Money Management (September 8, 2011)

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By Mike Taylor

THE Federal Government would be likely togarner grudging (but majority) financialplanning industry support for its Future ofFinancial Advice (FOFA) legislation if it wereto drop the two-year ‘opt-in’ requirement.

That is the key finding of a MoneyManagement survey conducted in theimmediate wake of Assistant Treasurer BillShorten releasing the first FOFA legislation.

As well, the survey found that even someof the flexibility negotiated by the Finan-cial Planning Association around themanner in which opt-in can be managedby individual planners has failed to win toomany fans.

The survey found 56 per cent of respon-dents believed the flexibility around opt-in would make the exercise easier or lesscostly, whereas 35 per cent believed thatwhile it might make life easier, there wouldbe no diminution in costs.

Ten per cent of respondents believed themore flexible approach would makehandling opt-in both easier and less costly.

With the Government having conceded

ground by allowing a continuation ofcommissions on individually-advised riskcommissions inside superannuation,survey respondents were asked whether –if the two-year opt-in were removed – theywould regard the legislation as deliveringbroadly sensible reforms.

In answer to the question, 68 per centagreed that removal of the two-year opt-inwould leave a broadly sensible package forthe industry.

However, what also became clear from

the survey was that the Government’s useof Rice Warner research suggesting the two-year opt-in would cost an average ofaround $11 per client was well wide of themark, with 66 per cent of respondentsbelieving it would cost closer to $100 aclient and a further 18 per cent believing itwould cost $50 per client.

Only 8 per cent of respondents wereprepared to agree with the Rice Warnerfigure, which resulted from researchcommissioned by the Industry Super

Network.The survey also revealed the degree to

which Shorten had been wise to moveaway from its original position of impos-ing a total ban on risk commissions insidesuperannuation, with 60 per cent ofrespondents saying they believed theconcession had made the overall FOFApackage more palatable.

The Money Management survey foundthat while a majority of planners believedthey might be able to live with the FOFAlegislation – minus the two-year opt-in –many held ongoing concerns about otherelements of the legislation, particularlythe approach to platform rebates andasset-based fees.

In a week during which the Common-wealth Bank revealed it was moving toacquire Count Financial, many surveyrespondents expressed concern that theFOFA legislation would serve to increasethe power and influence of the banks andthe industry funds, while doing nothingmore than reducing the number of inde-pendent dealer groups operating in theindustry.

By Chris Kennedy

RICE Warner will present a submissionexplaining how it arrived at the con-tentious $11 per client cost of opt-inthat was quoted by Financial ServicesMinister Bill Shorten when announc-ing opt-in requirements in draft Futureof Financial Advice (FOFA) legislation.

The financial planning industry hasraised questions around the validity ofthe research, which was commissionedand paid for by the Industry Super Net-work (ISN), which has been vocal in itssupport of opt-in requirements through-out the FOFA consultation process.

“It is clear there is some confusionabout this topic, so we thought wewould provide a public analysis to clearup all the misinformation,” Rice Warner managing director Michael Rice said.

The research is thorough, and looksat the cost of opt-in in isolation ratherthan the full costs of the FOFAreforms, and the submission willdetail how Rice Warner determinedthe costs per client, he said.

“We took into account all systemsdevelopment work, and we have helddiscussions with a few of the majorplatforms. We amortised these over a

reasonable period and also assumed asignificant portion of these would bepassed on to dealer groups,” he said.

One of the contentious issues is thatthe research ignored all dealer groupsoutside the top 100 largest groups whenarriving at its figure of a total cost to theindustry of $46 million initially, and $22million per annum ongoing.

This is because smaller advice firmstend to use in-house systems that canbe easily enhanced, or use externalproviders who would provide necessaryIT enhancements at a modest cost,the report stated.

“Furthermore, the majority of thefunds under advice across the industryrelate to the top 100 dealer groups…For these reasons, small dealer groups(outside the top 100) have beenignored,” the report stated.

Financial Planning Association chiefexecutive Mark Rantall described thisas “an amazing assumption”, and saidto remove the last portion of the indus-try would tilt any of the results thatcome from that research.

“We would reject that $11 per clientis a reasonable figure for opt-in; even

Opt-in removal key to FOFA support

Rice Warner to justify$11 cost of opt-in

RISK COMPANY OF THE YEAR: 5 | GOOD AS GOLD: Page 22

Vol.25 No.34 | September 8, 2011 | $6.95 INC GST

68%

32%

Yes

No

If the two-year opt-in were removed from the

Government’s FOFA package, would you regard the

legislation as delivering broadly sensible reforms?

The Government has accepted an assessment that

the two-year opt-in will cost around $11 per client.

What do you believe it will cost?

66% 18%

8%

5%

3% $100 per client

$50 per client

$11 per client

$75 per client

$20 per client

Source: Money Management

By Milana Pokrajac

EMBRACING new technologyand maintaining consistencyafter a major rebrand were thetwo deciding factors whichcarried OnePath across the linethis year in the Money Manage-ment/Dexx&r Adviser ChoiceRisk Company of the YearAwards.

Apart from winning the topspot, OnePath also took outgold in two product categoriesand silver in one.

The risk insurance markethas become more competitiveover the past 12 months due tothe steady demand which hasseen life companies try harderin terms of product innovationand their response to adviserfeedback.

Technology was a big part ofOnePath’s product develop-ment over the past year, as thecompany launched a numberof new online features for itsOneCare product, andenhanced the existing onessuch as electronic underwrit-ing and online and phoneclaims processing.

The company’s head of

product marketing and rein-surance, Gerard Kerr, saidproduct enhancement on thetechnology front was a resultof a natural progression intothe online world, as well asadviser demand.

He said the proposed Futureof Financial Advice changeswould force advisers to bemore involved in their clients’affairs, which has created a so-called ‘need for speed’.

“If you can remove ineffi-ciencies from your business

with your customers stillgetting that quality service –that’s obviously going to takeyou down the [technology]path,” Kerr said.

“Reforms are possiblyhelping support that, and we’reobviously still waiting for someof the fine detail to comethrough,” he added.

The company had also gonethrough one of the most chal-lenging rebrands in the lifeindustry to date – ditching thewell established ING Australiabrand and introducingOnePath to consumers afterbeing taken over by ANZ.

