Money Management (July 14, 2011)

www.moneymanagement.com.au

The publication for the personal investment professional

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By Chris Kennedy

CONCERNS have been raised that mid-level planning firms could be eliminatedin the wake of the Government’s Futureof Financial Advice (FOFA) reforms.

In order to remain viable followingthe removal of volume-related pay-ments, some planning businesses mayneed to either vertically integrate serv-ices by bringing platform or productofferings in house, or merge with othergroups.

This shift has been highlighted byrecent movements such as the mergerbetween Snowball and Shadforth,Count Financial’s announcement thatit would look to move strategic platformofferings in-house, and the proposedacquisition of DKN by IOOF.

The restructure could see the disap-pearance of planning groups withbetween 25 and 250 advisers, accord-ing to Professional Investment Servicesmanaging director Grahame Evans.

Smaller licensees won’t have theresources to move offerings in-housethe way Count plans to because mid-tierfirms won’t have the appropriate scaleto survive, he said.

There is even a chance the industrycould see smaller institutions like IOOFswallow up larger non-aligned groupssuch as Count, then in turn be swal-lowed up by larger institutions like AMP,eventually resulting in four major banksand one major life company with arange of smaller boutiques.

“That will mean the industry will berun by five big institutions, and that can’tmean a better outcome for consumers,”

FOFA could eliminatemid-tier firms

HILLROSS TARGETS HIGH-NET-WORTHS: Page 4 | KEEPING INFLATION IN CHECK: 8

Vol.25 No.26 | July 14, 2011 | $6.95 INC GST

By Lucinda Beaman

A STAGNANT investment environmenthas stifled the oxygen of start-up capitaland inflows for new investment busi-nesses over the past year, particularlythose wanting to stand without an insti-tutional backer.

But researchers agree the continuingtrend of consolidation among the indus-try’s bigger players may be the precur-sor to new boutique managers openingtheir doors.

Standard & Poor’s head of fundresearch, Leanne Milton, and Morn-ingstar co-head of fund research, TimMurphy, agreed that the ones to watchover the coming six months will be themanagers affected by UBS’s acquisitionof ING Investment Management, one ofthe biggest independent investmentmanagers in Australia, with the dealexpected to close in the fourth quarter.

Meanwhile, Perpetual’s star stockpicker and the man responsible for thegroup’s $6.1 billion Concentrated EquityFund, John Sevior, made waves late lastmonth when he indicated he may notreturn to his post at the helm of Perpet-ual’s Australian equities capabilities.

Perpetual shares took a dive as specu-lators considered whether Sevior wouldfollow in the footsteps of Peter Morganand Anton Tagliaferro in setting up his

own shop, taking substantial numbersof investors with him. The hit on Perpet-ual’s share price once again highlightedthe need for institutions to continue tocreate boutique structures within abigger brand.

“Some of the more mainstreammanagers have made s ignif icantprogress in replicating some of the char-acteristics of the boutiques both in termsof creating the right alignment and

New hope for boutiques

By Mike Taylor

A SIGNIFICANT number of financial plan-ners believe the implementation of theGovernment’s Future of Financial Advice(FOFA) changes will not only cost themmoney, but also lose them clients.

That is the bottom line of a survey conduct-ed by Money Management last week, with asignificant number of respondents claimingthat the advent of the two-year opt-in wouldresult in a loss of B and C clients.

The survey also confirmed a beliefamongst planners that the administrativecosts around the two-year ‘opt-in’ would besignificant.

Asked what they believed would be thecost per client of handling the two-year opt-in, 18 per cent said it would cost $100 whilea further 49 per cent said it would cost morethan $100 per client, with 14 per centsuggesting it would cost in the order of $75per client.

The survey outcome is significant becauseit follows on from suggestions made duringrecent Parliamentary Committee hearingsthat the Government no longer accepted the$100 per client industry estimate first refer-

enced by Treasury officials.The Money Management survey also

suggested many financial planners expect-ed to lose a proportion of their B and Cclients as a result of the opt-in arrangements.

Asked whether opt-in would alter themake-up of their client base, 44 per cent ofrespondents said they expected to lose aproportion of their B and C clients, while afurther 23 per cent said they would be active-ly focusing on just their A and B clients.

Thirteen per cent of respondents said they

did not believe opt-in would significantlyalter their client base, while a further 11 percent said the only clients likely to be affect-ed were those with whom they had onlyirregular contact anyway.

Confirming the planning industry’s gener-ally negative view of the FOFA changes, thesurvey found that most respondentsbelieved the Government’s proposals wouldhave an overwhelmingly negative impacton their businesses.

Asked whether they believed FOFA had

created opportunities or just threats, 62 percent of respondents said the changescontained no benefits and only threats.

However, 31 per cent of respondentsacknowledged that while the FOFA propos-als contained threats they had also createdopportunities.

The results follow on from an earliersurvey indicating strong support for theindustry to pursue legal action challengingkey elements of the FOFA proposals, partic-ularly opt-in.

Clients will evaporate after FOFA, say planners

Grahame Evans Tim Murphy

What do you believe will be the cost per client of handling the Government’s two-year opt-in requirement?

Will the imposition of a two-year opt-in changethe make-up of your client base?

Do you believe FOFA has created opportunities or just threats?

10%

10%

14%

18%

49%

0 10 20 30 40 50 60

More than $100 per client $100 per client

$75 per client

$50 per client

$25 per client 11%

13%

32%

44%

0 10 20 %% %

30 40 50

Yes, I will lose a proportion of B & C clients

Yes, but I will be actively focusing on just my A & B clients

No, I do not believe opt-in will significantly alter my client base

Yes, but only those clients with whom I have irregular contact anyway

7%

22%

44%

0 10 20 30 40 50

FOFA contains no benefits, just threats to my business

FOFA has created both threats and opportunities

FOFA has its deficits but it has created opportunities for my practice

Source: Money Management

Graph Adviser attitudes on FOFA

Continued on page 3Continued on page 3

Losing the tactical plot

As any good general ought toknow, the key to achieving astrategic objective lies in havinga sound understanding of the

disposition of all the combatant forces.If the Assistant Treasurer and Minister

for Financial Services, Bill Shorten, hadunderstood this relatively simple militaryfact, then it is entirely probable that hewould today be much closer to achievingthe central objectives of the Government’sFuture of Financial Advice (FOFA)changes.

If he had only realised it, a window ofopportunity existed in April for Shortento gain grudging but nonetheless effec-tive industry support for the key elementsof FOFA. The major planning groupsbelieved they had been making progressin their discussions with Treasury and theGovernment and there was a belief thatenough compromises might be achievedto even make a form of ‘opt-in’ palatable.

All that changed the day Shortenoutlined the Government’s final positionon FOFA, which not only included thesomewhat expected two-year opt-in butalso included the ban on commissions onlife/risk inside superannuation.

To coin the old military cliché, Shorten’sinclusion of the life/risk commissions ban

within superannuation represented ‘abridge too far’. The Government mighthave been able to secure grudging indus-try acceptance of a two-year, three-yearor even five-year opt-in, but it ruined itschances the day Shorten embraced thenotion of banning commissions onlife/risk in super.

The result has been that the Govern-ment’s pursuit of its FOFA agenda hasmoved from being a highly mobilecampaign based on some pragmaticassessments of what is reasonably ‘doable’into some old-fashioned trench warfarewith the planning industry having ‘dug in’to fend off what it sees as ‘twin nasties’.

Shorten indicated in his recent addressto the Association of Financial Advisers(AFA) that the Government, having heardthe arguments of the financial planning

industry, would not be changing itsapproach on opt-in or on life/riskcommissions in super.

However, there is every indication thathe is uncomfortable with the amount ofpushback he has been getting from somesections of the financial planning indus-try, and the likelihood that it will bereflected in amendments imposed on thelegislation he ultimately takes to theHouse of Representatives.

While recent surveys conducted byMoney Management and others havesuggested that financial planners aretotally opposed to the FOFA package, thisoverlooks the reality that many of theproposed changes – such as a best inter-ests requirement and fee-for-service – havealready been embraced by the industry.

In these circumstances, Shorten mightconsider taking a leaf out of the playbookof former Prime Minister, Bob Hawke –the pragmatic industrial negotiator whounderstood that good legislativeoutcomes were delivered by understand-ing what needed to be achieved and thenfinding sufficient common ground amongthe key stakeholders.

Hawke would not have gone a ‘bridgetoo far’.

– Mike TaylorABN 80 132 719 861 ACN 000 146 921

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“Shorten’s inclusion of the life/risk commissionsban within superannuationrepresented ‘a bridge toofar’. ”

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Average Net DistributionPeriod ending March '1110,207

By Chris Kennedy

A CONDITIONAL exemption hasbeen granted for Australian advis-ers to be able to continue to serviceclients in New Zealand.

New laws in New Zealand effec-tive from 1 July 2011 effectivelyprohibit Australian financial advis-ers from giving advice to anyone inNew Zealand, even if it is in relationto their Australian financial affairsor Australian financial products,according to Holley Nethercotelawyers.

Advisers servicing New Zealandclients from this date may be inbreach of the New Zealand finan-cial advisers regime, the firm stated.

But on 30 June, in response to anapplication from Holley Nethercoteto New Zealand government regu-

lators the Financial Markets Author-ity (FMA), an exemption wasgranted providing conditional relieffrom many of the obligations set outin the New Zealand legislation, thefirm stated.

The Financial Advisers (AustralianLicensees) Exemption Notice 2011means Australian Financial ServicesLicensees can advise to New Zealandclients without having to adhere toall of the requirements of the NewZealand regime provided they meetcertain requirements, according toHolley Nethercote.

Licensees would need to becomea member of a suitable NewZealand dispute resolution scheme;register as a f inancial ser viceprovider in New Zealand; appointan agent for receiving notices inNew Zealand; prepare writtennotice to the FMA informing it thatlicensees will be acting in accor-dance with the exemption; andprepare a written disclosure foradvisers to provide to New Zealandretail clients.

www.moneymanagement.com.au July 14, 2011 Money Management — 3

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New hope forboutiques

“ Advisers servicingNew Zealand clientsfrom this date may be inbreach of the NewZealand financialadvisers regime. ”

he said. “There is a grabfor distribution that will bewon by the institutions, andthat will mean those advis-ers will be using a lot ofwhat the institution says inthe way of product.”

Evans also questionedthe view that it is okay forproduct manufacturers tovertically integrate down-stream, snapping up dis-tribution channels, but notupstream from distributionto manufacturing.

“I can’t see any fairnessin that approach, it’s dis-criminatory and there’s nobasis for it,” he said.

This call was echoed byMatrix Planning Solutionsmanaging director Rick DiCristoforo. “Vertical inte-gration is vertical, it does-n’t mean just downward orjust upward,” he said.

Matrix has not left anyoptions off the table interms of strategy, includ-ing vertically integratingproduct or platform offer-ings, but any changes willdepend on the draft FOFAlegislation, he said.

This is not the preferredoption, but dealer groupshave an imperative to stayin business for the benefitof clients, and providingadvice to clients alsoneeds to remain thenumber one priority foradvice groups, he said.

PIS already has anumber of in-house funds

management and platformofferings, but Evans wascareful to point out thateach was run by a sepa-rate team to the planningbusiness and neitherfeeds into the other.

“We like to do thingswe’re best at and out-source things that are anon-core competency,” headded.

DKN chief executive PhilButterworth said there isa continuing land grab fordistribution by institutions.

He said DKN had beengrowing well organicallyand was looking to partici-pate in some acquisitionsbut will now be one ofthose land grab opportuni-ties for IOOF.

This process will likelyaccelerate because thereneeds to be a drivetowards scale and consol-idation to ensure firmscan drive efficiencythrough the advice pro-gram, he said.

FOFA could eliminatemid-tier firmsContinued from page 1

incentives to retain their key stock pickers,” Milton said.It’s a strategy groups such as Challenger have

embraced, with great success. Challenger’s boutiquestable is expected to hit $15 billion in funds undermanagement in this year’s end of financial yearresults on the back of recent additions, includingAlphinity Investment Management.

Of the new groups to open doors over the past year,including Avoca Investment Management, establishedby former UBS portfolio managers John Campbell andJeremy Bendeich, additional financial and administra-tional support from a bigger player is a must.

But even those boutiques without an institution-al partner are relying heavily on the big end of townfor mandates, with most advisers and retail investorspreferring to sit on the sidelines for now.

For more on boutiques, turn to page 14.

Rick Di Cristoforo

Continued from page 1

News

By Chris Kennedy

AMP-owned dealer group HillrossFinancial Services is looking tosignificantly grow its business bothorganically and inorganically, andwill continue to target high-net-worth clients, according to manag-ing director Hugh Humphrey.

The group can achieve relative-ly aggressive double-digit practicegrowth through practice start-ups,targeted practice acquisitions and

also practice onboarding, wherepractices join Hillross from otherlicensees, Humphrey said.

In the current uncertain envi-ronment there’s a lot of interestin the Hillross proposition andthe group is honing its skills interms of onboarding and makingsure it can integrate businessessmoothly, he said.

“We’re seeing a lot of activitywithin our practices at themoment, making smaller acquisi-

tions as planners think about theirfuture in a post-[Future of Finan-cial Advice] environment, andpractice development,” he said.

The group will also seek to realisemore value from AXA/AMP, withmany advisers keen to access AXA’sNorth platform, with support alsoprovided around technology and ITsupport, an adviser supporthelpdesk, administration and para-planning – as well as help to stream-line Statement of Advice produc-

tion by taking out duplication andrepetition, and reducing the turn-around time on some of the logisticsof providing advice, he said.

Hillross will also look to help itsfirms drive double-digit percentagerevenue growth, he said.

The group will maintain its high-net-worth (HNW) and affluentclient focus, with around $3 billioninvested by the top 2 per cent of Hill-ross clients, he said. The group alsomaintains the highest funds under

advice (FUA) per adviser of anygroup in the country at just over $40million FUA per adviser, accordingto Comparator, he said.

Govt turnsto MedicareBy Mike Taylor

THE Federal Government hasagain turned to Medicare todeliver a superannuationservice – this time the admin-istration of the compassion-ate early release of superan-nuation entitlements.

The Government earlierturned to Medicare to providethe administrative arrange-ments around its free super-annuation clearing housefacility for small employers.

The move has been wel-comed by the superannua-tion industry with Associationof Superannuation Funds ofAustralia (ASFA) chief execu-tive, Pauline Vamos, sayingthe use of Medicare wouldmake things easier for peoplesuffering hardship and requir-ing compassion early releaseof super entitlements.

“It is a commonsense solu-tion for early release to beadministered by a body thatalready has a customer serv-ice operation in place as wellas the appropriate systems toassess and deal with claimson compassionate grounds,”Vamos said.

Announcing the changes,the Assistant Treasurer, BillShorten, said Medicare hadbeen managing the claimsfor almost six monthsunder delegation from theAustralian Prudential Regu-lation Authority (APRA).

He said that while APRAwas responsible for admin-istering the early releasearrangements, the functiondid not fit well with the reg-ulator’s role.

Shorten said the Govern-ment believed the functionwould be administeredmore cost-effectively follow-ing formal transfer to anagency which had an effi-cient customer supportinfrastructure.

Hillross targets growth, HNWs


Hugh Humphrey


News

By Milana Pokrajac

FINANCIAL planners have indi-cated platform providers arenot delivering well enough ontheir direct share offerings, withplanner satisfaction remainingflat in 2011, according to a newreport released by researcherInvestment Trends.

Investment Trends 2011 Plan-ner Direct Equities Report foundmore than one-third of financial

planners preferred platforms overstockbrokers for direct share trad-ing, but only 16 per cent of usersrated the offering as ‘very good’.

According to investment ana-lyst Recep Peker, platformshave improved satisfaction byfixing some of the shortcom-ings identified in previous sur-veys, but new gaps are fastemerging – particularly in areasaround shares research, timeli-ness of data and pricing.

“We are also finding that plan-ners are increasingly open toswitching platforms for directshares in 2011,” said Peker.

“With planners increasinglyopen to moving, platforms andbrokers alike have the oppor-tunity to compete for a grow-ing slice of planners’ busi-nesses through their directshares offering.”

The survey also found plannerswere increasingly allocating to

direct share investments andwere recommending them to awider range of clients, particularlythose with self-managed superfunds and over $100,000 ininvestible assets.

Peker noted planner confi-dence on direct shares was grow-ing, but that client demandremained the most common cat-alyst to further advice on thisasset class (cited by 37 per cent,but down from 52 per cent).

