better work withjournos to get their mugs inthis esteemed publication.

Being nothing if not blunt,Taylor promptly told dele-gates the best answer toworking with the media was:“Don’t spend $180 an houron a PR firm when you canpick up the phone and call usfor a measly 30 cents.”

Although no uproar washeard from those PR consult-ants lucky enough to besitting in the audience,Outsider can only imagine it

was probably more out offear than from havingnothing to say.

But instead, they saved uptheir comments for Taylor’spoor offsider, who wasimmediately inundated withcomplaints about feelingshocked and offended byTaylor’s highly unwarrantedsledging.

But while the offsider wasbusy dealing with distresseddoctors of spin, Outsidercouldn’t help but notice thatas Taylor strode out of theconference room he had thelook of a man dusting hishands together as if to say‘my work here is done’.

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

Money Management (April 7, 2011)

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Transcript of Money Management (April 7, 2011)