“ING Australia was a verystrong brand, so it added chal-lenge to it,” Kerr said, addingthe company had plannedcarefully and tasked itself withkeeping the momentum goingin the business.

OnePath had a core groupof people focused on the activ-ity around the rebrand, engag-ing different parts of thecompany only when neces-sary. The company separatedthe two activities, which gave

Taking the technology path

Gerard Kerr

Continued on page 3Continued on page 3

Financial services more than just super

When the Assistant Treasurer

and Minister for FinancialServices, Bill Shorten, lastweek released the draft legis-

lation making up the first tranche of hisFuture of Financial Advice (FOFA) legisla-tion, he utilised research undertaken byactuarial consultancy Rice Warner suggest-ing opt-in would cost around $11 per client.

In doing so, the minister failed toacknowledge that the Rice Warner researchto which he referred was actually commis-sioned by the Industry Super Network (ISN)and was premised on a peculiar set of crite-ria which have been strongly and persist-ently questioned by key figures in the finan-cial planning industry.

On all the evidence available to MoneyManagement, opt-in will almost certainlycost most financial planning practices agreat deal more than the $11 figure arrivedat by Rice Warner consistent with a briefprovided by ISN. Indeed, Treasury officialsmany months ago conceded that opt-incould cost in the order of $100 a head.

Thus, one of the central planks of theGovernment’s FOFA approach is based ondata commissioned to form the basis of apolemic, which is at best questionable, andat worst entirely misleading.

There were, of course, concessions

contained in the draft bill with the FinancialPlanning Association, amongst others,succeeding in locking in Shorten’s undertak-ing that commissions would be allowed tocontinue with respect to individually-advisedrisk products in super, and with flexibilitybeing granted around how planners actual-ly addressed their opt-in obligations.

However, if it was ever Shorten’s intentionto develop a draft bill capable of garneringbipartisan support, then he stumbled at thefirst hurdle by trotting out research inextrica-bly linked to the political/commercial agenda

being prosecuted by the ISN.A few days later, the Government’s

entire approach to financial servicespolicy was indicated by Prime MinisterJulia Gillard when she addressed a Finan-cial Services Council (FSC) breakfast inSydney. While Gillard’s speech did notbreak any new ground, it did confirm thather administration views financial serv-ices almost entirely through the prism ofsuperannuation.

Gillard did not dwell on the broaderquestion of financial advice, industryconsolidation or bank dominance. Rather,she exhorted the financial services indus-try to support the Government’s pursuit ofa Minerals Resources Rent Tax on thebasis that it would then generate thefunds necessary to support the lifting ofthe superannuation guarantee from 9 to12 per cent.

She will find few people in the financialservices industry reluctant to support alifting in the superannuation guarantee,but many will reflect that viewing finan-cial planning through the prism of super-annuation will mostly serve to benefit theGovernment’s supporters in the industryfunds.

– Mike TaylorABN 80 132 719 861 ACN 000 146 921

2 — Money Management September 8, 2011 www.moneymanagement.com.au

[email protected]

“While Gillard’s speech didnot break any new ground,it did confirm that heradministration viewsfinancial services almostentirely through the prismof superannuation.”

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Average Net DistributionPeriod ending March '1110,207

By Tim Stewart

ALTERNATIVE investments tend to belowly correlated with traditional assetclasses such as stocks, bonds and cash –and as such, investors can use them todiversify their portfolios, according toLonsec’s 2011 Alternatives Sector Review.

In addition, the current low growth andrising interest environment is makingtraditional asset classes look less attrac-tive, said Lonsec.

According to data provider Barclay-Hedge, 2010-11 saw hedge fund assetsunder management return to pre-globalfinancial crisis levels, with total hedgefund assets estimated to be US$1.77 tril-lion at 31 March 2011.

“Lonsec expects conditions for hedgefund investing to be favourable over the

next 12-18 months … hedge funds ingeneral should do well in an environmentwhere the requisite skill is to pick betweenthe winners and losers, whether that besecurities or asset classes,” Lonsec said.

Drilling down to the subsections withinhedge funds, managed futures and globalmacro managers had a relatively softeryear. Lonsec put the underperformancedown to the fact these strategies performbetter when the market is clearly trendingin one direction, which has not been thecase in the past year.

Of the 25 funds reviewed by Lonsec, thebest performing fund over the year to Junewas Barclays CORALS Commodities Fund,returning 27 per cent over the year. Thefund benefited from rising commoditiesprices and a rapidly appreciatingAustralian dollar, said Lonsec.

But because a large amount of risk isoften assumed to achieve such highreturns, Lonsec also applied the SharpeRatio (a risk-adjusted performance meas-urement) to the funds under review.Under this criteria, the AQR Delta fund

provided the best return over the past year– with the HFA Diversified Fund and theBlackRock Global Allocation Fund closebehind.

BlackRock also oversaw the worstperforming fund, with the BlackRock AssetAllocation Alpha Fund posting an absolutereturn of –10.3 per cent over the past year(the fund was also the worst performerafter risk adjustment). Lonsec said part ofthe reason for the poor performance wasdown to stop loss positions being triggeredin a volatile trading environment.

The Ashton Paulson Advantage PlusFund suffered the largest drawdown, at–16.7 per cent, largely due to concernsabout its investment in the Sino-ForestCorporation, which is currently facing fraudallegations. Paulson liquidated its holding inSino-Forest Corporation at a loss.

www.moneymanagement.com.au September 8, 2011 Money Management — 3

News

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With capital and income payments guaranteed by an APRA-regulated life company, Challenger annuities provide regular income for terms from one to fi fty years, orfor life.

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468/

0811

Climate right for alternatives

Taking the technology path

advisers and clients clarityand focus, Kerr said.

However, this wasn’t theonly rebrand the life industryhas seen over the past 12 months, with TowerAustralia changing its nameand logo to TAL after beingacquired by Japanese insurerDai Ichi.

TAL had done well byadvisers over the past year,

grabbing silver in the overallrisk awards, and winninggold in one product catego-ry and silver in two.

This is also the first yearBT Life became eligible forthe Risk awards, and thecompany jumped straightfor bronze.