New gaps identified in platform share offerings

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Recep Peker

IPA seeks legalprivileges fortax advisers

THE Institute of PublicAccountants (IPA) has calledon the Federal Governmentto extend legal privilege to taxadvice provided by profes-sional tax advisers.

Under current legislation, taxagents do not receive the sameprotection as lawyers, althoughthey do advise on tax law.

The IPA argued suchprotection was long overdue,with the United States, UnitedKingdom and New Zealandhaving extended legal privi-lege to their professional taxadvisers.

The IPA senior tax adviser,Tony Greco, said it was in thebest interest of the public forprofessional tax advisers tohave the same legal protectionsand safeguards as lawyerswhen it comes to tax advice.

“Consumers should be ableto have frank and honestconversations with their taxaccountant without worryingthat their communications arenot confidential and could belater subject to the AustralianTaxation Office [ATO] over-sight,” Greco said.

In 2007, the independentAustralian Law ReformCommission recommendedthat privilege should beextended to tax advice createdby an independent profes-sional adviser who was a regis-tered tax agent.

The IPA argued it wasinconsistent that this class ofprofessional advisers couldnot avail themselves of thesame benefits as lawyers whoprovided legal advice and weregranted the benefits of legalprivilege.

“Tax practitioners areexpected to provide profes-sional advice to taxpayers; itis high time that the lawreflected the importance ofsuch advice and protectedthe parties in question,”Grego said.

News


By Ashleigh McIntyre

AS the focus of retirees shifts from with-drawing superannuation as a lump sumto rolling it over into an account-basedpension fund, research firm CanstarCannex has named the top 10 pensionoptions available to everyone.

The account-based pension funds thatreceived a five-star rating were from AGESTSuper, AMIST Super, AMP Flexible Super,BUSSQ, Energy Super, First State Super,

LUCRF Super, Media Super, MLCMasterKey Fundamentals and VicSuper.

Of the funds that scored a five-star rating,AMP Flexible Super’s Core and Selectoptions were the only retail products to topthe list for all types of balances, while FirstState Super topped the industry funds.

According to Canstar Cannex head ofresearch Steve Mickenbecker, the firmcompared 77 pension funds out of auniverse of 350 based on low, medium andhigh super account balances. It eliminat-

ed those with restricted entry such ascorporate, industry and employer funds.

“Our number one criterion was tocompare only those funds which any one ofus could join without going through anintermediary such as a financial planner,”Mickenbecker said.

The funds were further judged on 80features, including the available investmentoptions, payment options, continuance ofinsurance, availability of advice, perform-ance and investment strategy.

Victorianfinance brokerbanned for lifeBy Angela Welsh

A VICTORIAN financebroker has been perma-nently banned fromengaging in credit activi-ties after she was convict-ed of fraud offences.

Kristy Ann Lake, theformer director andsecretary of ClearwaterFinancial Systems,received the AustralianSecurities and Invest-ments Commission(ASIC) ban after plead-ing guilty in March thisyear to two charges ofobtaining property bydeception.

The case was heard inthe Melbourne Magis-trates Court in March thisyear, and Kew was foundto have acted in breach ofsection 81 of the CrimesAct 1958 (Vic).

In May and July 2008,Lake submitted loanapplications to twofinancial institutions,falsely using anotherperson’s name. Eachapplication was success-ful, and Lake managed toobtain a loan of $12,655on the first occasion and$13,149 on the second.

The frauds wereuncovered in late 2010when loan providerscontacted the personwhose name was falselyused, after Lake hadstopped making repay-ments. The matter wasreported to VictoriaPolice and ASIC.

Following Lake’s guiltyplea in March this year,ASIC started the processto bar her from takingout any future loans.

Lake has the right tocontact the Administra-tive Appeals Tribunal torequest a review of ASIC’sdecision.

AMP tops list of best pension funds open to all

AUI refinanceshealthcarefund

By Chris Kennedy

INVESTOR distributions inthe Australian UnityInvestments HealthcareProperty Trust will beboosted by a $200 millionrefinancing loan, accord-ing to AUI.

The new three-year loanis at a lower interest ratethan the previous loan ofthe same amount, accord-ing to AUI. The new financ-ing arrangements areprovided by four top-tierbanks, three of which tookpart in the previous facility,the group stated.

There was a good level ofcompetition among thebanks for the loan, showingthat conditions hadimproved and demonstrat-ing the quality of the assets,according to CarolynIreland, AUI’s head ofcapital markets.

Ireland estimatedinvestor distributionswould increase more than1 per cent, taking theannual distribution close to8 per cent.

AUI head of healthcareand retirement propertyfunds Chris Smith predict-ed a standout year forhealthcare property on theback of a positive first halfof 2011 and strong overseasinvestor interest.

“Healthcare property hasmaintained its value verywell and given investorsexcellent returns, despitethe recent economic prob-lems and softening proper-ty values in some sectorsand locations,” he said.

The ageing populationwould generate ongoingelevated need for medicaland health services withhigh long-term occupan-cy demand contributing tostrong yield for investors,he added.


News

OnePath program to help advisers through FOFABy Milana Pokrajac

ONEPATH has launched aprogram called FutureReady,which is aimed at preparingadvisers for the post-Futureof Financial Advice (FOFA)environment.

The company said theonl ine “knowledge hub”would provide financial plan-ners with information on

FOFA impacts for advice pro-fessionals and tools toguide them to successfullytransition to fee-for-service.

ANZ general manager ofadvice and distribution, PaulBarrett, announced the pro-gram, saying the upcomingreforms would bring signifi-cant change to manyaspects of the advice pro-fession, affecting the way

advice is provided.“We work with a large

number of advice busi -nesses across the country,and the FutureReady toolkitincludes examples of thingsthat we have seen work,”Barrett said.

“The program leveragesour internal technical andregulatory specialist knowl-edge, as well as expertise

from the Encore Group,” headded.

The FutureReady programalso includes an online step-by-step guide and toolkit tohelp advisers transition to asuccessful fee-for-servicebusiness model.

Barrett said the programwould be available to al ladvisers via the OnePathAdviser Advantage website. Paul Barrett


News

Govt urged to tighten default fund rulesBy Mike Taylor

EMPLOYERS should berequired to give employees arole in selecting their defaultsuperannuation funds, andthose funds should bereviewed at least every fiveyears, according to law-basedindustry superannuation fund,Legalsuper.

At the same time as Govern-ment committees investigatethe implementation of theCooper Review recommenda-tions including MySuper, Legal-super has called on the FederalGovernment to tighten the rules

governing employer choice withrespect to default funds.

Legalsuper chief executiveAndrew Proebstl said thatunder current arrangementsthe primary legal obligation onemployers was to select adefault fund rather than tochoose a ‘good’ default fund fortheir employees.

He said new rules wereneeded because mostAustralians continued toaccept that the default fundchosen by their employer wasthe result of the employerhaving followed due process.

“By increasing transparen-

cy and eliminating conflict ofinterest in the default fundappointment process, theFederal Government canimprove the quality ofAustralia’s default funds andbetter align the default fund

chosen with the interests ofemployees who, ultimately, areowners of the accumulatedretirement savings,” he said.

The call by the LegalSuperCEO has come at the sametime as news reports havesuggested the AustralianPrudential Regulation Author-ity held concerns about thetrouble-plagued industrysuperannuation fund MTAASuper over a number of years.

The reports also suggestedthe regulator’s 2010 review ofMTAA Super had been“sharply critical” of the superfund’s conduct.

PFA tips propertyfunds growthBy Chris Kennedy

THE property funds management sector is prepar-ing for a period of growth, planning capital raising,hiring and acquisitions, according to a PropertyFunds Association (PFA) member survey.

More than half of members are planning onraising capital in the next 12 months, half intendto make an acquisition in that period, and morethan half are planning on adding new staff in thesame period, said Robert Olde, president of thePFA (formerly the Australian Direct Property Invest-ment Association).

The new hires are expected to be predomi-nantly business development managers, as wellas asset management and administration roles,according to the survey.

The results highlight that PFA members arepositive about the market outlook and are lookingto cater for investment demand, Olde said.

Of those looking to make an acquisition,37 per cent intended to do so through thepurchase of an asset, and 10 per centplanned to acquire a fund or a business –significantly down from the previous surveywhen 75 per cent of managers were lookingat mergers and acquisitions activity, he said.

“We think this is a solid sign that stability andconfidence are returning to the sector,” Olde said.

More than 70 per cent of those raising capitalintended to invest in the office sector, 42 percent in industrial property, 28.6 per cent in retailand 21.4 per cent in residential, the survey found.

Just over half of respondents would be lookingto source capital from private investors, half fromfinancial advisers and institutional investors, 42per cent from high-net-worth and family office,and 42 per cent from self-managed superannua-tion funds, the survey found.

Several managers had reported successful cap-ital raisings in recent months, which along withpositive investor sentiment suggested that nowmay be the right time to re-enter the direct propertymarket, Olde said.

Wealthsure takes on Seagrims advisersBy Benjamin Levy

DEALER group Wealthsure willtake on a number of financialplanners from suspended finan-cial planning firm Seagrims asauthorised representatives, andprovide advice to the 4,000Seagrim clients affected by thecollapse of Astarra Strategic fund,according to Wealthsure manag-ing director Darren Pawski.

Wealthsure is working closelywith the Australian Securities andInvestments Commission (ASIC)about taking on advisers former-ly employed by Seagrims, Pawskitold Money Management. Onlythose advisers who were found tobe ‘clean’ by ASIC would be takenon by Wealthsure, Pawski said.

In a letter sent by Seagrimdirector Peter Seagrim to thegroup’s clients and obtained byMoney Management, PeterSeagrim revealed that ASIC has

decided to “temporarily” suspendthe group’s AFSL licence due tothe regulator’s concerns overnegligent Statements of Advice(SOAs) and disclosure issues.

ASIC found that Seagrim hadfailed to adequately ascertain orrecord from 20 clients whethertheir personal financial circum-stances had changed beforemaking investment recommen-dations. This resulted in at least 20negligent SOAs provided to thoseclients.

ASIC also found that Seagrimsdid not properly disclose thesharing of advertising expensesbetween the owners of theSeagrims Retirement Funds andDiversified Funds, otherwiseknown as Astarra. Seagrims alsofailed to disclose to clients thewages of Astarra’s administra-tion staff who helped to processnew client applications.Concerns with Seagrim’scompliance processes were alsoraised by ASIC.

Peter Seagrims informed clientsthat while the company was insuspension, its advisers wouldbecome corporate authorisedrepresentatives of Wealthsure.Both Peter and Anne-MarieSeagrims will not work withWealthsure, Pawski said.

ASIC has banned both Peterand Anne-Marie Seagrim fromproviding financial services forthree years.

Enforceable undertakings for Trio directorsBy Angela Welsh

FORMER Trio Capital directors RexPhillpott and Natasha Beck have enteredinto enforceable undertakings with theAustralian Securities and InvestmentsCommission (ASIC) with Beck also enter-ing into a similar undertaking with the Australian Prudential RegulationAuthority (APRA).

Trio was formerly the trustee of fivesuperannuation entities and the respon-sible entity for 25 managed investmentschemes. These included the AstarraStrategic Fund, comprised of hedgefunds that had reported assets of $125million in December 2009.

The Astarra fund invested in severaloverseas hedge funds, mostly based inthe Caribbean. ASIC raised concernsabout the legitimacy of these invest-ments and commenced an investigationin October 2009, and Trio was placed intoadministration in December that year.

Phillpott was the chief executive

officer, director and secretary of Triofrom October 2005. He was also on therisk and compliance committee.Phillpott has agreed with ASIC not toact as a director of any corporation orin any role within the financial serv-ices industry for 15 years.

Beck was non-executive director ofTrio from June 2008 and was amember of the investment committeefrom September 2009. She has agreedwith ASIC not to act in any role withinthe financial services industry for twoyears. She has also agreed not to actas director of any corporation for twoyears, with the exception of RumiHoldings, a company of which she isthe sole shareholder.

Beck has also acknowledged APRA’sconcerns that she failed to carry out herduties properly as director of a superan-nuation trustee. She has further recog-nised the five-year disqualificationperiod deemed to be fitting by APRA forthe nature and extent of the concerns.

During this time, Beck would not bepermitted to act as a trustee or as aresponsible officer of a body corporatethat is a trustee, investment manageror custodian of an APRA-regulatedsuperannuation entity.

However, as Beck sought to resolveAPRA’s concerns at an early stage and hasagreed to cooperate with the investiga-tion, APRA has agreed to accept herundertaking to remain out of the super-annuation industry for four years. Shemay also be entitled to reduction of twoyears, subject to her continued assistancewith the investigation.

The current enforceable undertakingsfollow the guilty plea of former AstarraStrategic Fund director and investmentmanager Shawn Richard. Richard iscurrently on bail awaiting sentence.

The Astarra fund wound up in April2010, under a NSW Supreme Court order.Since this time the liquidator of Trio hasbeen unable to recover the vast majori-ty of the investments made by the fund.

Andrew Proebstl

BT FINANCIAL Group boutiqueAscalon Capital Managers haslaunched a retail version of itsArkx Investment Managementclean energy fund.

The company announced thelaunch to retail clients last week,claiming it would give investorsexposure to listed companiesoperating in clean and renewableenergy sectors, including solar,wind, hydro and geothermalenergy.

Commenting on the launch,Arkx managing director GeoffEvison said that with energy con-sumption growing quickly andgovernments around the worldresponding to climate change,pressure was building for funda-mental structural, economic andsocial change in favour of cleanenergy.

The company claims the fundis suitable for investors with along-term focus, with the objec-tive being to outperform theMSCI World Index after thededuction of fees and expensesin Australian dollar terms over arolling five-year period.

Ascalon launches retailclean energy fund

DarrenPawski

News


ACCOUNTING jobs are up around20 per cent compared to the sametime last year, despite a slight dipin the month of June, according toAmbition’s Accounting Jobs Index.

Contract and per manentaccounting jobs for June 2011 wereup nationally year on year by 19.3per cent, indicating the underlyingstability of the improving jobsmarket, Ambition stated.

The increase was led byMelbourne (up 25.6 per cent) andBrisbane (up 23.1 per cent), withnational growth strongest fromNovember 2010 to March 2011before a large dip in April.

That stall corresponded with a

recent dive in the stock market,said Gavin Houchell, managingdirector of Ambition Finance &Accounting.

“The supply of candidates isthere but this is a demand-drivenhesitation,” he said.

“We’ve seen the trend towardsnew job creation cool ing off .Demand is the key driver at themoment but it’s currently a ‘waitand see’ scenario for employers,”Houchell said.

The recent dip in accounting jobnumbers is more like a temporarycorrection and Ambition is stilloptimistic about the second half of2011, he said.

Boutique firm joins SecuritorBOUTIQUE planning firm Minchin Moore Private Wealthhas joined BT Financial Group’s (BTFG’s) Securitornetwork, BTFG announced.

Minchin Moore Private Wealth is the result of a mergerbetween existing Securitor firm Minchin Private Wealth,which was founded last year by lead adviser Mark Minchin,and an established Sydney-based practice founded by PeterWilliams that operated under a different Australian Finan-cial Services Licence, Securitor stated.

The firm consists of six advisers and three support staff,and advises on around $400 million on behalf of clients,according to Securitor.

Williams has 25 years of experience managing a finan-cial advice practice catering to the needs of ultra high-net-worth clients, and in 1984 founded chartered accountingpractice Williams Hatchman & Kean, now part of thepublicly listed WHK group, Securitor stated.

Williams has brought his client book to the new firm, ofwhich he is a co-founder, and BTFG head of dealer groupsMatt Englund descr ibed the acquisit ion as a coup for Securitor.

“We are delighted to welcome Minchin Moore PrivateWealth into the fold as the quality of the business is theright cultural fit with Securitor: a boutique advisory firmspecialising in personalised strategic advice firmly focusedon the needs of their clients,” Englund said.

Securitor is looking to organically grow practices as wellas acquire new businesses but is focusing on qualitywithout compromise, Englund said.

The new firm also features new advisers Nick Mundyand Tom Jeffries, formerly with BT Financial Group, andoperations manager Jenny Wong, formerly of AMP andMacquarie. The three join existing Minchin Private Wealthadvisers Angus Sedgwick and Mark Minchin.

Williams said he wanted to join forces with a dealergroup that would allow the firm to flourish within its own business model and that provided industry leadingsupport services.

Developed and emerging markets fallBy Chris Kennedy

DEVELOPED equity markets globally fell 1.79 percent in June, but still fared better than emergingmarkets, which collectively fell 2.06 per cent for the month, according to Standard & Poor’sIndices.

Developed markets performance was boostedby leaders Germany and Japan, which each gainedaround 1.8 per cent, while many northern Euro-pean markets underperformed, with Sweden theworst performer, down 5.29 per cent.

Emerging market performance in June was ledby the Philippines, Malaysia and India, which each

improved more than 1 per cent, while at the otherend Peru dropped 11.49 per cent and Morocco5.75 per cent.

Despite last month’s figures, developed mar-kets are up 4.26 per cent for the year to date ledby a 14 per cent gain in France.

Emerging markets are down 2.23 per cent forthe first half of this year, although predictablythere was a far greater divergence in individualmarkets, ranging from Peru (down 25.41 per cent)to Hungary (up 20.63 per cent).

The results are based on the S&P Global BroadMarket Index, which covers approximately 10,000companies in 45 countries.

By Milana Pokrajac

AMID continuing speculationthat more of AXA’s practices aredeparting for MLC, it is under-stood that most of them havedecided to stay, signing a so-called ‘welcome package’.

By signing the welcomepackage, most of AXA’s practiceshave agreed to receive volumebonus-type payments for threeyears under its value participa-tion scheme.

The welcome package, whichapparently comes with no addi-

tional conditions of commitment,also includes discounted businessloans from AMP Bank, as well asenhanced marketing and educa-tion support.

Rumours about a number ofAXA practices switching over toMLC have surrounded the

AXA/AMP post-merger period,with a number of key executivesalso making the move.

Three managers from AXA’ssenior ranks have moved to MLCand NAB Wealth’s retirement solu-tions team, after Andrew Barnettmoved over to head up the retire-

ment solutions team. For moreinformation on the new recruits,please refer to the ‘Appointments’section on page 27.

Most AXA practices signing welcome package

Accounting jobs up on 2010


News

By Milana Pokrajac

UNCERTAINTY around the Gov-ernment’s proposed carbon taxmight be responsible for manyAustralians turning their greeninvestment dollars towards off-shore markets and away fromenergy projects in Australia.

Luxembourg-based privateequity firm, Polaris Energy,reported it had received anincreasing number of enquiriesfrom Australians over the pastnine months regarding investingin the renewable market inEurope.

Polaris Energy’s strategicadviser, Samuel Wilson, saidit appeared that Australianswho are interested in invest-ing in renewable energy seeksustainable investments bothfrom an environmental andmarket perspective.

“And despite any pendingagreement on carbon taxationthe uncertainty won’t stopthere,” Wilson said.

“There will still be debatewith regards to commitment torenewable energy in the Aus-tralian market, with strongpolitical resistance, resistance

on tariffs, and consistentuncertainty at the domesticrebate level – all of which hasbeen driving investors ourway,” he said.

The European Union hadagreed to binding targets toincrease the share of renew-able energy in 2007, with Italyintroducing ‘feed-in-tariffs’ forsolar, which is guaranteed for20 years.

From this, Wilson said, Italybecame the world’s second-biggest solar market afterGermany.

“This provides a great invest-ment opportunity because thetariff rate is locked in for 20years; so, there is a clear mes-sage from the Italian govern-ment to the market around itscommitment,” he said.

Bell Potter completesSouthern Cross integrationBy Chris Kennedy

BELL Potter has formally combined the spe-cialist institutional business of SouthernCross Equities with the retail distributionnetwork of Bell Potter, three years afterBell Financial Group acquired SouthernCross.

Since then the two subsidiar y busi-nesses have operated separately pendingthe completion of the three-year earn-outperiod for Southern Cross that has nowexpired, allowing Bell Potter to take unre-stricted control of Southern Cross Equities.

Executive chairman of BFG Colin Bell saidthe integration gives the group a whollyAustral ian-owned, ful l -ser vice brokinghouse.

“Charlie Aitken now heads up the whole-sale business and Angus Aitken runs theinstitutional dealing desk, and James Ungeris in charge of equity capital markets. ALondon office was established in early2009 under Phillip Beard, and a Melbourneoffice was set up not long after, whichAnton Whitehead has recently been broughtin to manage,” Bell said.

“Steve Goldberg has recently joined us tohead up the research team which has beenrebuilt and strengthened. In total, SouthernCross has recruited about 30 new teammembers, spread over institutional deal-ing, corporate and research.”

The group has also recently appointedDean Surkitt to head up retail and MattFarr to run its Queensland offices, he said.

Wraps perform in mixed marketsDESPITE some mixedfortunes, the AustralianMasterfund market hasgrown by 3.3 per cent, withall the major companies,except IOOF and Perpetual,recording some growth inthe 12 months to the end ofMarch.

The latest Plan for Lifedata has revealed the totalMasterfund market gained$13.9 billion or 3.3 per centin the 12-month period, withinflows of $104.3 bill ion

being significantly up onthose for the previous 12-month period.

However, it said outflowshad also risen to $94.3 billion.

The Plan For Life dataconfirmed the dominance ofplatforms in the Mastertrustspace, accounting for 50.1per cent of the total marketwith $217.5 billion in fundsunder management.

It showed that inflows intoplatforms ($41.3 billion)made up 39.6 per cent of all

inflows, although significantoutflows of $40.7 billion hadalso occurred.

It said four groups heldover $20 billion in platformfunds under managementled by National AustraliaBank/ MLC ($49.4 billion)and Commonwealth Bank/Colonial First State ($48.9billion).

The Plan for Life data saidthat wraps comprised 35 percent of the total marketaccounting for $151.7 billion

in funds under management.It said inflows of $50.3

billion comprised 48.2 percent of the total, whilecomparatively lower outflowsof $44 billion gave wraps 63.1per cent of net fund flows.

The Plan for Life dataanalysis said BT Financial,National Australia Bank/MLCand Macquarie were theleading players in the market,with BT Financial holding21.4 per cent of funds undermanagement.

Strong backing for FOFA challengeBy Mike Taylor

A SIGNIFICANT number of financial plannerswant the industry to challenge key elements ofthe Government’s proposed Future of FinancialAdvice (FOFA) changes in the courts.

A survey conducted by Money Managementhas revealed 85 per cent of respondents believea challenge needs to be mounted against the

FOFA proposals and, in particular, the two-yearopt-in.

What is more, 80 per cent of those respondentshave indicated they would be prepared to helpfund such a challenge.

Money Management posed the issue of a legalchallenge to the FOFA proposals followingcomments by Victorian regional planning prin-cipal, Brian Handley.

Westpoint directors chargedBy Angela Welsh

FORMER Westpoint directorsNorman Carey and GraemeRundle have been charged ontwo breaches of the Corpora-tions Act.

I f c o n v i c t e d , t h e y f a c e amaximum penalty of five yearsin jail for each offence.

The charges, brought by theAu s t ra l i a n Se c u r i t i e s a n dIn v e s t m e n t s Co m m i s s i o n(ASIC), allege that the mencontravened sections 184(2)(a)and 601FD of the Act.

Specifically, ASIC allegest h a t Ca re y a n d Ru n d l ebreached their duties as offi-cers at Westpoint Manage-ment, and Westpoint Corpora-tion.

It is alleged that the breach-

es occurred when the two menexecuted deeds extending thetime for Westpoint Corpora-tion to exercise an option topurchase Perth’s Warnbro FairShopping Centre and adjoin-ing land.

The allegations further statethat these breaches involved at ra n s f e r o f t h e o p t i o n t opurchase the shopping centret o a Ca re y f a m i l y t r u s t e ecompany, Bowesco.

Westpoint Management wasthe responsible entity for themanaged investment scheme,Warnbro Fair Syndicate, whichowned the shopping centrea n d s u r ro u n d s. Ca re y a n dRundle were officers at bothWestpoint Management andWestpoint Corporation at thetime of the alleged offences.

The Commonwealth Direc-tor of Prosecutions will bringthe action before the courtwhen the matter returns toPerth’s Magistrates Court on 15July.

Rundle will be sentenced ont w o s e p a ra t e c h a rg e s n e x tmonth, after a jury found himg u i l t y o f m a k i n g f a l s e o rmisleading statements to afinancial institution.

The statements were madein support of $71 million creditfacility application to fund aWestpoint development of theScots Church project in YorkStreet, Sydney.

T h e v e rd i c t w a s h a n d e ddown on 24 June, and Rundlew i l l b e s e n t e n c e d i n t h eDistrict Court of NSW on 12August.

BNP Paribas IP launches fixed income fundBy Ashleigh McIntyre

BNP Paribas Investment Partners (BNPPIP) has launched a new fixed income capa-bility in a bid to capture interest frominvestors seeking a more defensive option.

The BNP Paribas Asset Management CorePlus Fixed Income Fund will target superan-nuation funds and insurance companies, butwill be available to retail investors throughseparately managed accounts (SMAs).

The SMA will invest in a portfolio ofbetween 10 and 20 fixed income andhybrid securities, which BNPP IP saidwould be the first of its kind in the marketavailable in that form.

The fund will be managed by an in-house team led by Doyle Mallett and willinvest mainly in Australian fixed incomesecurities, with up to 20 per cent to beallocated to global fixed income.

The global allocation of the fund will bemanaged by New York-based FischerFrancis Trees & Watts, a specialist singleand multi-currency fixed income investorthat is owned by BNPP IP.

Chief executive of BNPP IP AustraliaRobert Harrison said the advantage of thisstructure was that it gave the company anexperienced team in Australia to run theportfolio, while being able to leverage theglobal credit research of the global firm.Doyle Mallett

Carbon tax debate drivingAussie investors away

News


Borrowers look to fix ratesBy Mike Taylor

ONGOING speculation around risinginterest rates appears to have convincedmany Australians to lock-in to fixed ratehome loans, according to the latest datafrom Mortgage Choice.

According to Mor tgage Choice,demand for fixed rate loans reached itshighest level in five months in June,reaching 12.3 per cent of all approvals.

It said every state apart from SouthAustralia had seen a rise in the appetitefor fixed rate loans, with the largestincrease occurring in Western Australia,where demand rose from 9.4 per cent inMay to 14.2 per cent in June.

Commenting on the data, MortgageChoice spokesperson Kristy Sheppardsaid constant speculation about inter-est rate rises occurring in the latter halfof 2011 and beyond may have convinceda higher number of borrowers to simplylock in their rates.

She said July’s data would prove inter-esting because over the past monthseveral lenders had reduced their fixedrates on home loans.

“Now there’s one-tenth of a percentage point between the averagethree-year fixed rate, traditionally themost popular with borrowers, and theaverage basic variable rate,” Sheppardsaid.

Industry fundsfinish ahead onallocationsINDUSTRY funds’ generally lower allo-cations to unhedged investments andtheir higher exposure to unlistedassets will see them finish the finan-cial year slightly ahead of retailmaster trusts, according to the latestdata from Chant West.

Chant West principal Warren Chantis forecasting that the median growthfund will post a return of about 9 percent for the year to 30 June.

He said some funds will have per-formed better than others, and thathe was expecting an investmentreturn range of between 7 per centand 12.5 per cent.

However, Chant pointed to the factthat even with two years of positivereturns, growth funds had still notrepaired the damage imposed by theglobal financial crisis (GFC), with afurther 6 per cent in returns neededto return to the levels achieved inlate October, 2007.

He said that notwithstanding con-tinuing market volatility, he expectedgrowth funds to return to their pre-GFC levels in the new financial year.

Kristy Sheppard

York Capital to be wound upBy Milana Pokrajac

THE corporate regulator hasobtained orders to wind up YorkCapital Limited – a company oncereported to have been taken over byformer Fincorp director GraemeByers.

The Austral ian Secur it ies andInvestments Commission (ASIC)established the company failed tolodge its financial reports and hold

annual general meetings for the pastthree years.

The Federal Court of Australiaordered that York be wound up andappointed Paul Burness as liquidator.

ASIC’s investigation also foundYork Capital failed to appoint thestatutory minimum of three directorsand comply with a court order dated9 June 2009 which required financialaccounts be lodged with ASIC within28 days.


SMSF Weekly

EVERYONE knows the stereo-type of the ‘mum and dad’investors who have set up theirown DIY super funds and havemanaged to put one or two resi-dential properties within it. Buthow much further does proper-ty investment within SMSFs go?

Quantum Financial Advi-sors director Tim Mackay saidthat while the stereotype heldtrue, it was by no means thelimit of property investmentwithin self-managed superfunds (SMSFs).

“We’re not just talking aboutmums and dads here,” he said.“I’d argue that SMSF trusteesand members who are alsobusiness owners are likely tohave a particular interest hereas well.

“So, in particular, the abilityto get their own business

premises into their SMSF canbe an attraction for many ofour small to medium-sizedbusiness owners,” Mackaycontinued. “It gives them helpin their business, but it alsogives them the income that itthrows up in retirement,depending on what sort ofcommercial property it is.”

Similarly, Matrix FinancialPlanning managing directorRick Di Cristoforo said thatunder certain conditions, SMSFtrustees with a decent amountof money were opening theireyes a little to the commercialside of property.

“So while there may be lowergrowth, it satisfies an incomerequirement that perhaps othersectors don’t cover,” he said.“Most people talk about busi-ness real property and looking

at residential, and that’s prettymuch it – but within businessreal property, you generallysee people putting their ownbusiness real property into it,”Di Cristoforo continued. “Butthere’s also this whole ideathat I might not actually beoperating in that business

unit that I own down the backof Baulkam Hills.

“I can, however, still invest init via my SMSF because I’ve gotenough cash to do so.”

Asked whether SMSF prop-erty investment extended toinstruments like listed propertytrusts or real estate investmenttrusts, Mackay said that thosewishing to maintain a diversi-fied portfolio definitely hadthem in the mix.

“Our preference is actuallyvia the ETFs [exchange tradedfunds] which invest in REITs,”he said. “And if they’re trying toget a diversified portfolio, theyshould definitely have somecommercial property exposurein there.

“For us, having a low-costETF is probably one of the bestways of doing that.”

Super returns still recovering from GFCBy Mike Taylor

THE degree to which the global finan-cial crisis (GFC) impacted Australiansuperannuation returns has beenconfirmed by the latest data releasedby research house, Chant West, whichhas revealed that even though returnshave recovered by 30 per cent sinceearly 2009, all the GFC losses have notbeen recovered.

According to Chant West principalWarren Chant, the median growthfund will post a return of about 9 percent for the 2010-11 financial year, butthis has not been enough to see fundmembers regain the lost ground.

“After falling 27 per cent during theG F C , g row t h f u n d s h a v e n owreturned 30 per cent since the end ofFebruary, 2009,” he said. “In normaltimes that would be quite impressive,but the damage done by the GFC hasst i l l not be ful ly repaired, and afurther 6 per cent is needed to getback to the pre-GFC levels achievedin late October, 2007.”

Chant has adopted a reasonablycautious approach to super returnsover the remainder of the calendaryear, suggesting there is “a reasonablechance that funds will again match orexceed the long-term expected returnof 7 per cent”.

By Damon Taylor

THERE is no definitive profile for peoplewho choose to establish a self-man-aged super fund (SMSF), according tothose providing advice into the sector.

Commenting on the debate aboutwhere SMSF trustees usually comefrom, Super Concepts technical man-ager Graeme Colley acknowledged thatwhile both industry funds and retailmaster trusts may feel particularly harddone by when it comes to SMSFsetups, new trustees can come fromany sector.

“New SMSF trustees and memberscome from all sorts of funds,” he said.“As people are retiring, they’re seeingthat they’ve got enough accumulatedin their fund and so, whether it’s a cor-porate fund or a retail or an industryfund, they’re transferring their moneyinto the self-managed funds that theynow find better suit their needs.

“If you talk to one sector like theindustry funds or the retail funds, they’lltell you that they’re being picked on andthat all their losses are to self-man-aged funds. But from what we see,SMSF setups don’t distinguish betweenone and the other.”

Suggesting that the decision to setup an SMSF was far more related to thepotential trustee’s personal circum-stances than to the superannuationsector they had previously been serv-iced by, Matrix Financial Planning man-aging director Rick Di Cristoforo saidthat the only common theme he hadseen emerging was education andunderstanding.

“Ear to the ground and trends-wise,its likely to be those middle-aged accu-mulators who are educated enough tounderstand the industry but have sofar not actually taken control of theirown superannuation fund,” he said.“And I’ll give you an example. Person-ally, I’ve only just taken on an SMSFmyself and the reasons for that have norelationship to the sector in which mysuperannuation was previously held.