For more information onMoney Management/Dexx&rRisk Company of the Yearawards and the judging crite-ria,turn to page 15.

“Lonsec expectsconditions for hedge fundinvesting to be favourableover the next 12-18months.”

Treasury presented to itsestimate committee a costof $100 per client,” hesaid.

Report author RichardWeatherhead said thenumber of advisers andamount of funds underadvice outside the top 100dealer groups was likelyless than 3 per cent of theindustry. Those groups areusually small operators withsimple business processesfor whom the additionalcosts of opt-in are likely tobe minimal, he said.

Another bone of con-tention is that the study wascommissioned by the ISN.

Association of FinancialAdvisers chief executiveRichard Klipin said he wasflabbergasted that the minis-ter could acknowledge theRice Warner research with-out attributing it to the ISN,while Rantall also suggestedthe study was designed for

the group that commis-sioned the research.

“This research wasspecifically commissionedto tease out the lowest pos-sible number without anyreflection on the realities ofthe actual costs involved,”Klipin said.

“The ISN/Rice Warnerresearch is laughable in itsbrevity and its lack of under-standing of the realities ofrunning a financial advisorypractice,” he said.

Rice Warner to justify$11 cost of opt-inContinued from page 1

Continued from page 1

Michael Rice

News

By Chris Kennedy

ANZ has announced plans toimplement an online merger andacquisition facility where advis-ers can anonymously advertisethat there is a practice for sale,while also targeting significantgrowth in financial advisernumbers and phone-basedadvice.

“One of the big demands wehave currently aside from fundingis merger and acquisition help,”ANZ general manager advice anddistribution Paul Barrett said at amedia briefing yesterday.

The online facility will allowplanners to log on and advertise tothe greater ANZ network – includ-ing Millennium 3 and RI Advice –that a practice is for sale. The 1,800-odd planners throughout thenetwork will be able to log on andbrowse the listings, Barrett said.

If a planner goes far enoughdown the path of acquiringanother practice, obviously therewill be a point where the processcan no longer be anonymous, atwhich point they would have todisclose their identity and signconfidentiality agreements,according to ANZ.

There is also some thoughtbeing given to opening up the facil-ity to the rest of the market, Barrettsaid.

The need to bring buyers andsellers together has never beengreater than it is today, and withthe average adviser age havinggone up since Financial ServicesReforms were brought in, there isno shortage of sellers, Barrett said.

ANZ Financial Planning is alsolooking to grow its planner networkof around 270 advisers by around50 per year over the next couple ofyears, Barrett said.

With OnePath already havingmade a number of acquisitions inrecent years, the group would befocusing on ensuring those acqui-sitions were successful and focus-ing on organic growth in the nearterm, Barrett said, although you“never say never” when it comes toacquisition opportunities.

Barrett said the 10,000-strongstaff base within the ANZ retailbanking network provided anopportunity for some of thatplanner growth, and said the 50-adviser-per-year growth should berealistically achievable just frominternal recruitments.

Barrett also tipped “significant”growth within the group’s phone-based advice service as more effi-cient forms of advice deliverybecame crucial in a post Future ofFinancial Advice world. Thephone-based service has actuallybeen an adviser led initiative, withadvisers throughout the networkasking for extra support in servic-ing B and C clients, he said.

Barrett said there were no specif-ic targets to grow the phone-basedservice. “We’re assessing it week toweek, we’re meeting demand, andas demand increases we’ll growthat business,” he said.

IOOF integrates multi-managertrusts into IOOF MultiMixBy Andrew Tsanadis

IOOF Group has announcedthat it is integrating its UnitedSector Leaders Funds (UnitedFunds) into a single suite ofmulti-manager trusts known asIOOF MultiMix.

In a move to simplify IOOF’smulti-manager options, themove to a single suite of multi-manager trusts will take effecton 30 September 2011.

Commenting on theannouncement, IOOF generalmanager distribution RenatoMota said the integration willmake the choice easier foradvisers and their clients.

“There will be minimalimpact on advisers and clientsbecause the two multi-managerofferings have aligned asset allo-cations, underlying managers,investment strategies andobjectives,” she said.

“Investors who currentlyhold investments in a closingUnited Sector Leaders Fundwill be transferred to an equiv-alent MultiMix Trust, which iscomparable in terms of riskprofile, investment objective

and strategy.”For the eight United Funds

that are remaining open as re-branded MultiMix trusts, theresponsible entity will changefrom Australian ExecutorTrustees Limited to IOOFInvestment ManagementLimited to ensure that a singleentity is responsible for theentire multi-manager suite,IOOF stated.

IOOF stated that theannouncement follows earlierenhancements to the multi-manager investment process,which included the appoint-ment of chief investment officerSteve Merlicek, an asset consult-ant and dedicated portfoliomanagers for each asset class.

In a separate announcementmade to the Australian Securi-ties Exchange, IOOF hasappointed Kevin White as anindependent, non-executivedirector, effective 4 October.

White was most recentlyWHK Group managing directorof accounting business, andremains a director of InsuranceManufacturers of Australia PtyLimited.

ANZ announces practice selling facility; targets growth


Paul Barrett


News

By Angela Welsh

THE Financial Planning Association(FPA) will launch an advertising cam-paign from 18 September, in anattempt to establish FPA member-ship as the ‘mark of trust’ with thebroader community, and differenti-ate its members from so-called ‘freeriders’.

FPA chief executive Mark Rantallsaid the television, print and onlinecampaign will form part of the FPA’s

mission “to transform financial plan-ning into a respected profession”.This mission drives the association’scurrent agenda, and Rantall said theFPA has “put this forward during allthe negotiations with Governmentregarding FOFA [the Future of Finan-cial Advice reforms]”.

The ad compares the qualifica-tions and experience of financialplanners with that of doctors,lawyers, pharmacists and helicopterpilots, with the strap line, “Not all

financial planners are the same.Always look for a member of theFinancial Planning Association”.

The FPA’s upcoming advertisingcampaign aims to “make a statementout there in the marketplace aroundwho is the FPA, and what do we standfor”, FPA general manager – market-ing, Lindy Jones, told journalists at anFPA Roundtable yesterday.