“It’s simply because an event hap-pened, a transaction’s happened, it wasin my benefit and my adviser said ‘whydon’t you do it?’”

ATO avoids trust ‘nightmare’THE Institute of Public Accountants (IPA) has claimed theAustralian Taxation Office (ATO) avoided an administrative night-mare by moving to provide assistance around the taxation oftrust income for the 2010-12 financial year.

The IPA claimed the potential administrative nightmare wouldhave occurred as a result of new legislation passed on 23June enabling the streaming of franked dividends and capitalgains for tax purposes.

“Unfortunately, the new rules required certain things to bedone by trustees before 30 June which would have causedpractical difficulties for tax practitioners and trustees,” it said.

“The ATO, to its credit, has introduced two administrativearrangements to help practitioners and trustees deal with thenew legislative requirements,” the IPA said.

It said the first arrangement would see an extension of timefor trustees to record a beneficiary’s entitlement to a frankeddistribution, and the second was that the ATO would not beselecting cases for review or audit in the 2010-11 financialyear.

Commenting on the development, IPA senior tax adviserTony Greco said the ATO had recognised the need to act quicklyon the matter.

He said that as the end of the financial year had loomed, thechanges might have caused an administration nightmare fortrustees and tax practitioners.

Retirement dilemma alreadyconfronting Gens X and YAUSTRALIA’S Generations X and Y may need to adopt moreaggressive financial risk strategies if they want to cover thecost of their own comfortable retirements, as well as cover-ing off the social welfare platform for retiring baby boomers.

That is the analysis of national accounting firm, Chan &Naylor, with its partner and head of financial planning DavidHasib saying that by not taking a more aggressive approach,Generation X and Ys’ investment portfolios could fall short onhaving the capital base required to fund the 30 years of post-retirement life that many actuaries see as a near-term likeli-hood.

He said there existed a genuine risk that the current generationunder the age of 40 would not have enough growth assets suchas international equities and properties.

“While the Government is laying down the rules andencouraging Australians to seek professional advice, morefiscal education and a less conservative approach to financialmarket exposure is required to help today’s young pay theway for the future, including their own and potentially caringfor elderly parents,” Hasib said.

“To an extent this should be acted on at the level of theindividual; however, I also call upon financial planners andaccounting firms to show better duty of care in educatingtheir clients,” he said.

Rick Di Cristoforo

Warren Chant

Tim Mackay

No set profile forSMSF trustees

Property potential untapped by many SMSFs

If some of those providing advice to theGovernment on the Future of Finan-cial Advice (FOFA) proposals are to bebelieved, the ultimate impact on plan-

ners will be negligible and the benefits toconsumers will be significant.

The Assistant Treasurer and Minister forFinancial Service, Bill Shorten, has madeclear the Government is now fixed on acourse of delivering draft legislation thatincludes a two-year ‘opt-in’ requirement,and also bans commissions on all life/riskproducts within superannuation.

The minister has acknowledged that therewill be some negative impacts on financialplanners flowing from the Government’sapproach, but while Treasury officials earlierthis year referenced a cost of $100 per clientwith respect to opt-in, that figure is no longerbeing used by either departmental or Govern-ment spokesmen.

However, a survey undertaken by MoneyManagement has not only served to rein-force the validity of the $100 figure, but hassuggested many respondents believe it willcost a great deal more.

Asked what they believed the cost perclient would be of handling the Govern-ment’s two-year opt-in, 67 per cent ofrespondents nominated a figure at either$100 or higher. Further, 49 per cent of thoserespondents suggested the cost would behigher than $100 per client.

The Money Management survey alsorevealed many planners expected to loseclients as a result of the changes – partic-ularly B and C clients, something thatwould cause them to focus more closely onthe retention of their A and B clients.

What financial planners need to under-stand, however, is that the Government isnot going to be unduly moved by theknowledge that planners are going to have

to stump up $100 or more per client to fulfiltheir obligation to opt-in.

Indeed, the Government’s counter-argu-ment is going to be that given it is a two-year opt-in, it would seem not unreason-able for planners to spend $50 a year to stayin touch with their clients.

This much was made very clear by Shortenin his address to the Association of FinancialAdvisers last month when he said:

“In relation to opt-in, I have chosen tomake it a two year opt-in to reduce theadministrat ive burden on advisers.However, we shouldn’t lose sight of the factthat opt-in is simply a requirement that theadviser check-in with their client on aregular basis and seek their agreement forongoing fees.

“I believe it is no more than what a clientis entitled to expect from a professionaladviser acting in their best interests.

“I also believe that it is no more thatwhat the best advice practices are alreadydoing as regular contact brings its ownrewards in terms of customer satisfaction.”

In other words, the Government seesopt-in as being little more than providinglegis lat ive backing to good practicemanagement.

While the draft legislation emanatingfrom the FOFA proposals is expected tograndfather existing trailing commissionarrangements, no one should be in anydoubt about the manner in which theimposition of opt-in is intended to elimi-nate the culture of trailing commissions –the notion that planners can receive remu-neration from clients with whom they havehad virtually no contact.

Planner concerns about losing B and Ccl ients are also unlikely to move theGovernment in circumstances where theminister and many of those on the panels

advising him have been actively embrac-ing the notion of scaled advice.

As Shorten put it: “We are determined toremove the red-tape that has prevented theprovision of more affordable forms ofadvice – particularly simple or ‘piece bypiece’ advice.

“The Future of Financial Advice willexpand a new type of advice called ‘scaledadvice’ which will particularly benefit indi-viduals and families who may not current-ly have access to financial advice. This willallow advisers to expand their existingcustomer base by offering limited scopeadvice for those with simpler needs, suchas younger people, at an affordable cost.”

Shorten said that, ultimately, “thesereforms will encourage more Australiansto seek financial advice and open up newrevenue streams for financial planners”.

“We are creating a level playing field sothat all financial advisers can provideconsumers with scaled advice, both insideand outside superannuation,” he said.

Of course, the problem confrontingmany financial planners is that superan-nuation funds and the major financialinstitutions have already claimed the insiderunning with respect to the provision ofscaled advice as a result of their member-ship and distribution network advantages.

The outcome would seem to be financialplanners providing holistic and complexadvice while the institutions and superan-nuation funds dominate in the scaledadvice arena.

What the Money Management surveyappears to confir m is that the FOFAchanges will, as predicted, lead to a furtherrationalisation of the financial planningindustry with many smaller and mid-tierpractices feeling compelled to seek thesecurity provided by larger organisations.

InFocus


While financial planners have warned that the FOFA changes will besignificant, Mike Taylor reports that the Government does not see that as animpediment to achieving its ultimate policy objectives.

The FOFA freight train

Total funds undermanagement: $434 billion

AFA National Roadshow 19 July 2011 – WA; see website

for other states

Pan Pacific Perth, 207 Adelaide

Terrace, Perth

www.afa.asn.au

FSC Annual Conference3-5 August 2011

Gold Coast Convention and

Exhibition Centre

www.ifsa.com.au

IPA: Tax – CGT & MainResidence Exemption21 July 2011

IPA Training Centre, AHA House,

60 Hindmarsh Square, Adelaide

www.publicaccountants.org.au

SPAA State TechnicalConference 20119 August, 2011 – NSW; see

website for other states

The Menzies, 14 Carrington St,

Sydney

AFA National Conference23-25 October 2011

RACV Royal Pines Resort, Gold

Coast

www.afa.asn.au

Source: Plan for Life/Asset International

Australia as at 31 March 2011.

What’s on

ADVICESNAPSHOT

35%15%

50%

Wraps

Platforms

Master Trusts


Boutique fund managers

The best of both worlds

The emergence of new boutique replicas within thesafety of institutional structures mean fund managerscan enjoy the benefits of boutiques without theheadaches. Lucinda Beaman reports.

HE has spent the best part of twodecades with Perpetual pre-

empting the events that will see acompany’s share price soar or plunge.The fact that Perpetual’s star stock picker,John Sevior, became a market moverhimself late last month has once againhighlighted the need for institutions tocontinue to create boutique structureswithin a bigger brand.

The uncertainty over whether Seviorwill stay or go when his six-monthsabbatical ends in December this yearwas at least partly, if not largely, respon-sible for a sudden fall in Perpetual’s shareprice late last month – a drop that wassignificant enough to prompt theAustralian Securities Exchange to ask thecompany to ‘please explain’.

The man responsible for Perpetual’s$6.1 billion Concentrated Equity Fundcould be forgiven for getting itchy feet,having spent almost 18 years with thegroup – and the last 11 at the helm of itsAustralian equities capabilities. Perpet-ual has had its fair share of painfulfarewells – including with Peter Morganas he left to set up 452 Capital in 2002,taking with him more than $2 billion infunds under management (FUM), andwith Anton Tagliaferro, who went on toestablish the highly successful InvestorsMutual.

Of course, Perpetual isn’t the only one.The former managing director and headof equities for UBS Global Asset Manage-ment, and highly respected investor, PaulFiani, had the last laugh after leavingUBS in 2007 after his rejection of aprivate equity bid for Qantas. He

bounced back with boutique IntegrityInvestment Management, a companyowned entirely by Integrity staff andboasting several billions in FUM.

It’s taken a while, but most of the insti-tutions have now learnt the lesson.

National Australia Bank and Westpac(via Ascalon and the listed BT Invest-ment Group) have ramped up theirboutique incubator business and part-nerships in recent years. Challenger’sboutique stable has been gaining signif-icant traction. The group’s FUM isexpected to hit $15 billion in this year’send of financial year results on the backof recent additions, including AlphinityInvestment Management, BenthamAsset Management and Merlon CapitalPartners.

Standard & Poor’s head of fundresearch, Leanne Milton, said at leastsome of the mainstream managers hadmade “significant progress in replicatingsome of the characteristics of boutiquesin terms of incentives to retain their keystock pickers”.

“Having said that, there’s still a high

prevalence of boutiques among our fourand five-star rated small cap managers inparticular,” Milton said.

Admittedly, staff retention has beenless of a headache for mainstreammanagers in recent years, with a stag-nant investment environment stifling theoxygen of start-up capital and inflowsfor new investment businesses – partic-ularly those wanting to stand without aninstitutional backer.

Despite the difficult environment, mostboutiques have stood their ground.

The most significant boutique fundclosure in 2010 was that of Peter Morgan’s452 Capital. The $3 billion manager washit by personal, rather than financial, chal-lenges and was later taken over by Integri-ty Investment Management and ColonialFirst State’s Australian equities team.

Another group that disbanded wasQIC’s Australian equities large-cap team,which Milton described as an in-houseboutique.

Small cap manager Atom FundsManagement was rolled into EightInvestment Partners in March this year,

while in 2010 Souls Funds Managementwas sold to Treasury Group, and laterrebranded as Celeste, with the invest-ment team having majority ownership.

Lonsec head of ratings, equity and prop-erty managed funds, Paul Pavlidis, saidsome of the financially weaker boutiqueshad been shut down, acquired or merged.He pointed to examples including PatriotAsset Management, which was acquired byIronbark Asset Management in 2010, andits sister company Patriot ManagedAccounts, acquired by OC Funds Manage-ment. Australian-based international equi-ties manager TechInvest also closed itsdoors last year, while Cannae Partners, ledby Hugh Giddy, merged into InvestorsMutual.

Ones to watchThe most high-profile new boutique isAvoca Investment Management, theAustralian-equities small-cap managerestablished by former UBS portfoliomanagers John Campbell and JeremyBendeich. The pair left their roles asportfolio managers for UBS’s AustralianSmall Companies Fund in April this yearand, after a month’s break, emerged withAvoca, of which they are the majorityowners. They took with them anotherUBS team member, Michael Vidler, andgained additional backing via their part-nership with boutique incubator, Benne-long Funds Management.

In August last year, ING’s former leadportfolio manager, Sinclair Currie,moved to Challenger. In January thisyear, he launched a new boutique for thegroup, NovaPort Capital, alongside co-Source: Mercer

Possible benefits Possible disadvantages

Focused offering Low economies of scale on fees

Performance driven Narrow research resources

Accessible to clients Less sophisticated IT systems

Personal ownership Few client-facing resources

Quick decision-making Operational risk

Strong ‘one-team’ culture Modest financial strength

Willingness to limit capacity Loosely defined business processes

Table 1 Weighing the case for boutiques



Portfolio manager profiles

principal and portfolio manager AlexMilton and analyst Lachlan Hughes.

Another relative newcomer is AlphinityInvestment Management. Alphinity wasborn out of a close-knit team of formerAllianceBernstein analysts who left theirformer employer and established theboutique, also within Challenger’s stable, inJuly last year. Alphinity’s principal andportfolio manager, Johan Carlberg, tookhis entire team with him, ensuring theboutique had a smooth transition whereratings were concerned.

The high number of managersjumping ship to start boutiques hascertainly slowed. But a continuing trendof consolidation among the industry’sbigger players may be the precursor tomore boutique managers appearing overthe next year, Milton said.

She pointed to the three boutiques toemerge following the Credit Suisse andAberdeen merger in 2009, as well as thelaunch of Vinva Investment Managementfollowing the BlackRock and BGI merger.

Both Milton and Morningstar’s TimMurphy agreed that the ones to watchover the coming six months will be themanagers affected by UBS’s acquisitionof the ING Investment Management, oneof the biggest independent investmentmanagers in Australia, with the dealexpected to close in the fourth quarter.

With Sevior’s recent comments andthe creation of the new UBS/ING invest-ment giant in mind, researchers agree2011 could again see some big nameboutiques opening their doors. Whetheror not institutions will retain a slice ofthe pie remains to be seen. MM

John Campbell , managing director, Avoca InvestmentManagementAvoca: Established in May 2011, with managing director JohnCampbell and chief investment officer Jeremy Bendeich as major-ity owners, and Bennelong Funds Management as a minoritypartner.Experience: I have worked in Australian equities for 22 years onboth the sell and buy side, primarily in an equity research capaci-ty. Prior to setting up Avoca, my most recent role was seven yearsas portfolio manager/analyst of the UBS Small Companies Fund.

My other relevant experience includes eight years at BT Australiaas equity research analyst and head of equities proprietary trading;three years at Maple-Brown Abbott as an equity research analyst;and three years at Credit Suisse as director of research sales. Priorto working in financial markets I was employed as an auditor withPriceWaterhouseCoopers. Investment philosophy: We believe the intrinsic value of anysecurity is the present value of all its future cash flows. Whilecapital markets tend to be more focused on near-term earningsand valuation ‘rules-of-thumb’ in pricing equities, such as[price/earning ratios] and dividend yields, Avoca utilises longerterm and maintainable cash flows as the primary driver of itscalculation of intrinsic value.One of your best calls: In our recent investment managementhistory at UBS, being relatively defensively positioned (and veryunderweight small resources in particular) heading into the GFCbut then having the conviction to increasingly move to a signifi-cantly overweight position in economic cyclicals (including smallresources) as the GFC progressed must count as one of our bestoverall portfolio calls.Outlook for the year ahead: We remain relatively cautious onthe prospects for Australian equities and small caps in particu-lar. We believe inflationary pressures in China are mounting and

ultimately will force a more moderate rate of growth onto thatcountry. This will have significant flow-on effects for Australiain particular and, in our opinion, will manifest in decliningcommodity prices and a falling Australian dollar, back to moresustainable levels for the longer-term.

Given small resources are very leveraged to commodity prices,more so than the larger, lower-cost producers like BHP and RioTinto, we see this sector as likely to underperform materially inthe coming year. It follows that as small resource and energystocks make up around 50 per cent of the S&P/ASX Small Ordi-naries Index, we remain even more cautious on small caps thanthe overall market.Fund position: We are significantly underweight small resourcestocks, with that being offset by an overweight position to domes-tic industrials. We are fully invested in equities, however, as webelieve clients pay us to invest in equities, not to asset allocate.

John Campbell

David Pace, portfolio manager, GreencapeCapitalGreencape: Established in August 2006 byDavid Pace and Matthew Ryland.Experience: 13 years at Merrill Lynch Invest-ment Managers (MLIM), where I ran theMLIM High Conviction Strategy from itsinception until April 2006.Investment philosophy: Broadly, ourphilosophy is based around our qualitativeassessments of the ability of managementteams and/or business models to add ordestroy value over time. The execution ofthe process relies heavily on our targetedand focused company visitation program.One of your best calls: Map Airports hasbeen a great performer for us over the past12 months. This is a business that is a directbeneficiary of the ongoing structuralheartache experienced by airlines (ie, fallingreal airfares, ongoing liberalisation of globalroutes and the massive investment in wide

bodied craft such as the A380 – all good forpassenger numbers).

Combine that with a best of breed

management team that is very focused ondelivering shareholder value, and you haveyourself a solid investment thesis.Outlook for the year ahead: We typicallydon’t take strong macroeconomic views.Instead we prefer to have a portfolio fullof compelling bottom-up ideas. Broadlyspeaking, though, I think a muddle-through scenario is most likely as we navi-gate through the inevitable consequencesof ‘kicking the economic can’ down theroad. Fund positioning: The portfolio is heavilytilted towards stocks where a substantialportion of earnings growth is micro-managed and under the direct control of themanagement team. This can come in manyforms, including successfully executing onthe integration of a recent acquisition, or acompelling market-share story based onproduct differentiation and managementexcellence.

David Pace

Highlight:

They provide access to some of the most experienced investment staff. Often aportfolio manager at a boutique has previously established a record of success atanother firm.

They provide access to some of the most motivated people in the industry. The taskof setting up a boutique is not easy, and credibility and determination are commonfeatures of those involved.

A smaller number of decision-makers mean that innovative investment solutionsare likely to come to fruition more quickly.

There is an absence of external primary owner(s) influencing the strategic runningof the company with their own objectives or return requirements.

Ownership of the firm by key staff can intensify incentives to perform and aid staffretention.

Table 2 Boutiques: Highlights and hazards

Source: Mercer

Hazard:

Is the balance right between fresh talent and‘old hands’? What experience is there ofactually running a business?

Is there a risk of personal goals overtaking afocus on client outcomes?

Are these solutions developed with adequate‘sounding boards’ and perspectives?

Does the boutique have industry-standardfinancial disciplines and processes?

How are team members managed who under-deliver, yet are shareholders, and still benefitwhen the business is succeeding?

Table 4 Australia’s top rated boutique funds 2011

Monik Kotecha, chief investment officer, InsyncFunds ManagementInsync: Formed in July 2009, with the globalequity fund launched in October 2009.Experience: 20 years in the industry, includ-ing three years in London for the Abu DhabiInvestment Authority, six years with BT as asenior portfolio manager in international equi-ties and seven years at Investors MutualLimited as senior portfolio manager.Investment philosophy: Our core philosophyis that a concentrated portfolio of exception-ally high quality companies that deliver strongconsistent dividend growth, especially whenselected with an absolute value bias, willgenerate attractive long-term returns withlower levels of volatility.One of your best calls: MasterCard is a goodexample of the sort of business we aim to hold.It has pricing power and competitive advan-tage resulting in high operating margins, anasset-light business model that results in a highcash conversion and returns on investedcapital. It also has good long-term seculargrowth prospects with a business model thatis durable, scalable and global in nature.

The share has historically traded at between20-30 times earnings, but the current uncer-tainty created a compelling buying opportu-nity and we were able to begin acquiring sharesat around 13 times earnings, exceptional valuefor a business of its quality.Outlook for the year ahead: We continue tooperate in a very volatile economic and busi-ness environment, with excessive debt in

developed markets, rising inflationary trendsand the risk of lower global growth in the yearsahead compared to the past. We are in a struc-turally challenging environment, which mayremain in place for an extended period of time.Fund positioning:We believe that stock pickingis going to be critical, and index funds may welldisappoint as it is no longer a case of a risingtide lifting all boats. Companies that are operat-ing in growing markets, which have low levelsof debt, pricing power, and which generatesignificant amounts of free cash and give mostof that back to shareholders, are likely to bewinners in this environment.



Benchmark returns1 yr: 11.1%

3 yrs: (-)1.7%

5 yrs: 3.2%

1 yr: 11.1%

3 yrs: (-)1.7%

5 yrs: 3.2%

1 yr: 2.66%

3 yrs: (-)3.28%

5 yrs: (-)5.15%

1 yr: 18.07%

3 yrs: (-)4.77%

5 yrs: 2.50%

1 yr: 10.84%

3 yrs: (-)1.64%

5 yrs: 3.18%

1 yr: 10.84%

3 yrs: (-)1.64%

5 yrs: 3.18%

1 yr: 10.84%

3 yrs: (-)1.64%

5 yrs: 3.18%

1 yr: 10.84%

3 yrs: (-)1.64%

5 yrs: 3.18%

1 yr: 18.07%

3 yrs: (-)4.77%

5 yrs: 2.50%

1 yr: 18.07%

3 yrs: (-)4.77%

5 yrs: 2.50%

1 yr: 14.35%

3 yrs: 8.73%

5 yrs: 6.69%

Fund returns1 yr: 4.1%

3 yrs: 5.6%

5 yrs: 6.1%

1 yr: 12.1%

3 yrs: 0.6%

5 yrs: n/a

1 yr: 9.72%

3 yrs: 4.56%

5 yrs: 1.59%

1 yr: 21.76%

3 yrs: 6.56%

5 yrs: 10.77%

1 yr: 6.33%

3 yrs: 0.67%

5 yrs: 3.88%

1 yr: 14.08%

3 yrs: 3.67%

5 yrs: N/A

1 yr: 11.88%

3 yrs: 2.02%

5 yrs: N/A

1 yr: 7.71%

3 yrs: 1.98%

5 yrs: N/A

1 yr: 31.82%

3 yrs: 1.58%

5 yrs: 10.98%

1 yr: 17.25%

3 yrs: 0.58%

5 yrs: 6.31%

1 yr: 15.75%

3 yrs: 10.84%

5 yrs: 8.48%

Outperformance1 yr: (-)7.0%

3 yrs: 7.3%

5 yrs: 2.9%

1 yr: 1.0%

3 yrs: 2.3%

5 yrs: n/a

1 yr: 7.06%

3 yrs: 7.84%

5 yrs: 6.74%

1 yr: 3.69%

3 yrs: 11.33%

5 yrs: 8.27%

1 yr: (-)4.51

3 yrs: 2.31%

5 yrs: 0.70%

1 yr: 3.24%

3 yrs: 5.31%

5 yrs: N/A

1 yr: 1.04%

3 yrs: 3.66%

5 yrs: N/A

1 yr: (-)3.13%

3 yrs: 3.62%

5 yrs: N/A

1 yr: 13.75%

3 yrs: 6.35%

5 yrs: 8.48%

1 yr: (-)0.83%

3 yrs: 5.35%

5 yrs: 3.81%

1 yr: 2.38%

3 yrs: 3.04%

5 yrs: 2.70%

Relevant benchmarkS&P/ASX 300

S&P/ASX 300

MSCI World Ex Australia

(AU$)

S&P/ASX Small Ords

Accum Index

S&P/ASX 200

Accum Index

S&P/ASX 200

Accum Index

S&P/ASX 200

Accum Index

S&P/ASX 200

Accum Index

S&P/ASX Small Ords

Accum Index

S&P/ASX Small Ords

Credit Suisse Leverage Loans Index

(Hedged into AU$)

Researcher and ratingLonsec Highly Recommended

Lonsec Highly Recommended


S&P 5 stars


Morningstar

Highly Recommended

Morningstar

Highly Recommended

Morningstar Highly

Recommended

Morningstar

Highly Recommended

Morningstar

Highly Recommended

Morningstar

Highly Recommended

Morningstar

Highly Recommended

S&P 5 stars

S&P 5 stars

Asset classAustralian equities

large cap

Australian equities

large cap

Global equities/

emerging markets

Australian equities

small/mid cap

Australian equities

large cap

Australian equities

large cap

Australian equities

large cap

Australian equities

large cap

Australian equities

mid/small cap

Australian equities

mid/small/micro cap

Fixed interest

Fund nameHyperion Australian

Growth Companies Fund

Solaris High Alpha

Australian Equity Fund

Independent Franchise

Partners

Pengana Emerging

Companies Fund

Arnhem Australian

Equity Fund

Greencape Wholesale

Broadcap Fund

Greencape Wholesale

High Conviction Fund

Integrity Australian

Share Fund

Kinetic

Wholesale Small

Companies Funds

Eley Griffiths

Group Small Companies Fund

Bentham Wholesale Syndicated Loan

Brian Eley, portfolio manager, EleyGriffiths GroupEley Griffiths Group: Founded byBrian Eley and Ben Griff iths inJanuary 2003.Experience: 10 months at BT Invest-ment Management, two years as jointhead of small companies at INGInvestment Management, seven yearswith Paterson Ord Minnett, and threeyears with LEK Consulting.Investment philosophy: At the end ofthe day we’re looking to be a safe pairof hands. We are trying to get a goodreturn without taking too much risk.Obviously, equities as an asset class arerisky, and most people view small capsas an even riskier segment of that. Butwith that comes the potential forgreater returns. We’re trying to achievethe greater returns without taking onthe greater risk. One of your best calls: In the last 12months one of our best calls wasEquinox Minerals. It is a copperminer with a magnificent asset inZambia, which produces more than150,000 tonnes of copper per annumat a very acceptable cash margin.

That project has huge expansionpotential, and Zambia is one of thebetter African countries to invest in.During the year [Equinox] was firstlybid for by China Minmetals, andthen that was trumped by Barrick

Gold. We cleaned up on that onequite nicely.Outlook for the year ahead: I thinkthat the very short term continuesto be choppy, and we have conflict-ing bullish and bearish sentiment.However, on a 12-month timeframewe are moderately optimistic. Wefeel that the growth drivers of Chinaand a recovering US economy willmore than counteract the issues ofthe European community. Fund positioning: We are position-ing our fund with low levels of cash,reasonable levels of resource expo-sure, and also high quality indus-trial stocks that have been over-sold.

Monik Kotecha

Brian Eley

Portfolio manager profiles

Year to May 31, 2011

Insync Global Dividend Growth Fund: 4.07%

MSCI World Ex Australia (AU$): 2.66%

Table 3 Performance



The value of an investment can rise and fall and past performance is no guarantee of future performance. Any information contained in this advertisement has been prepared withouttaking into account an investor’s objectives, financial situation or needs. Investment decisions should be made on information contained in a current Australian Equities ProductDisclosure Statement (“PDS”) and its Supplementary PDS’ (“SPDS”). Applications to invest will only be accepted if made on an application form attached to a current SPDS availablefrom Tyndall. The Responsible Entity of the Tyndall Australian Share Income Fund ARSN 133 980 819 is Tasman Asset Management Limited ABN 34 002 542 038 AFSL No 229 664(trading as Tyndall Asset Management). ‘Tyndall’ means Tyndall Investment Management Limited ABN 99 003 376 252 AFSL No 237 563. 2256_MM

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Managed by the skilled and experienced Tyndall Australian equities team, the award-winning TyndallAustralian Share Income Fund uses the same rigorous intrinsic value investment style and researchapproach they’ve successfully used over two decades.

For more information on theTyndall Australian Share Income Fundvisit www.tyndall.com.au/shareincome

A measured investment approachfor retirement.

Paul Cuddy, chief executive,Bennelong Australian EquityPartnersBennelong AustralianEquity Partners: Launchedin July 2008 by co-foundersPaul Cuddy and Mark East, asa joint venture with Benne-long Funds Management.Experience: I joined theindustry in 1989 workingas a junior analyst for alarge institutional invest-ment management group.Over the past two decadesI have worked in variousroles including head ofequities, portfolio managerand investment analyst.Investment philosophy:Stock prices are driven byearnings. The greatestreturns come from compa-nies that can deliver positiveearnings surprises relative tomarket expectations. Invest-ing in high quality compa-nies helps achieve thatobjective while minimisingthe risk of negative earningssurprises.One of your best calls: Overthe past year we have bene-fited from an overweightposition in the mining serv-ices sector. CampbellBrothers provides testingser vices to the mining,environmental and indus-trial sectors. It is leveragedto increased mining explo-ration and production, aswell as some recent acqui-sitions that are creatingfurther shareholder value.The stock has performedvery well as the companyhas delivered strong resultsrelative to peers and thebroader market.O u t l o o k f o r t h e y e a rahead: Equity markets arestruggling with the ‘two-speed economy’ that isdominating headlines.Many domestic industrialcompanies are facing tightmonetary policy, increas-ingly cautious consumers,and a strong Australiandollar, and r is ing costsaren’t being offset byrevenue gains. Conversely,the outlook for resources-related companies is moreposit ive, with manycompanies well positionedto deliver positive earningsupgrades over the nextcouple of years.Fu n d p o s i t i o n i n g : Theportfol io is over weighthigh quality stocks that webelieve will deliver positiveearnings surprises over theforeseeable future. We likeselected mining servicescompanies, together withsome high quality indus-trial companies that webel ieve wi l l buck the

downward trend of the ex-resourcessector over the remainder of this yearand into early 2012.

Paul Cuddy

“We have benefited from anoverweight position in themining services sector. ”

Year to May 31, 2011

BAEP Ex-20 Fund: 28.90%

(Benchmark: 13.27%)

BAEP Concentrated Fund: 21.07%

(Benchmark: 11.13%)

BAEP Core Fund: 18.06%

(Benchmark: 11.13%)

Table 5 Performance

Households are already feelingthe pinch with higher petroland utility prices. If thesefactors feed through to higher

inflation, investors without a direct hedgeagainst inflation risk will be experienc-ing a marked deterioration in their abilityto meet future expense streams. Specifi-cally, an elevation in inflation remains aserious risk for investors.

As outlined in my recent articles, infla-tion-linked bonds (ILBs) are the bestavailable direct hedge against inflationwith current returns rivalling equityreturns. If prices of necessary householditems continue to rise, investors canexpect an elevation in the consumer priceindex (CPI) and an increase in the volatil-ity of the CPI.

Household expensesThe pressure on household budgets hasalready been highlighted in a recentWestpac/Melbourne Institute ConsumerConfidence survey. It revealed onecomponent of the index expectations offamily finances has deteriorated sharplyover the past 12 months. Importantly, thiscomponent is now approaching low,possibly recessionary, levels. As Westpacchief economist Bill Evans remarked in areport titled Consumer sentiment edgeslower, 18 May 2011:

“We saw some disturbing movementsin the components of the Index ... wenote that the Family Finances Index is atits lowest level since July 2008 and therehas only been one other read of the Index(June 2008) which has been lower sincethe early 1990s when families struggledin the aftermath of Australia’s last reces-sion.”

Petrol and utility charges, being twoimportant components of householdspending, have risen substantially over thepast 12 months. Utility charges have risenbecause of the long-overdue re-invest-ment in underlying infrastructure. Petrolcosts have risen because of perceptionsover future global demand. Neither ofthese components is directly controllable


OpinionCPI

Stephen Hartexamines therising cost ofliving and

ways to protect clientsagainst a rise in boththe consumer priceindex (CPI) and itsvolatility.

Keepinginflationin check

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0%

10.0%

Period 1 (Sep. 69 to Mar. 90)

Period 2 (Mar. 90 to Mar. 95)




Ann

ual V

olat

ility

of C

PI

Ann

ual C

PI

CPI and Volatility of the CPI

Average Annual CPI (LHS) Volatility of Annual CPI (RHS)


by the Reserve Bank of Australia (RBA).The longer petrol prices are elevated,

the more likely the price of oil will impactupon the broader price indices, includ-ing the CPI. On top of these rises the RBAhas increased interest rates substantial-ly over the past year. While expenses haverisen, incomes have not risen sufficient-ly to compensate consumers and thehousehold budget is being squeezed.

Investors who rely on fixed incomestreams need to plan for periods of higherinflation, especially in products and serv-ices that are needed for day-to-day living.ILBs with coupons tied to the CPI providea solution.

Household incomeInvestors need a cash flow that is protect-ed against increases in the CPI, or theirexpenses will outstrip investmentincome. Unlike investments in otherasset classes, ILBs provide a direct solu-tion. Equity returns suffer in high infla-tion environments and do not provide aneffective inflation hedge in the short ormedium term. Investing in Common-wealth and State Government ILBs canreduce your overall risk by around halfwhile cutting investment return by

approximately 1.5 per cent (see figure 1).Investors can achieve higher returns if

they are willing to consider corporateILBs. For example, Sydney AirportFinance ILBs bought in the secondarymarket in parcels from $50,000 canachieve 5.4 percentage points real returnover CPI. Meaning, if CPI is 3 per cent,the total return would be 8.4 per cent.While the volatility of return will behigher from an investment in SydneyAirport Finance in comparison with theUBS Government Index, the higherreturn compensates the investor for theadditional volatility.

Investors are therefore presented withan opportunity to buy an effective hedgeagainst inflation that does not diluteequity returns and substantially dampensthe overall volatility of return across a portfolio.