Rantall said the Association hadbeen “instrumental in the FOFA nego-tiations, even though we absolutely

will not, and do not support opt-in”. Since the Government has consis-

tently refused to abandon the two-year opt-in requirement, Rantall saidthe FPA would now focus on “makingsure it is sensible, workable, andlegal”.

The upcoming advertising campaignis also about the importance of refus-ing to support ‘free riders’ within finan-cial planning, Jones said.

Coalitionscrutiny expectedon APRA report

By Mike Taylor

COALITION senators areexpected to be angered bynewspaper reports thatAustralian PrudentialRegulation Authority(APRA) deputy chairman,Ross Jones told US diplo-mats about likely bankconsolidation when theregulator has chosen tocite the secrecy provisionsof its parent act in answer-ing questions duringSenate Estimates.

A report in the Finan-cial Review cites USdiplomatic cablespublished on theWikiLeaks website whichstate that Jones gave theUS embassy a pr ivateassessment of the healthof Austral ian banksduring the global finan-cial crisis.

The cable said Jonesnoted the CommonwealthBank had acquiredBankwest and he expect-ed the trend to continue,citing the potential thatSuncorp could also beacquired.

The revelations comejust weeks after APRAdeclined to answer a seriesof questions posed byTasmanian Liberal Senator,David Bushby, about theregulator’s activities aroundMTAA Super, citing thesecrecy provisions of itsparent act – somethingwhich prompted Bushby towrite a column outlininghis concerns in MoneyManagement.

The Financial Reviewrepor t said an APRAspokesman had defend-ed the regulator’s deputychair man, c laimingJones had been speakinghypothetically and withrespect to publicly avail-able information.

FPA to establish ‘mark of trust’

Mark Rantall

Shorten’s ‘vested interest’ undermines FOFATHE Federal Opposition hasaccused Assistant Treasurer BillShorten of jeopardising neces-sary reform of the financialservices industry by sacrificinggenuine need to the vestedinterests of union-backedindustry superannuationfunds.

The opposition spokesmanon financial services, SenatorMathias Cormann, saidShorten was continuing totarget small businesses andfinancial services competingwith his friends in industrysuperannuation funds insteadof pursuing a balanced policyin the public interest.

Commenting on the releaselast week of the first draft of theFuture of Financial Advice

(FOFA) legislation, Cormannsaid a number of key featuresof the bill would unnecessarilyincrease costs and red tape for

consumers and business forquestionable consumer protec-tion benefit.

“Bill Shorten’s approach toFOFA appears conflicted andunbalanced,” he said.

Cormann said while theCoalition supported reforms tofinancial services whichincreased transparency,competition, and consumerchoice such as a statutory bestinterests duty, it did notsupport opt-in.

“With the best interest duty inplace, appropriate transparencyof fees charged, and an ongoingcapacity for clients of financialadvisers to opt out, there isadequate consumer protectionwithout the need to impose addi-tional red tape,” he said.

Mathias Cormann

FOFA legislation delivers sour and sweetBy Mike Taylor

THE Federal Government has released thefirst tranche of its Future of Financial Advicelegislation, confirming a two-year opt-inbacked by fines of up to $250,000 for corpo-rate breaches and the signalling of a ban onasset-based fees with respect to gearing.

But the legislation has ceded ground tothe industry on commissions on individ-ually advised risk products, the grandfa-thering of some volume bonuses, andpotential limits on the use of the ‘financialplanner’ title.

Releasing the draft legislation, AssistantTreasurer Bill Shorten also chose to acceptcontroversial modelling produced by actuar-

ial consultancy, Rice Warner, suggesting opt-in would cost just $11 per client.

The first tranche of the draft legislationcovers opt-in, best interests duty, and anincrease in the Australian Securities andInvestments Commission’s powers. Thesecond part of the legislation, to be releasedsome time next month, will contain provi-sions relating to the ban on conflicted remu-neration, a ban on asset-based fees, and thedefinition of intra-fund advice.

The Government has chosen to headlinethe release of its draft legislation with thebest-interests obligations, and the fact it willimpose obligations on licensees, while carry-ing a breach penalty of $250,000 for individ-uals and $1 million for corporate entities.

On opt-in, it states that from 1 July nextyear advisers will need to provide a renewalnotice every two years, as well as an annualfee disclosure statement including the dollaramount of fees.

The legislation will also provide scope forclients to clawback fees if they were not seento appropriately opt in, and provides for penal-ties of up to $50,000 for individual breachesand $250,000 for corporate breaches.

Consistent with an announcement hemade at the Financial Services Councilconference earlier this month, Shortenconfirmed that commissions would remainin place for individually advised risk prod-ucts with respect to self-managed superan-nuation funds and Choice products.

However, he said by 1 July, 2013, the indus-try would be required to unbundle disclo-sure so the dollar percentage value ofcommissions was disclosed for all new andrenewed policies – something that wouldenable customers to see the impact ofcommissions on their premiums.

Shorten said the Government would workwith industry and consumer groups to intro-duce uniform clawback provisions to removethe incentive for some advisers to shoparound for the most generous clawbackarrangements.

He said upfront commissions had thepotential to increase churn, while levelcommissions on replacement policy werean effective way of addressing the issue.

More fees to pay for ASIC market supervisionTHE Government is seeking to raise around $18million a year in new fees from those participat-ing in Australia’s equity markets to help fund thesupervisory activities of the Australian Securitiesand Investments Commission (ASIC).

In similar fashion to the manner in whichsuperannuation and financial institutions leviedto cover the costs of supervision by ASIC, theAustralian Prudential Regulation Authority, andthe Australian Taxation Office, the Governmenthas announced a new cost recovery fee structureto be applied to stockbrokers and others utilis-ing the Australian Securities Exchange andincoming Chi-X.

The move was announced by Assistant Trea-surer and Minister for Financial Services, BillShorten, who said the fees were expected to beoffset by cost savings for the industry via reducedtrading fees and narrower bid-ask spread.

“In addition, the economy as a whole willbenefit from an innovative and competitivemarket lowering the cost of capital raising andcreating investment opportunities,” he said.

Shorten said opening Australia’s financialmarkets to competition carried the challenge ofsupervising multiple markets in an environmentof high speed and complex trading.