CPI and volatilityNot only are we facing the prospect offurther rises in inflation due to an eleva-tion in commodity pricing (beyond thecontrol of the RBA) the volatility of theCPI may also rise. Its volatility has beenfalling steadily since 1969 as shown in figure 2.

These results have also been shown infigure 3. Although this graph shows atrend of increasingly lower CPIs andlower CPI volatility, it can be argued thatover the investment period of the next 20years, the change in this trend since 1969may well begin to reverse. If input pricessuch as fuel and utilities continue to rise,the upside risk to inflation outside thecontrol of the RBA will increase. Thispossibility alone confirms the underly-ing rationale for investing in ILBs.

Conclusion While figure 3 might normally lullinvestors into a state of complacency,recent experience with increasingexpenses is sounding alarm bells – theeffects of which are starting to have animpact upon household balance sheets.The trend in the level and volatility ofinflation has been one way for 30 years.Elevation in utility prices and petrolprices is not something the RBA canadequately control which may mean achange in trend. This suggests that ILBsshould be preferred to other investments.

Stephen Hart is head of planner servicesat FIIG Securities.

Figure 1 Inflation-linked bonds versus equities – 10-year period

Atribute UBS Gov ILB ASX All ords acc 50% UBS Gov ILB/50% ASX All Ords Risk Drop vs 100% Equities Return Drop vs. 100% Equities

Start 30/04/01 30/04/01 30/04/01 30/04/01 30/04/01

Finish 29/04/11 29/04/11 29/04/11 29/04/11 29/04/11

Return An. 6.65% 10.00% 8.32 - 1.68

Risk An. 3.62% 19.17% 9.48 - 9.69

Ret/Risk 1.84 0.52 0.88 - -

Source: FIIG Securities, UB, Barcap

Start End Period Average Annual CPI (LHS) Volatility of Annual CPI(RHS)

September 1969 March 1990 Period 1 9.26% 3.26%

March 1990 March 1995 Period 2 2.81% 2.01%




Source: FIIG Securities, UB, Barcap

Figure 2 Australian annual CPI and annual volatility of CPI

Source: FIIG Securities, RBA

Note: LHS refers to the left hand axis in figure 2, and RHS refers to the right hand axis.

Figure 3 Recent performance of global banking stocks

“ Investors need a cashflow that is protectedagainst increases in theCPI, or their expenses will outstrip investmentincome. ”

Since the global financial crisis,many people have been taking acloser look at their investments infixed income. The answer for many

has been to invest in index funds. Whilethis may be a rewarding strategy for otherasset classes, when it comes to fixedincome it does not make sense. Lookingat the Barclays Global Aggregate, over 80per cent of the index is in the UnitedStates, Europe and Japan (ie, the countrieswith the biggest debt).

Looking at the figure 1, we can see thatfixed income benchmarks are inefficientand don’t make sense because the biggestborrower is rewarded by getting the

biggest index weight. Some investors wantto invest passively in fixed income, but asa passive investor you are buying moredebt from countries and companies thatare issuing the most debt (ie, the biggestborrowers, not the best borrowers). Thisdoes not make sense. We believe in anactive, rather than passive, approach toinvesting. Active management has thepotential to add value through sector andstock selection.

Interest rates globally are at very lowlevels, meaning income generated fromthese bonds is very low. By only investingin the benchmark, investors are missingout on higher returns elsewhere. Addition-

ally, when interest rates inevitablynormalise, the resulting capital losses willeat into the modest income being gener-ated – and subsequently the total returnwill be low.

Sticking close to homeInterest rate and economic cycles inAustralia are different to the rest of theworld. Due to Government stimulus andthe Asia growth story, Australia has ahealthier balance sheet – particularly atthe Government level. Interest ratesremain much closer to normal levels andare much higher than the rest of the devel-oped world.

There will be fewer future interest raterises here than in the rest of the world,since the Reserve Bank of Australia hasdone a lot of the heavy lifting already. Inaddition, due to higher growth prospectsin this region versus other developedmarkets, Australian corporates have betterpotential for growth.

The opportunity to earn income withAustralian investments, and in particu-lar Australian credit, is much higher.Interest rates being closer to normalsuggests capital gains and losses will bemuted, which means total returns willbe relatively higher compared to the restof the world.

Source:: Barclay at March 2011

Figure 1 Barclays Global Aggregate


OpinionBonds

TruebluebondsWhy invest in term deposits or global bondswhen you can invest in Aussie bonds and get abetter return? Jeff Brunton reports.

Latin America (0.92)

Canada (3.28)

Europe (34.48)

US (36.06)

Other (0.2)

Supranational (1.6)

Middle East (0.11)

Africa (0.28)

Asia & Pacific Rim (21.62)

Australia/New Zealand (1.45)

10,000.00

10,500.00

11,000.00

11,500.00

12,000.00

12,500.00

13,000.00

Jul-2

008

Aug

-200

8 S

ep-2

008

Oct

-200

8 N

ov-2

008

Dec

-200

8 Ja

n-20

09

Feb-

2009

M

ar-2

009

Apr

-200

9 M

ay-2

009

Jun-

2009

Ju

l-200

9 A

ug-2

009

Sep

-200

9 O

ct-2

009

Nov

-200

9 D

ec-2

009

Jan-

2010

Fe

b-20

10

Mar

-201

0 A

pr-2

010

May

-201

0 Ju

n-20

10

Jul-2

010

Aug

-201

0 S

ep-2

010

Oct

-201

0 N

ov-2

010

Dec

-201

0 Ja

n-20

11

Feb-

2011

Corporate Bond Fund 1 yr TD rolled each Jul

End value: $12,416.67

End value: $11,644.04

Source:: Barclay at March 2011

Figure 2 $10,000 invested from the peak of the term deposit market


There is also protection on the possibledownside. If markets were to turn downagain, the higher starting point of interestrates in Australia means that as rates fellin response to a shock, Australian corpo-rate bonds would deliver good returns dueto the capital gains associated with thefalling interest rates. This would act as abuffer against the inevitable widening inthe credit spread.

For an Australian investor looking to usefixed income to diversify Australian equityrisk, an Australian bond portfolio is morelikely to give capital gains to offset capitallosses in equities than a hedged interna-tional bond portfolio. This is because globalmarkets are unlikely to move as much asAustralian markets on the back of anAustralian risk event, which meansAustralian fixed income is embedded withnatural defensive characteristics. Further-more, recent history shows an overweightexposure to corporate bonds also capturesmuch higher excess returns relative togovernment bonds.

A defensive playRather than passively buying the debt ofthe biggest borrowers, why not search outthe better borrowers, as you would in anequity portfolio? Look for borrowers in the right industries with sound fundamen-tals, strong financial positions and good management.

Investing actively is not only investingin better borrowers, but also increasingdiversification within your portfolio. The

adage ‘don’t put all your eggs in one basket’is crucial for bonds – much more so thanequities. This is because, unlike equities,the best you can do with bonds is get yourmoney back (plus interest) – but on theother hand, you could lose it all if a borrower were to default. So you need tospread your single name risk (ie, use more baskets).

We see a lot of investors who satisfy theirincome needs by holding a handful of termdeposits and a couple of hybrids or bonds.While we wouldn’t say that Australianbanks are unsafe, as a professionalinvestor, this approach is too risky – it isundiversified and not defensive. What do

we mean by not defensive? We believe thisapproach is unlikely to deliver strongreturns from fixed income when you needthem the most. That is when other partsof your portfolio are under the most stress.So having an active fixed income managerinvesting across over 100 individual bondsgives you a diversified portfolio with defen-sive characteristics needed to balance therisks you are taking in other parts of your portfolio.

Why Australian fixed income now?Even though fixed income has deliveredtwo years of exceptional performance,there are still risks in the world. Risk asso-ciated with the European sovereignsdefaulting, the removal of the US stimuluswithout disruption, political upheavals,high oil prices, and natural disasters. Thismeans that staying in fixed income is asimportant now as ever. Fixed income fundsare the best diversifier against equities,because it is the duration that helps fixedincome deliver positive returns whenmarkets are falling. With banks stilldeleveraging and still working through theimplications of Basel III, balance sheets forAustralian corporates are in good shapeand credit spreads still wide. In addition,income generated particularly in Australiais higher than what it typically would be. Sonow is still the time to be investing inAustralian fixed income.

Jeff Brunton is AMP Capital’s head ofcredit markets.

Source:: RBA,AMP Capital Investors as at 30 April 2011

Notes: *Yield to maturity

Figure 3 Returns comparison

4.75%

6.00% 6.15%

7.62%*

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

RBA Cash Rate

Term Deposits 1 yr

Term Deposits 3yrs

Corporate Bond Fund

5.09%*

3 yr Govt Bond

“ Even though fixedincome has delivered twoyears of exceptionalperformance, there are stillrisks in the world. ”

At the time of writing (late June2011) investors remain nervous.This is reflected in variousinvestor surveys, declining

consumer sentiment, the recent 10 percent share market correction and the factthat the Australian market – along withmost other markets if measured inAustralian dollars – has gone nowhere forthe last 20 months, despite high levels of volatility.

It is also reflected by the fact that cashand term deposits are clearly dominatinginvestor preferences and allocations, andhave done so for much of the period sincethe global financial crisis (GFC). Termdeposits at banks have grown by $190billion (73 per cent) in the last three yearsto April 2011 and $58 billion (13 per cent)in the last year.

Of course some of this preference forcash and term deposits is entirely ration-al. Available cash returns of 5 per cent perannum and term deposits above 6 percent per annum are attractive in an envi-ronment where other asset classes arestruggling. Australia is one of the fewcountries in the developed world whereyou can earn a decent real return – at leastpre tax – from cash-related investments.

In my company’s defensive portfolios,term deposits were introduced as acomponent around 18 months ago for thefirst time in their eight-and-a-half yearhistory. In contrast, I was recently in theUnited Kingdom where 0.5 per cent perannum cash rates and 4.5 per cent perannum inflation is leaving savers enor-mously frustrated – and leading to somedangerous activity as investors blindlychase yield in a range of other assets.

Yet it is worth questioning whether thisrisk aversion has gone too far, particular-ly following the most recent market weak-ness, increasing pessimism and near satu-ration coverage of the majormacroeconomic challenges facing theglobal and local economies. The increas-ing risk is that some long-term investorsresponding to this environment areending up with under-diversified portfo-lios which are almost totally reliant oncash and term deposits, and missing thebetter value now showing up in manyinvestment areas.

Encouraging signsValue in selected equities and equitymarkets is clearly improving, and returnprospects look better than they have for

some time. Forward price/earnings (PE)multiples of most markets are nowtowards the lower end of historical rangesin the low teens, while some of the world’sbest businesses are at the high single digit level.

However, it remains a confusing envi-ronment for investors. Some longer-termmeasures of valuation using trend earn-ings over extended periods remain abovefair value. This partly reflects the currenthigher-than-normal level of profitmargins and also the unusually severeearnings impact from the GFC. Further,with macro factors largely driving marketindices in the short term – accentuatedby the growing use of exchange-tradedfunds (ETFs) and other passive funds –there is a strong case that the better valueis somewhat stock/sector specific,suggesting that good active funds ratherthan index/quasi-index funds are betterplaced to exploit the value appearing inmany markets.

Still, the biggest asset allocation deci-sion confronting most investors in thecurrent challenging environment iswhether, and when, they should movesome funds from the perceived safety ofcash and term deposits to more growth

oriented investments.But what about the major macro risks

that are so prominent? The list of keyissues includes sovereign debt concernsin Europe and elsewhere, a possible Chinahard landing, a marked slowdown in theUS economy (perhaps triggered by theend of the second round of quantitativeeasing, or QE2) and rising inflation glob-ally (most obviously in emergingmarkets). Surely, these issues could causea lot of damage to economies and equitymarkets, and are a valid reason to stay onthe sidelines for now. But are these issuesbeing too heavily emphasised? Are theyalready priced into markets?

Let’s look briefly (and rather simplisti-cally) at the ‘bear’ and ‘bull’ cases for eachof these key issues.

Sovereign debt Bear case: Greece will default soon, causinga cascade effect leading to further prob-lems in other countries as well as Euro-pean and global banks. The Euro will partlybreak up, and global financial markets willfreeze much like 2008. There will also bean increased focus on the sovereign debtconcerns of other developed nations suchas the US, UK and Japan.


OpinionMarkets

Coming out ofhibernation

Investors remain nervous and are still heavily invested in cash, but are they doingthe right thing? How serious is the threat of macro issues, and when will it be theright time to go back into the market? Dominic McCormick investigates.


Bull case: Greece may or may not default,but who cares? Any problem banks will bebailed out, and the debt issues of otherEuropean countries will be resolved overtime with modest flow-on impacts. TheUS and other indebted western countrieswill eventually act to solve their own sover-eign issues.

China hard landing/major slowdownBear case: China is a bubble that is close topopping. Too much capacity in housingand infrastructure has been built, and thecurrent tightening measures will cause adramatic economic slowdown and assetprice collapse. China’s banks will have alot of bad debts. Commodity prices andparticularly Australia will suffer badly asa result.Bull case: Chinese authorities want andneed a modest growth slowdown to easetemporary inflation pressures, and theyare succeeding. This should enable thelonger term secular growth story tocontinue. Commodity prices, whilevolatile, will remain well supported in thelonger term.

US growth weakness Bear case: The US is slipping into a double-dip recession. Housing prices haveresumed their falls, and unemployment islikely to remain high. Profit margins in theUS are unsustainable and bond rates needto rise given fiscal concerns. Bull case: Mid-recovery slowdowns are

common. While the problems facing theUS economy are serious, corporateAmerica is in good shape; and despite theend of second round of quantitativeeasing, monetary policy will remain loosefor some time. Equities are cheap versusrecent history.

Inflation Bear case: Commodity prices and wagepressures are causing inflation pressures,especially in developing economies butincreasingly in developed economies.Short and long-term interest rates willhave to rise, putting pressure on all assetvaluations.Bull case: Higher inflation is largely atemporary issue, with recent commodityprice weakness having already eased thispressure somewhat. In any case, even withgradually rising inflation, real interest ratesare likely to stay low to stimulateeconomies, thereby providing support forrisky assets.

Putting it into perspectiveAll these macro issues are clearly serious,and it makes sense to consider the poten-tial impact of adverse scenarios wherethese issues significantly worsen and/orbadly impact markets. It also makes senseto consider adding some hedges or certaininvestments to portfolios that couldprotect (or at least not suffer majordamage) if the bear case plays out.

But it also seems to me that most ofthese issues are already well publicised,discussed and clearly at the forefront ofinvestor concerns. Further, marketscurrently seem obsessed with thebearish/negative side of each of theseissues. This suggests that bad outcomesfrom each are already at least partly pricedinto markets, although it is difficult todetermine by how much. The possibilitythat these issues will be resolved positive-ly – or have limited impact on most globalmarkets or economies – is far over-whelmed by discussion of the potentialdamage they could do.

For these macro issues and risks tocontinue to drive share prices down, it islikely they need to worsen or new majornegative issues need to emerge. If theseissues don’t worsen, or even improve, theline of least resistance for many ‘risk’ assetsis likely to be up when investor sentimentis so negative. Many investors have alreadyreacted to these fears and made their port-folios more conservative. As one strategypiece on Asia, but applicable to allmarkets, questioned about the currentenvironment: ‘How about upside risk fora change?’

Of course with 2008 still fresh in manymemories there is much fear of a re-runof the GFC. You can see it in the way apotential Greek default is described asEurope’s ‘Lehman moment’. But there is akey difference: a Greek default clearly isexpected, whereas a disorderly Lehmanfailure clearly wasn’t. Greek bonds arealready fully pricing in some form ofdefault within the next couple of years.

‘Tis an ill windIt seems a legacy of the GFC is a greaterfocus on negative news among investors,

and in the financial and general media.Bad news leads to poor investor senti-ment, which leads to more bad news beingreported. Perhaps it’s because the GFCshowed starkly that very bad and almostunprecedented financial developmentscan occur. But now we seem to expectthem every second month.

This is not to downplay the very realrisks to the global economy and financialmarkets that include, but are not limitedto, the risks discussed above. But somethings have changed since the GFC. Muchof the private financial leverage aroundinvestments that led to the GFC being soviolent for financial markets has alreadybeen significantly reduced or unwound.While this has been replaced by a majorpublic debt problem in some countries,authorities have become much morefocused on resolving the problems. Thereis no certainty that the problems will beresolved smoothly, but it is reasonable tosuggest that the authorities have a plan Bif things become disorderly quickly.

Further, while some of these macroissues are certainly likely to be major prob-lems for the global economy at some pointin coming years, they may not necessari-ly be problems in the near term. Forexample, a severe slowdown in China isinevitable at some point – and it seemsunlikely we will get a resolution to thesovereign debt issues of most indebtedwestern nations without some seriouspain. But these events could be years away,and even when they occur they may ormay not badly impact financial markets.

Major crises typically start in environ-ments of complacency and excessive opti-mism, not the current high levels ofcaution and pessimism.

It would therefore not surprise me ifmarkets experienced a strong rally out ofthe current pessimism. That is not tosuggest that such a rally would be thebeginning of a multi-year uptrend or thatsuch a gain would even be fully sustained,but for those who have largely given upon growth assets the current pessimismseems to offer an attractive window to addfor the longer term.

The shortcomings of cashNow is also an appropriate time to high-light that cash and term deposits will notbe good investments in all future scenar-ios. While perceived as ‘risk-free’ assets,there are times when they are a poor

investment in a portfolio. And this is notjust that the current premium over offi-cial cash rates that banks are willing to payto attract deposits is unlikely to last.

One such scenario is where inflationtakes off to much higher levels and currentterm deposits and cash look poor in realterms (ie, after inflation). Some suggestthat if this happened, cash and termdeposit rates would rise in response, butthere is no guarantee of this. Just look tothe examples in Australia’s history wherecash returns in real terms were significant-ly negative (eg, much of the 1970s), or evencountries now such as the UK where cashrates are 4 per cent below the current infla-tion rate.

Another scenario is where theAustralian growth outlook deterioratesquickly (perhaps with a major China slow-down) and cash and term deposit rates fallquickly and sharply, following big cutsfrom the Reserve Bank of Australia. Iron-ically, such a scenario may eventually bequite positive for growth assets. This isbecause falling interest rates and a lowerAustralian dollar support the local sharemarket (and unhedged overseas returns),and investors become starved of return incash/term deposits and stampede for theattractive yields on offer in many shares.

For most long-term investors, exces-sive reliance on cash and term depositsis therefore not a panacea for strugglingportfolios, despite the case for maintain-ing a reasonable exposure now. As usual,a dynamic approach reacting to theavailable opportunities and prospectsmakes sense.

As we head into what have historicallybeen the more difficult months for sharemarkets, there seem to be plenty ofexcuses for investors to sit on their handsand hold cash. But markets have a tenden-cy of moving in ways that cause the mostnumber of investors the highest level ofregret, and in my view a sharp rally thatleaves many investors behind would besuch a move.

Now, in my view, it is therefore a goodtime to be taking advantage of growingpessimism to add selectively to equitiesfor the long term. Such additions could bestaged and targeted at periods of seriousweakness. If one or more of the majormacro challenges described above doescause a further major market selloff,investors may well get an opportunity, andshould be in a position to add more, ateven lower levels.

But there is no certainty such major sell-offs will occur. Those investors compla-cently boasting about how comfortablethey are in cash and term deposits are atrisk of being the last to move, onlyprepared to buy when the macroeconom-ic environment ‘feels’ much better, whichwill almost certainly be at significantlyhigher prices. By then, much of the goodvalue and the better prospective returnsfrom many equities will be gone. Thecurrent dilemma for investors and advis-ers is highlighted by the words of WarrenBuffett: “Investing is simple, but not easy”.

Dominic McCormick is the chief executiveofficer of Select Asset ManagementLimited.

“ For most long-terminvestors, excessivereliance on cash and term deposits is not apanacea for strugglingportfolios. ”

The ability to claim a deductionon personal contributions tosuper may help many eligibleindividuals reduce their taxable

income. When approaching retirement,the retirement date can affect the abilityto claim a deduction on contributionsin the current financial year. However,all individuals should take care to ensurethat 290-170 notices are provided beforecertain events and that they are awareof the maximum amount that can beclaimed. Otherwise, they may miss outon claiming a deduction on some or allof the contribution, or worse, a signifi-cant tax liability may be created byexceeding the contribution limits.

Who can claim?An individual who is deemed anemployee for super guarantee (SG)purposes and has less than 10 per centof total assessable income, reportablefringe benefits and reportable employersuperannuation contributions attribut-able to employment, is eligible to claima deduction on personal contributionsto super.

However, i f an individual is notinvolved in employment-related activi-ties (as an employee) they do not have tosatisfy the 10 per cent test.

Those who qualify to claim a deduc-tion on personal contributions includeretired, unemployed, self-employed andsubstantially self-employed people.

Timing of retirementIf an individual is retiring this year, theyshould consider what the optimal retire-

ment date is. The retirement date mayaffect their ability to make personaldeductible contributions for the currentfinancial year (see case study 1).

Timing of 290-170 noticesA valid 290-170 notice must be submit-ted before a contributions splittingapplication is made or a pension hascommenced. If any part of the contri-bution is used to commence a pension,none of the contribution can be claimedas a deduction.

In addition, for contributions madein the 2010-11 financial year whererollovers (to another accumulationaccount) or withdrawals were made, theamount that can be claimed is limitedto the lesser of the contribution madethat year and the tax-free componentremaining (see case study 2).

Contributions from 1 July 2011From 1 July 2011, if withdrawals/rolloversare made to another accumulationaccount, it is assumed that part of thewithdrawal/rollover is funded from thecontribution.

Note that super funds may choose toapply this approach as part of their admin-istrative practise for the 2007-08 and laterfinancial years, however it is only manda-tory from the 2011-12 financial year.

There are two steps that need to befollowed to calculate the maximumamount that can be claimed as a deduc-tion for a particular financial year. They are:

1. Calculate the amount of tax-freecomponent rolled/withdrawn, and


Retirement PlanningPersonaldeductiblecontributions:

Rachel Leong explains how theretirement date, withdrawals and thetiming of Section 290-170 notices canhave a great impact on the amount of

deductions that can be claimed for clients withdeductible contributions as part of theirfinancial plan.

It is the beginning of August and Tina, age 60, is thinking about retiring soon. She earns $25,000 per annum from her part-time job (of which she has an agreementin place to salary sacrifice $10,000 per annum) and also expects to receive dividendsof $15,000 (fully franked) and trust distributions of $10,000 this year.

Therefore, if Tina retired now, she would be able to make personal deductible contributions into super.

How much longer can Tina work and still claim deductions on personalcontributions to super?

Therefore, total amount attributable to employment = $3,492* to stay under the10% threshold.

Tina could continue to work for approx 20 days longer and still satisfy the 10% test.If she worked longer, she would not meet the 10% test and would not be able to claima deduction on personal contributions into super (unless she increases non-employ-ment income this year).

Note: in the following financial year, Tina will be eligible to

make personal deductible contributions without the need to

satisfy the 10% test as she will be retired.

Salary received this year to date = $1,250

Salary sacrifice this year to date = $833

Franked dividends expected this year = $15,000 + ($15,000 x 30/70) = $21,429

Trust distributions expected this year = $10,000

Expected total assessable income, reportable fringe benefits and reportable employer super

contributions this year (if retired today) = $33,512

Amount attributable to employment = $1,250 + $833 = $2,083

Income attributable to employment

total income

$2,083

$33,512 = = 6.22% (less than 10%).

total amount attributable to employmenttotal income

(total amount attributable to employment + $21,429 + $10,000)10% =

$3,492

$2,083approx 1.68 months =

*x = total amount attributable to employment

x = 0.1x + $3,143

x

(x+$21,429 + $10,000) = 0.1= 0.1

$3,143

0.9x= = $3,492

Case study 1 - Retirement date

it’s all in the timing


Pia has a superannuation interest valued at $180,000 ($80,000 tax free and$100,000 taxable). Pia makes a $50,000 personal contribution in March 2011which is, at that stage, a non-concessional contribution that would be countedas part of contributions segment (and therefore the tax-free component). Hertotal superannuation account balance is subsequently $230,000 ($130,000 taxfree, $100,000 taxable).

Pia, if eligible, could at this point in time lodge a section 290-170 notice toclaim a deduction of up to $50,000, that is, any amount up to the amount shehas made as a personal contribution in that year.

If before lodging a 290-170 notice, Pia rolled over $210,000 in May, leaving$20,000 ($11,304 tax free and $8,696 taxable), she could only lodge a valid noticefor an amount up to $11,304 of the $50,000 contributions made in this financial year.

Nigel, age 55, makes the following superannuation transactions in the 2011-12financial year:

Step 2: Assuming Nigel is eligible, he could give a valid deduction notice for an amount upto $122,223. That amount is worked out as follows:

Case study 4 – contributions from 1 July 2011 (multiple withdrawals)

Frederick is eligible to claim a deduction on personal contributions to super. Belowis a summary of Frederick’s superannuation transactions for the 2011-12 and 2012-13 financial years:

2011-12

2012-13

Step 2: calculate the maximum deductible contributions The following calculation must be done for each withdrawal after the contribu-tion is made, to determine the amount still held by the fund:

tax-free component after withdrawal* x contributions / tax-free componentbefore the withdrawal concerned

* Withdrawals made before submission of the 290-170 notice

Maximum deductible contributions for the 2011-12 year:Note: the withdrawal made in the 2012/13 financial year affects the amount that Frederick can claim as a deduction in the 2011-

12 financial year as only a proportion is still held by the fund.

Maximum deductible contributions for the 2012-13 financial year:Note: the withdrawal made in the 2011-12 financial year does not affect the amount that Frederick can claim as a deduction in the

2012-13 financial year. This is because the contributions concerned were made after the withdrawal on 1 September 2011.

Further contributions of $21,000 are made in 2012-13 financial year after thewithdrawal on 1 December 2012. Therefore maximum deductible contributions forthe 2012-13 year are $11,679 + $21,000 = $32,679.

Total super interest $120,000 ($30,000 tax-free component)

Contribution $150,000

$270,000 ($180,000 tax-free component)

Rollover to another - $50,000 ($33,333 tax-free component

accumulation account rolled* Step 1)

Balance remaining $220,000 ($146,667 tax-free component)

$50,000 x $180,000

$270,000*$33,333 =

$146,667

$180,000x 150,000 = $122,223

rollover

tax-free component before rollover

Starting balance on 1 July 2011 $300,000 ($100,000 tax-free component)

Contributions made up to 1 Sept 2011 $6,000 ($106,000 tax-free component)

Withdrawal on 1 Sept 2011 -$80,000 ($27,712* withdrawn from tax-free

$226,000 component), $78,288 remaining tax-free

component – step 1)

Contributions from 1 Sept 2011 $30,000 ($108,288 tax-free component)

– 30 June 2012

Balance remaining $256,000

Balance on 1 July 2012 $256,000 ($108,288 tax-free component)

Contributions made from $15,000 ($123,288 tax-free component)

1 July 2012 to 1 December 2012 $271,000

Withdrawal on 1 December 2012 -$60,000 ($27,296^ withdrawn from tax-free

$211,000 component, $95,992 remainin

tax-free component – step 1)

Contributions made from

1 December 2012 to 30 June 2013 $21,000 ($116,992 tax-free component)

Balance remaining $232,000

x contribution

*$106,000

$306,000x $80,000 = $27,712

^ $123,288

$271,000x $60,000 = $27,296

Terry, self-employed, age 52, made personal contributions of $200,000 in the 2010-11 financial year. He has also contributed $450,000 in the 2011-12 financial year.He believes he can claim a deduction for $50,000 of the contributions made in2010-11, however due to a rollover to another accumulation account, he is only ableto claim a deduction of $30,000 for that year. Therefore, for 2010-11, his concession-al contributions are $30,000 and his non-concessional contributions are $170,000.This means that he has triggered the bring-forward provisions for non-conces-sional contributions.

At this point, Terry does not have an excess contribution problem. However, ashe has already made $450,000 personal contributions in 2011-12 for which hecould only claim up to $50,000 as personal deductible, this results in total non-concessional contributions of $570,000 ($170,000 + $400,000) over the three-yearperiod from 2010/11–2012/13. Therefore, Terry has excess non-concessional contri-butions of $120,000, with a tax liability of $55,800.

2. Calculate the maximum amount ofdeductible contributions for the year.

The two steps are demonstrated incase study 3. However, the calculation ismore complicated when there is morethan one withdrawal/rollover in thefinancial year of contribution (see casestudy 4).

Excess contributions taxIf individuals attempt to claim a higherlevel of personal deductible contributionsthan they are eligible for, they may inad-vertently breach the non-concessional

contribution limit (see case study 5).

ConclusionThe retirement date, withdrawals/rollovers and the timing of 290-170notices can greatly affect the amount ofdeductions that can be claimed. Individ-uals should take great care when person-al deductible contributions are part oftheir financial plan, as an error may havesubstantial negative tax implications.

Rachel Leong is a technical servicesconsultant at Suncorp Life.

$78,288 x $6,000

$106,000= $4,431

$95,992 x ($4,431 + $30,000)

$123,288= $26,808

Withdrawal on 1 September 2011 Withdrawal on 1 December 2012

$95,992 x $15,000

$123,288= $11,679

Withdrawal on 1 December 2012

Case study 2 - Contributions before 1 July 2011

Case study 3 - Contributions made from 1 July 2011 (single withdrawal)

Case study 5 - Exceeding contribution limits

Case study 4 - Contributions made from 1 July 2011 (multiple withdrawals)

If your client loses the capacity to makedecisions without an enduring powerof attorney or guardianship appoint-ment in place, control of decisions over

a client’s property, medical treatment andlifestyle may be handled by an unsuitableor unsatisfactory person. Alternatively, suchcontrol may have to be determined by astate or territory tribunal.

A power of attorney is an important,practical and useful legal solution that notonly provides peace of mind – it can alsoavoid costly and complex legal problems.It is a legal document that allows a person,company or body corporate to appoint anagent to act on their behalf. The persondelegating the power is known as the prin-cipal (or sometimes donor or grantor) andthe person receiving the power is knownas the attorney (or donee, grantee or evenagent). The relationship between the principal and attorney is that of principaland agent.

As with wills and intestacy law, legisla-tion governing powers of attorney is stateand territory-based, and each jurisdictionhas its own act. This can present a problemwhere a power of attorney granted in onestate may not give the attorney the powerto act in another jurisdiction (or restrictsthose powers).

Once an unlimited power of attorney isgranted, the attorney – and it can be morethan one person – has the exclusive powerto act in the capacity of the principal. There-fore, the attorney can enter into contracts,buy and sell property and make other deci-sions regarding the principal’s financialaffairs and property. Powers of attorney canbe quite broad or very restrictive in what

powers are given to the attorney.A power of attorney does have some

exclusions. For instance:• A principal cannot instruct an attor-

ney to do anything illegal;• An attorney does not have the power,

on behalf of the principal, to prepare a will,to vote in an election or referendum, orconsent to marriage; and

• Once nominated, the attorneys cannotappoint someone else to assume theirpowers or responsibilities, unless this hasbeen specified in the power of attorney.

There are two main types of power ofattorney available in all states and territories:

• General powers of attorney; and• Enduring powers of attorney.

General powers of attorneyA general power of attorney can be set upto give the attorney the authority:

• To do exactly one thing;• To do a restricted range of things; or • To allow the attorney to make any

financial or legal decisions on the princi-pal’s behalf.

A general power of attorney with limitedpowers is usually granted to cover a specif-ic event for a fixed period of time. Forinstance, your client Sam, who intends totravel overseas, may want to make ageneral power of attorney, and the person(or organisation) appointed as attorneycan make financial decisions on his behalfwhile he is away. This could include sellingshares or property or signing a legal agree-ment. The general power of attorneywould normally be revoked after Sam returned.

General powers of attorney remain

valid only while the principal has mentalcapacity. If the principal becomes mental-ly incapacitated and therefore legallyincompetent, the power of attorneyceases to be active.

Enduring powers of attorneyAn enduring power of attorney is moreimportant for estate planning purposes.These appointments can help clientsplan for the future when they have lostthe power to make rational decisions – inother words, to understand conse-quences, take responsibility and weighup risks and benefits.

Unfortunately, nobody knows whenillness or injury will strike, and whetherthe event will impact on mental capacity.With the prevalence of motor vehicle andother accidents along with Australia’sincreasingly ageing population, combinedwith the impact of Alzheimer’s, dementiaand other diseases, it is clear that endur-ing powers of attorney will become evenmore important in the future.