“The proposed market supervision fee model

and cost recovery arrangements represent animportant next step in our efforts to supportcompetitive, efficient and innovative equitymarkets,” he said.

Shorten said the proposed market supervisionfee model and cost recovery arrangements wouldreplace the current interim cost recovery arrange-ments from 1 January, next year.

Bill Shorten

Planning groups dig in against opt-inBOTH the Financial Planning Associ-ation (FPA) and the Association ofFinancial Advisers (AFA) will main-tain their rage against the two-yearopt-in contained in the Govern-ment’s draft Future of FinancialAdvice (FOFA) legislation, but theFPA believes it has negotiated someworthwhile concessions.

The chief executive of the FPA, MarkRantall, said his organisation wel-comed the fact the draft legislationhad adopted the detail of a number ofissues strongly advocated by the FPA –particularly new clients being the testfor the opt-in trigger, a reduction topenalties for future potential breachesfor opt-in, and flexibility in the way itwas actually applied.

However, AFA chief executiveRichard Klipin maintained his organi-sation’s hard-line approach, saying thelegislation failed two crucial tests withrespect to access and transparencywith its acceptance of a two-year opt-inbased on the fallacy of figures gener-ated by research commissioned bythe Industry Super Network (ISN).

“We are flabbergasted that the Gov-ernment could simply adopt those fig-ures without revealing where theycame from and the circumstancesunder which they were generated,” hesaid.

For their part, the industry super-annuation funds – represented byboth the Australian Institute of Super-annuation Trustees (AIST) and the ISN– welcomed the draft legislation asprotecting consumers.

ISN chief executive David Whiteleydescribed it as a “moderate package”that would protect Australians’ supersavings by imposing a new obligationfor financial planners to act in clients’best interests, and by prohibiting con-flicted remuneration including com-missions from group insurance andMySuper products.

AIST chief executive Fiona Reynoldssaid the measures contained in the

draft legislation “signalled a new eraof affordable and quality advice forsuper fund members, and would alsoensure that the new MySuper productsfrom 1 July 2013 would be commis-sion-free”.

“For too long, super fund membershave been paying for advice thathasn’t always been in their best inter-ests,” she said.

“Importantly, these reforms are notabout killing off advice; they are aboutensuring that super funds membershave access to affordable and qualityadvice and, doing so, should boostretirement savings,” Reynolds said.

MLC & NAB Wealth Group execu-tive Steve Tucker welcomed the Gov-ernment’s announcement as provid-ing clarification on a number of itsFOFA reforms.

“We believe these reforms willachieve the Government’s objectiveof building confidence and trust infinancial advice,” he said. “Thenumber of people seeking advice hasbeen stagnant at around 20 to 25 percent for many years now, and for thefuture growth of this industry we hadto face into the issues that were hold-ing the industry back.”

David Whiteley


FOFA

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News

Count practices offered retention bonuses, open architectureBy Mike Taylor

THE Commonwealth Bank (CBA) will look tostaunch any bleeding of financial planners awayfrom Count Financial by offering “appropriate”retention bonuses.

Colonial First State (CFS) chief executive BrianBissaker has confirmed the arrangement toMoney Management at the same time asconfirming Count planners would continue tobe able to access other platforms, including theBT platforms, via the CFS open architecture.

He said Count would continue to have its ownapproved product list, and would maintain itsopen architecture.

However, CBA’s proposed acquisition of

Count based on an offer of $1.40 per share hasalready drawn criticism from some advisers whohave suggested it runs counter to assertions bythe company’s executive chairman, BarryLambert, that it would remain strongly inde-pendent.

Bissaker said while there might be concernsexpressed by some Count advisers, it was not asthough CBA and CFS were foreigners to theaccountancy-based financial planning dealergroup, with the banking group having been aplatform provider and corporate banker.

Commenting on the acquisition move –announced to the Australian SecuritiesExchange last week – Bissaker said he believedit would have occurred irrespective of the

dynamic created by the Future of FinancialAdvice (FOFA) changes.

“It represented one of the groups we wouldhave liked to acquire, irrespective of FOFA,” hesaid.

Bissaker said the strength of the Count brandand its business model had reinforced the needto allow it to operate as a stand-alone businesswithin the CBA’s Wealth Management division.

Also, he said he expected Count founder andexecutive chairman Barry Lambert would contin-ue to play a significant role as the company’s non-executive chairman.

The transaction which will see Countacquired by CBA is expected to be completedin early December.

Super better than sovereign wealth - GillardAUSTRALIA’S superannua-tion regime is strongenough to stand in theplace of a sovereignwealth fund, according tothe Prime Minister, JuliaGillard.

Gillard has told a Finan-cial Services Councilbreakfast in Sydney shebelieved superannuationis “already our trillion dollarsovereign wealth fund –but with market benefits”.

“That’s because it’s pri-vately managed by thou-sands of trustees insteadof a sovereign wealth fundmanaged centrally by aCanberra-appointed man-ager,” she said. “Or alterna-tively, you could say thatAustralia has 8 million sov-ereign wealth funds – thesuperannuation accounts

of Australians across thecountry.”

Gillard said these werethe very same superannu-ation accounts the Govern-ment wanted to make

massive injections into, butthis was something thatcould not be achievedwithout the implementa-tion of a MineralsResource Rent Tax.

“We can only get to 12per cent by 2020 if we usepart of the proceeds of theMRRT to mitigate the lostrevenue incurred by taxingsuper at concessionalrates,” she said.

Elsewhere in herspeech, the Prime Minis-ter closely aligned the Gov-ernment’s Future of Finan-cial Advice legislation to itsbroader superannuationagenda, and said sheexpected the bill will beintroduced to the Parlia-ment “later this spring”.

Brian Bissaker

Financial planning accounts for 13 per cent of Countplus revenueBy Milana Pokrajac

FINANCIAL planning revenue madeup 13 per cent of total group revenuefor Countplus in the 2010-11 finan-cial year, according to the company’sfull-year results posted on theAustralian Securities Exchange (ASX).

The Count Financial subsidiaryreported a net profit after tax of $8.9million attributable to shareholders,announcing its plan to rewardemployee loyalty and performancethrough equity.