Enduring powers of attorney may applyto financial, medical and lifestyle deci-sions. It all depends on the jurisdiction.All Australian states and territories haveenduring powers of attorney for financialmatters. The legislation in each jurisdic-tion varies significantly when it comes tomedical and lifestyle decisions. In SouthAustralia and Victoria a person canappoint a medical attorney. In New SouthWales, Queensland, Tasmania and WesternAustralia a person can appoint an endur-ing guardian who can make certainmedical decisions on behalf of thatperson. The Northern Territory currentlyhas no medical powers of attorney orguardianships, but an Office of AdultGuardianship and the Public Guardiancan appoint guardians after a person haslost legal capacity.

All jurisdictions in Australia now recog-nise valid Advance Care Directives, whichdocument a person’s decisions aboutfuture medical, surgical and dental treat-ment and other health care.

Who can make a power of attorney?In general, a principal must be 18 years ofage and legally competent. In other words,the principal understands the nature andeffect of the power of attorney, in terms ofwhat the attorney can do when makingdecisions and the impact of thisdecision-making.

Who should be appointed as theattorney? In some jurisdictions, the attorney mustbe at least 18 years of age. This is a require-ment if the attorney is to sign contracts,for instance. The one standard require-ment is the attorney must be legallycompetent. In choosing a person for anenduring power of attorney, some pointsneed to be considered. This person isbeing given considerable power and thechoice should not be made lightly.

People often appoint relatives, a closefriend or an independent person such asan accountant, lawyer or doctor as theattorney. You can also appoint a trusteecompany, but there will invariably be feesassociated with this. You wouldn’t

normally pay a relative a friend to be anattorney, but a professional person wouldnormally charge for this as for anyservice. An attorney should be a personwho you trust and who understands thedecisions you would be likely to make incertain circumstances.

Will the person be available whenneeded?An enduring power of attorney may notbe exercised for many years, so an olderperson may not be the right choice. Don’tmake assumptions. It may be difficult fora family member or close friend to beobjective about making decisions, partic-ularly where a medical enduring power ofattorney (or power of enduring guardian-ship) is available.

On the other hand, it may be prudentto appoint an adult daughter who isprepared to look after an elderly parent inher own home. This would be a good ideaas failing to set up a power of attorneycould result in a state tribunal placing theelderly parent in a nursing home topreserve family harmony (if another adultchild thought that nursing home carewould be a better idea).

Check that the person you want toappoint is happy to be an attorney. Thereis no point selecting someone who doesnot want to take on this role. Checkwhether you can appoint more than oneattorney. In most jurisdictions, you canappoint more than one and they can act:

• Jointly, where both attorneys mustagree for the decision to be valid;

• Severally, where either attorney maymake a decision independently of theother; and/or

• As a substitute or alternative attorney(who can make a decision if the originalattorney is unavailable or no longer able toperform this role).

When can an enduring power ofattorney be revoked?In most states and territories an enduringpower of attorney can be revoked upon:

• The death of the principal or theattorney;

• Revocation revoked by the principal,or by a later enduring power of attorney;

• The legal incapacity of the attorney;• The retirement of the attorney (in

some jurisdictions this can only be donewith the leave of the Supreme Court);

• The bankruptcy of the attorney and(sometimes) principal; or

• The order of a Supreme Court judge. As with all important legal documents

there are certain other formalities to beobserved with powers of attorney, whichagain differ according to the jurisdiction,including: who can and cannot witness,when the document needs to be regis-tered, and whether an attorney needs toformally accept the appointment.

With regard to powers of attorneyexecuted in other states or territories, mostjurisdictions have now passed legislationrecognising these powers of attorney, tothe extent that the powers they give do notcontradict the local relevant legislation.

Jeffrey Scott is executive manager forbusiness growth services at CommInsure.


Granting powersof attorney

Toolbox

Estate planning is not just about executing willsand distributing assets upon an individual’sdeath; it should also include the possibility ofmental or legal incapacity during a client’slifetime. CommInsure’s Jeffrey Scott reports.

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 PLANNER Location: SydneyCompany: Commonwealth Bank of Australia (CBA)Description: Commonwealth FinancialPlanning is looking for a financial planner tojoin its Wealth Management group. You will beresponsible for building relationships andsales within your designated area as well asproviding customers with exceptional customerservice and financial advice.

You will have access to a wide variety ofresources to help you achieve your targets andgoals, and a dedicated support network to assistyou with everything from administration to legaland technical issues.

To be successful in this role you will need tobe RG146-compliant. You will also have provenyour performance capabilities in financialplanning, customer relations and sales, andhave demonstrated your high level ofcommunication skills.

To apply, please visitmoneymanagement.com.au/jobs or contactCommonwealth Financial Planning on 1800989 696.

FINANCIAL ADVISERLocation: MelbourneCompany: IPADescription: A privately owned financial servicesprovider with over $3.5 billion of assets underadministration is looking to employ a number of

experienced and professional financial advisers,who will be responsible for providing effectivefinancial planning advice to the company’sclients, while also attracting new clients.

The role will entail all aspects of financialadvice, client interaction, compliance andadministration and is critical to the success ofthe Financial Advisory team.

The position will suit professionals with aminimum of three years of financial advisoryexperience, are RG146 compliant, and arefamiliar with a broad range of financial planningstrategies. Excellent results throughundergraduate studies are essential.

The successful applicant will be given anopportunity to work with a team of industryspecialists and will be provided with careeradvancement opportunities. A competitive salaryis also on offer, as well as bonuses andadditional non-monetary incentives.

To register your interest in this role, pleasevisit www.moneymanagement.com/jobs

JUNIOR PARAPLANNERLocation: CanberraCompany: Bluefin ResourcesDescription: A leading accountancy firm that is dueto rapid expansion is are seeking graduatesinterested in pursuing a career in financial planning.

The position will encompass all aspects ofparaplanning, client interaction, compliance andadministration, and is critical to the success of

the financial planning team.If you are a graduate and have a genuine

passion for building a career in financial planningworking for a fantastic organisation then this isthe role for you.

To find out more about this opportunity,please contact Toby Walsh from BluefinResources on (02) 9270 2645 or visitwww.moneymanagement.com.au/jobs

STATE MANAGERLocation: MelbourneCompany: Patron Financial AdviceDescription: Patron is an established AustralianFinancial Services Licensee (AFSL) located inSydney, and is looking for someone keen tobecome a senior staff member of a growingAFSL, commence dealer operations in a newregion, and join an organisation that will providea leading remuneration package and furthercareer opportunities.

The successful candidate will commence asstate manager, Victoria, working closely with thegeneral manager on recruiting new financialplanning and risk advisers in the state. The rolewill require full state manager responsibilities inthe areas of compliance, practice support,assisting advisers with new client strategies, andbusiness planning.

A Diploma of Financial Services is a minimumrequirement, and financial services industryexperience is essential, preferably in a life company,

fund manager or AFSL. Knowledge of financialplanning software and familiarity with corporationslaw as it applies to advisers is also necessary.

Please apply by emailing your resume to RobMcCann, general manager, Patron FinancialAdvice: [email protected] or visitwww.moneymanagement.com.au/jobs

SENIOR ADVISER – PROPERTY ANDFINANCELocation: SydneyCompany: Wealthy & Wise Lifestyle PlanningDescription: Wealthy & Wise Lifestyle Planning islooking to add a senior sales adviser to the team.The ideal candidate will have at least two years offinancial services exposure as well as investmentproperty experience, and will work in areasincluding risk insurance, direct equities andmanaged investments.

You will have substantial autonomy, but alsoplenty of support from the company marketingplatform, around which you will build your day.

The remuneration package is based onexperience, but revolves around performance.Ultimately you will become an all-roundprofessional adviser gaining accreditations andmeaningful certification in the first two years.

For more information, visitmoneymanagement.com.au/jobs, or email yourrésumé to: the chief executive officer, Wealthyand Wise Lifestyle Planning,[email protected]

MLC and NAB Wealth recruitedthree new members to its retire-ment solutions team.

Recent additions include PaulStratton, Michael Tobin, and RemiBouchenez, with others to joinlater this year.

All three have worked for AXA’sNorth platform, with Stratton ashead of platform development,Tobin as head of product develop-ment and Bouchenez as riskmanager structured solutions.

In MLC and NAB Wealth’s retire-ment solutions team, Stratton hascome onboard as head of productoperations, Tobin becomes headof product development andBouchenez is now head of finan-cial risk management.

The team is headed up byAndrew Barnett, who joined MLCin January this year, also from AXA’sNorth team.

ANZ has appointed former BTFinancial Group general managerof finance and legal, JohnFrechtling, as chief financial officerfor OnePath and head of financefor ANZ Wealth.

Frechtling has more than 20years experience in financial serv-ices, having previously worked asa chief financial officer for BTFinancial Group and WestpacBanking Corporation in Australia

and New Zealand.He was most recently general

manager of finance and legal at BTFinancial Group, where he wasresponsible for the merger of theBT and St George wealth financeand legal operations.

ANZ Wealth managing director,John Van Der Wielen, saidFrechtling’s experience in wealthand banking coupled with hisbackground in large-scale busi-nesses would make him a strong

addition to the team.Frechtling commenced his role

on 4 July.

PREMIUM Investors hasannounced it will add industryveteran Lindsay Mannto its board.Mann was selected to assist with thecompany’s strategy of deliveringsolid dividends to shareholders.

Premium chairman Tim Collins,who announced the appointment,

said Premium’s goal required anactive and highly specialised invest-ment approach.

Mann joined the financial serv-ices industry 36 years ago and wasformerly chief executive officer(Singapore) and regional head Asiafor First State Investments – theAsian business of Colonial FirstState Global Asset Management.Prior to this, Mann was chief exec-utive officer of AXA InvestmentManagers in Hong Kong.

He is currently an independentdirector of BRIM Asian Credit Fund,a Cayman Islands domiciled hedgefund managed by Singapore-basedBlue Rice Investment Managementand he is an independent memberof the compliance committee ofAviva Investors Australia.

THE newly appointed chief exec-utive officer of Bravura Solu-tions, Tony Klim, has also beenappointed to the role of manag-ing director, the softwareprovider has announced.

Klim was appointed thecompany’s chief executive officerin May, with his role of managingdirector effective from 30 June.

Bravura reported it had enteredinto a new employment agree-ment with Klim, who will receivea £350,000 ($525,000) fixed salary.

Meanwhile, Russell Investments

has selected Bravura’s Sonatasoftware to administer the firm’sretail products, with the twocompanies signing an initial five-year contract.

Russell had also confirmedSonata may be expanded forglobal use, with plans to imple-ment other Bravura solutions toincrease operational efficiency.

CENTURIA Capital Limited hashired Peter McDonagh as head ofreverse mortgages. McDonaghbrings 30 years of experience to therole, including expertise in manag-ing mortgage services teams andhigh-volume mortgage administra-tion operations with up to 90 staff.

Before joining Centuria,McDonagh worked as perform-ance improvement and qualityadviser in National AustraliaBank’s (NAB) group business serv-ices. Prior to this, he held the posi-tion of funding coordinator home-side service at NAB.

McDonagh’s experience alsoincludes senior roles within theCommonwealth Bank ofAustralia’s (CBA) mortgage serv-ices business in Melbourne, andmore recently he held a contractrole as team leader of exceptionsprocessing at Australia Post. Hisnew role will be based at Centuria’sMelbourne office.

Move of the weekPROFESSIONAL Investment Services(PIS) founder, Robbie Bennetts, willundertake a part-time role within thegroup, moving away from his full-timeduties as of 31 July.

The group announced Bennetts enteredinto a contract with PIS and will provideinput as an adviser to the Board, coordi-nate and manage the group’s conferencesand develop new opportunities to marketfinancial advice to potential clients.

Bennetts’ future role had been agreed following the group’s merger withCentrepoint Alliance, after which PIS became listed on the AustralianSecurities Exchange.

Centrepoint managing director Tony Robinson described Bennettsas a “true pioneer in the spirit of creating footprints rather than follow-ing existing ones”.

“Robbie Bennetts has built the PIS Group into a successful andsignificant part of the financial services industry in Australia and othercountries,” he said.

Robbie Bennetts

“Outsider


“We take ASIC’s numbers, we

take our numbers, we cut the

head off a chicken and check

the entrails”

The Financial Planning Associa-

tion’s method for calculating the exact

number of planners within Australia

is part science and part voodoo,

according to the association’s chief

professional officer Deen Sanders.

“You can’t fall when you’re

already on the floor.”

BT’s Chris Caton dismisses fears of

a US double-dip recession.

“When we hear a company say

they have a competitive

advantage in dealing with the

Government, that’s usually a

very good sign to steer clear.”

Colonial First State Global Asset

Management’s senior portfolio

manager David Gait shares some of

his unwritten rules of responsible

investing.

Out ofcontext

Memorable faces

A hostile reception

OUTSIDER has always reliedon his good looks and wittycharm to get by in life. Fromscoring his first job as a rookierepor ter r ight through totaking Mrs O off the market,his piercing eyes and impecca-ble sense of style have alwaysbeen a hit with the ladies.

But, having used this tech-nique time and time again,Outsider realises that there aretimes when appearance alone isnot enough.

That’s why when ANZlaunched its new advertisingcampaign starring the rather

dapper looking Simon Baker ashis character from The Mental-ist, Outsider couldn’t help butfeel slightly confused.

The ad features Baker speak-ing in an American accent aboutwhat his Australian audiencewants – for our bank to be “fullyinteractive, predictive, non-restrictive” and even “mildlyaddictive”.

While Baker’s dashing goodlooks are sure to be a hit withthose of the fairer sex, Outsiderquestions whether the decisionto hire a fictional character tospruik the bank’s tagline, “We live

in your world”, was a wise one. Outsider hears that apparent-

ly many of those ‘twits’ on theinter-webs weren’t particularlyhappy with the accent, proclaim-ing they would prefer to hear therugged tones of Baker’s naturalAustralian drawl.

But Outsider wonderswhether even that would havebeen enough to cut through toviewers. Perhaps ANZ shouldhave done away with the looksaltogether and splurged on somereal Aussie talent of the likes ofBert Newton’s calibre. Now that’sa face that’s hard to forget.

OUTSIDER is famous throughout thefinancial services industry for hisunwavering appetite for high qualityjournalism. But Outsider haughtilyrefutes suggestions that this dedi-cation shares a symbiotic relation-ship with one of Outsider’s othergreat passions: the long lunch.

Outsider will confess, however,that an old-fashioned salubrious longlunch does wonders for flaggingenthusiasm levels during the toughtimes – although suggestions Out-sider would attend the opening of anenvelope are wide of the mark.

After a rather long GFC-inducedhiatus, Outsider was predictablydelighted with the triumphant returnof the decadent lunch in 2010 – buthas been somewhat distressed by

its noticeable regression in 2011.Perhaps it was the flattening of

the stock market after a buoyantrecovery, maybe industry uncertaintyin the midst of a wave of regulations.Nevertheless, Outsider has noted analarming number of boardroom brief-ings around a plate of sandwichesand, even more disturbingly, thereturn of the 11am ‘coffee briefing’.

But Outsider would like to congratu-late two particular financial services

institutions for maintaining the loftystandards they set last year throughthe current slump. Outsider does notwish to name – and thereby riskshaming – the organisations con-cerned. After all, ‘never bite the handthat feeds’ is one of Outsider’s manymantras.

Instead, he would rather just doff hishat to the gents responsible, with anudge and a wink. They know who theyare, so keep up the good work lads.

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

Winingand dining

OUTSIDER must confess to having been afollower of the Rugby League State of Originseries ever since its inception – largely as aresult of having been thrown a free ticket to thefirst-ever match at Brisbane’s Lang Park. Suchboons are sometimes granted to lowly hacks.

It follows, therefore, that Outsider has somesympathy for those members of the financialservices industry who go to great lengths toattend all such matches – particularly thosewilling to travel from their Sydney homes toBrisbane to be abused by ‘fun-loving’ Queens-landers wearing maroon.

Perhaps this explains why when Outsidermade a quick phone call to Paragem’s Ian Knox,he located his quarry in what some might have

described as a ‘compromising’ position.You see, Knox and a few of his mates had

flown to Brisbane for the 2011 State of Origindecider and they were canny enough to knowthat turning up to Lang Park (aka SuncorpStadium) in business suits and blue ties waslikely to stir up some strong feelings among thenatives.

Thus, when Outsider phoned Knox, theParagem chief had to confess that he had beencaught in a state of undress – somewherebetween a Sydney business suit and a pair ofjeans.

Outsider presumes Knox then donned a bluejumper – either way, the Queenslanders hadthe last laugh.

Money Management (July 14, 2011)

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Transcript of Money Management (July 14, 2011)