Despite posting a net profit after taxof $8.9 million, the company focusedon its $13.3 million consolidated netprofit after tax, which includes a fullyear’s performance for 15 member firmsacquired on or before 1 July 2010.

“The difference between [the two]arises due to the non-controllinginterests held in the member firms

until final acquisitions were complet-ed in December 2010,” the groupstated.

Directors will also grant an annualissue of $1,000 worth of tax-free sharesto all full-time employees with 12months service or more – for the firstthree years post listing.

The initial grant was issued to 333employees earlier this year, the groupsaid.

Countplus is an aggregation of 19established professional services busi-nesses across Australia, including 17accounting practices, one financialplanning practice and a financialplanning dealer group, Total Finan-cial Solutions Australia, while CountFinancial has major holdings in thecompany.

The group posted its first full yearresults on the ASX after it was listedin December 2010.

FOFA a factor in Count board decisionTHE Commonwealth Bank’sproposed acquisit ion ofCount Financial will assistthe big accountancy-baseddealer group better deliver ascaled advice propositionunder the Government’s newFuture of Financial Advice(FOFA) regime.

That is the assessment ofCount Financial chief execu-tive, Andrew Gale, who toldMoney Management thatwhile the proposed FOFAchanges may not have beenthe over-riding factor in theCommonwealth Bank’s deci-sion to mount a bid forCount, they had certainlybeen a factor for considera-tion by the Count Board.

“FOFA was a catalyst,” hesaid. “We had been sayingfor much of the past 15months that the legislativeproposals were l ikely to

encourage vertical integra-tion in the industry,” hesaid.

However, Gale said theattraction of the CBA offerwas that it recognised thestrength of the Count brandand the Count model andwould maintain that inde-pendence with respect tobrand, open-architectureand an approved productlist.

He said that while theacquisition of Count woulddeliver many benefits to theCBA, including greateraccess to the Self ManagedSuperannuation Fund(SMSF) market, Count prac-tices would also benefit interms of the ability to deliverscaled advice to clients whomight not yet be ready toembrace comprehensiveadvice.

Gale said it would alsogive rise to the ability to offergeneral insurance.

Countplus float boosts Count bottom lineBy Chris Kennedy

COUNT Financial has announced a recordnet profit after tax (NPAT) for the 2011financial year of $51.56 million – more thandouble the previous year.

That number is more than double theprevious result and comes mainly as aresult of the listing of Countplus, whichresulted in a one-off pre-tax fair value gainon Countplus and its investees of $37.15million, Count stated.

Without the fair-value gain, thenormalised NPAT was $25.56 million – a 5.7per cent increase on the prior year.

The company has declared a four centsdividend per share payable in October,taking the total dividend for 2010/11 to10 cents.

Count’s revenue was up by a third to $174million (including the Countplus contribu-tion), while net fees and retail revenue weredown 9 per cent.

Asset-based revenue was up 1 per cent,although funds under advice on approved

platforms dropped 1.7 per cent.Total expenses, including employment

costs, were down 6 per cent, and earningsbefore interest and tax were down 4 percent on the previous year.

Count described the year as a “toughand challenging period”, but said keyfoundations had been laid for futuregrowth, and added the company was wellplaced in terms of upcoming regulatorychanges.

The medium term business outlook ispositive, with around 85 per cent of wealthmanagement through superannuation andretirement, with a prospective 10 per centcompound annual growth rate over thenext 10 years, Count stated.

Count listed short term earnings driversas market performance, margin on fundsunder advice, and expense management.In the medium term, Count expectedorganic network expansion and growth ofits revenue streams, as well as inorganicgrowth for corporate development andmergers and acquisitions.

Andrew Gale

Julia Gillard

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News

Journos to facilitate tax forumBy Tim Stewart

THE Government hasannounced its October TaxForum will be facilitated byeconomic commentatorand founder of ipac securi-ties Paul Clitheroe, alongwith Fair fax journalistMichael Pascoe.

In a joint announcementwith the Treasurer, the

Assistant Treasurer BillShorten said Clitheroe andPascoe would “bring manyyears of experience in taxa-tion, finance and themedia” to their roles asfacilitators at the forum.

The forum, to be held inCanberra on 4-5 October,will continue the discus-sion the Government initi-ated with the Australia’s

Future Tax System Review,which was released lastyear.

The program of theforum includes six majortopics: personal tax, trans-fer payments, businesstax, state taxes, environ-mental and social taxes,and tax system gover-nance.

Clearview to launch wealthmanagement platformBy Milana Pokrajac

CLEARVIEW has announced the launch ofits wealth management platform with fullwrap capabilities, which will be adminis-tered by Colonial First State (CFS) CustomSolutions.

ClearView and CFS Custom Solutionshave signed a private label agreement,which would see the ClearView brandedplatform offer its superannuation, pensionand other investment products.

ClearView managing director SimonSwanson said the new platform is expected tobe live by the beginning of 2012.

“It is one of our key growth initiativesto transform ClearView from a direct lifeinsurer and retirement focused wealthmanagement company into a fully inte-grated life insurance and wealth manage-ment company able to compete acrossthe broad spectrum of the industry,”Swanson said.

The announcement comes weeks afterMoney Management reported on concernsthat dealer groups could be forced to bringplatform and product offerings in-houseahead of the proposed Future of FinancialAdvice changes, which could eliminatemid-tier financial planning firms.

CFS Custom Solutions general managerChris Stevens said the agreement withClearView demonstrated the growingdemand within the dealer group sector tolaunch their own products.

“With the changes currently occurring inour industry, dealer groups are looking foradoptable platform solutions that positionthem well for the future,” Stevens added.

Chris Stevens

DKN posts $13.95 millionloss in net profit after taxBy Andrew Tsanadis

DKN Financial Group (DKN) hasposted a loss of $13.95 million in netprofit after tax (NPAT), according tofull year results for the 2011 financialyear.

The announcement made to theAustralian Securities Exchange (ASX)stated the company’s underlying profitwas down 4 per cent from $7.64 millionin the year ending 30 June 2010, to$7.33 million this financial year.

DKN is currently the subject of aproposal from IOOF Holdings Limitedto acquire all the shares it does notalready own in DKN for 80 cents ashare.

According to the announcementreleased to the ASX, platform revenuewas also down 1.5 per cent, which DKNstated was due to the shift in existingfunds under administration (FUA) tolower cost platforms.

DKN said positive platform netinflows were down by 40 per centcompared to the same time last yeardue to lower investor confidence, theuncertainty surrounding regulatoryreform, and the loss of one medium-sized wealth management practicefrom the network.

The financial group sustained losses,despite FUA growing from $7.43 billion

in 2010 to $8.02 billion in 2011, repre-senting a growth of 8 per cent.

Commenting on the results, DKNchief executive officer Phil Butterworthsaid the market environment was chal-lenging and the company had workedhard to minimise risks.

“Over the last four years, we havepositioned DKN to effectively weatherthe storm of market volatility andlegislative change,” Butterworth said.

“Overall, DKN is in a strong positionfor continued growth,” he said.

ASIC announces regulatory guide for good advertising practiceTHE Australian Securities and Invest-ments Commission (ASIC) has releaseda consultation paper and draft regula-tory guide for the advertising of finan-cial products and advice.

As part of the draft regulations, ASICsaid advertising played an important rolein al lowing a consumer to makeinformed financial decisions.

“The objective of our guidance is tohelp promoters and publishers presentadvertisements that are accurate, bal-anced and help consumers make deci-

sions that are appropriate for them,”said ASIC chairman Greg Medcraft.

“While our guidance covers issues ofgood practice in advertising, it may alsohelp promoters and publishers complywith their legal obligations not to makefalse or misleading statements orengage in misleading or deceptive con-duct.”

Comments on the consultation paperand draft regulatory guide are due by25 October 2011.

Phil Butterworth

News


Volatility impacting super rolloversBy Mike Taylor

THE Superannuation Complaints Tribunal (SCT)has warned superannuation fund trustees to becareful in handling member transfers during thecurrent period of market volatility to ensureunnecessary losses do not occur.

The warning is contained in the Tribunal’slatest quarterly bulletin with the SCT chairper-son, Jocelyn Furlan, saying trustees need to beaware “that market instability can and does causeproblems for some fund members, whether ornot they are approaching retirement”.

Furlan cited the example of a fund memberrolling a benefit from one fund to another andwho, on the day he decides to roll out of hisfund, checks his balance online and notes he

has $20,000 in his account.“By the time his request is processed –

perhaps a week or two later – his accountbalance has dropped to $19,000 due to nega-tive investment performance,” the SCT chair-person said.

Furlan said the member could then be forgiv-en for believing he had lost $1,000 and thereforelodging a complaint with the SCT.

She said in reality the member may not haveactually suffered a loss at the hands of his pre-existing fund.

“If the member’s new fund’s performancewas not as good as that of the fund he is leaving,it may well be that, had his rollover requestbeen processed sooner, he would have lost evenmore,” Furlan said.

Bennelong/Avoca fund gets thumbs up from ZenithBy Tim Stewart

THE Bennelong Avoca Emerging Leaders Fund, run by formerUBS portfolio managers John Campbell and Jeremy Bendeich, hasbeen awarded a ‘recommended’ rating by Zenith InvestmentPartners.

Campbell and Bendeich left the UBS small caps team in Marchthis year to launch Avoca Investment Management in partnershipwith Bennelong Funds Management.

Zenith investment analyst Nicholas Busst said the joint venturebetween Avoca and Bennelong was “extremely robust”, allowingthe portfolio managers to “focus purely on [their] investment duties”.

Campell’s 20 years of experience, coupled with Bendeich’sdesire to specialise in small caps, had contributed to the Emerg-ing Leaders fund comfortably outperforming the benchmark,Busst said.

Campbell, who is also Avoca’s managing director, said he foundZenith’s endorsement “gratifying”.

“Zenith were quite good supporters of ours at UBS, so theywere pretty quick to do a review on us here,” he said.

Campbell said the recent volatility in the stock market hadmade him revise his opinion that parts of the resources marketwere expensive.

“The resources market from January this year has had a reason-able pullback, and there are pockets there that we think are okay… the coal stocks in particular, we quite like,” Campbell said.

He added that the Emerging Leaders fund would have amaximum capacity of $800-850 million.

“We’ll be sticking to that quite religiously. In small caps, if youget too much under management you get essentially locked intopositions that you can’t do anything about,” Campbell said.

Zenith was happy to award the fund a ‘recommended’ rating– despite its relatively short existence – since its managers were“amongst the more experienced in the Australian small capital-isation universe,” Busst added.

“While Avoca was only launched in May, Jeremy and I have astrong history of working together. This, coupled with our co-owner-ship of the business, provides us with the impetus to continuallystrive for long-term outperformance for our clients,” Campbell said.

Campbell and Bendeich are well complemented by the fund’ssenior investment analyst Michael Vidler, Busst added.

By Chris Kennedy

CENTRO Properties Group has announcedliquidation value adjustments of $1.3 billionahead of a proposed restructure and thematuration of its senior debt.

Centro announced a statutory net profitfor the 2011 financial year of $2.7 billion,arising largely from those liquidation adjust-ments, but stressed that profit is not theresult of sustainable profit and growth.

Centro described the liquidation adjust-ment as a one-off accounting entry toadjust net assets from negative $1.3 bil-lion to zero. With an adjustment of aroundnegative $400 million for convertiblebonds (which rank ahead of ordinaryequity) net equity attributable to Centro’sordinary shareholders is negative $1.7billion.

The group requires a restructure beforeits senior debt of $2.9 billion matures inDecember because it will not have suffi-cient cash to fund interest, overheads andother ongoing expenses, and could notrepay its senior debt maturing on that date.Without a restructure, it is likely that exter-nal administrators will be appointed, Centrostated.

“The restructure is the only feasibleoption for Centro to emerge from the exten-sive review of alternatives undertaken,”said Centro chairman Paul Cooper.

“Centro cannot trade its way out of thedebt situation – even after the moderaterecovery in Australian asset values duringthe past year reflected in the improvementin investment property values, the debt issimply too large and cannot be refinancedwhen it matures in just under four monthstime,” he said.

The proposed restructure would makeavailable to shareholders 5 cents per secu-rity, but if external administrators areappointed shareholders are likely to receivenothing, Centro stated.

John Campbell

Rock and MyState: proposed mergerBy Andrew Tsanadis

THE Rock Building SocietyLimited (Rock) and MyStateLimited (MyState) haveannounced they intend tomerge by way of a scheme ofarrangement (scheme) withRock shareholders.

The proposed merger followsthe merger of MyState andTasmanian Perpetual Trusteesin 2009, and reflects the ambi-tion of both MyState and Rockto expand operations geograph-ically. Rock is based in Queens-land and has a market capitali-sation value of around $46.3million, while MyState, based inTasmania, has a market capital-

isation of around $236 million,the announcement stated.

Commenting on theannouncement made to theAustralian Securities Exchange,MyState chairman Dr MichaelVertigan said the merger wouldbe the f irst step in thecompany’s longer term goal tooperate on a national level.

“For some time, MyState hasrecognised that with a customerbase of more than 200,000Tasmanians, if the company isto continue to grow and becompetitive, it will need toundertake national expansionof its operations,” Vertigan said.

According to MyState, theproposed merger does not

affect the entit lements ofcurrent MyState shareholdersand they are not required tovote on the proposal.

If Rock shareholders approvethe merger at a schememeeting, expected to be held inRockhampton in November ,they will receive 7.75 MySupershares for every 10 Rock shares,Rock stated.

“The proposed merger is thenext logical step in Rock’s devel-opment, to build a broader andmore diverse retail business thatprovides a regionally-focusedalternative to the bigger banksfor the communities of region-al Queensland,” said Rock chair-man Stephen Lonie.

A one off implementationcost of approximately $3.5million before tax is expected tobe incurred over a full three yearperiod.

The conditions of the schemeare set out in full in the schemeimplementation deed, which hasbeen released separately to theAustralian Securities Exchange.

Centro liquidatesassets and eyesrestructure

News

By Andrew Tsanadis

WOOLWORTHS Limited (Wool-worths) continues its push into thefinancial services sector with thelaunch of Woolworths Life Insur-ance (WLI).

Along with Woolworths Pet Insur-ance, WLI is the first of many finan-cial services set to be introduced,according to the announcement.

All Australian residents agedbetween 18 and 65 are eligible to

apply for WLI, which provides coverfrom $100,000 to $1.5 million,depending on age and income.

Members also have the optionto pay their premiums fortnightly,monthly or annually.

As part of the announcement,Woolworths will partner with SwissRe and The Hollard Group (Hollard)to provide, what Woolworthsdescribed as, a cost-effective, flexi-ble and easy to understand alterna-tive to many existing options pro-

viding financial protection.Woolworths will be responsible

for the overall value proposition ofWLI, while Swiss Re will act as theunderwriter, and Hollard as the dis-tributor and administrator.

Woolworths head of insuranceGeorge Hughes said the alliancewill provide a solid backing to aneffective, low risk model that repre-sents the first step in entering theinsurance sector.

“We intend to have a long-term

presence in the insurance sector,with the ability to cater for all ourcustomers’ insurance needs,” saidWoolworths head of insuranceGeorge Hughes.

“Our research tells us that manyeveryday Australians find insurancedifficult to understand and access,to the extent that 95 per cent offamilies do not have adequatelevels of life cover.”

Hughes’ stated figure came fromThe Life/NATSEM Underinsurance

Report, released in February 2010.According to Hollard managing

director Richard Enthoven, thecover offered by Woolworths repre-sents a substantial opportunity.

“Based on our internationalexperience distributing insurancein partnership with large retailers,we are confident the WoolworthsInsurance initiative is the singlelargest untapped insurance oppor-tunity in Australia,” Enthoven said.

Simplicity beatsplanner engagement,says Canstar

By Milana Pokrajac

DO-IT-YOURSELF life insurance isbecoming increasingly popularwith Australians, which is largelyattributed to the simplicity ofbuying so-called ‘off the shelf’products rather than goingthrough a financial planner,according to Canstar Cannex.

Furthermore, insurers aremaking insurance more accessi-ble by introducing featuresincluding auto acceptance withpre-existing medical conditionexclusions.

“Buying life insurance directis an alternative to going througha planner or an advisor; as such,it’s an uncomplicated way of put-ting a life insurance policy intoplace straight away as the firststep towards protecting assets,”the researcher noted.

These comments came asCanstar Cannex came out withits annual direct life insurancestar ratings, which comparedpolicies from 19 providers.

Of those, Allianz, Medibank,and Real Insurance topped thelist based on their suite of fea-tures covered, reasonable pre-mium costs and ease of eligi-bility for the majority ofconsumers.

However, Canstar Cannexhead of wealth managementStephen Mitchell did warn con-sumers about the risks of notengaging with a financial plan-ner.

“You’ve got to remember thatyou are not being guided by alicensed financial planner, andso you have to compensate bylooking very carefully at theexclusions before you sign up,”Mitchell said.

“Direct life insurance is also agood quick-fix for someone whowants to put a policy into placestraight away, but plans to reviewtheir complete asset protectionand investment strategy with alicensed financial planner a bitlater on,” he added.

Woolworths announces launch of life insurance offering



SMSF WeeklySPAA fights on accountant adviceBy Mike Taylor

SELF-MANAGED superannu-ation fund (SMSF) specialistshave welcomed confirmationin the Federal Government’sdraft Future of FinancialAdvice legislation that therewill be no ban on commis-sions applying to individual-ly-advised risk products withrespect to choice productsand SMSFs.

Reacting to the release ofthe first tranche of theGovernment’s draft legisla-tion, Self Managed SuperFund Professionals’ Associa-tion (SPAA) chief executive,Andrea Slattery, said allowingthe use of commissions withrespect to individually-advised products wouldremove distortions and wouldensure a level playing field forindividual insurance policies.

However, Slattery was more

cautious with respect to theGovernment’s approach tothe role of accountants andSMSFs.

“We understand the Govern-ment is still considering arestricted or structured advicelicense for accountants whoadvise on SMSFs,” she said.“SPAA has been working hard

to ensure the Governmentunderstands the importance ofa restricted or structuredlicense arrangement, whichrecognises SMSF accountantsmay not wish to providerecommendations to clients topurchase specific investmentfinancial products.”

“We have also been advis-ing on the minimum compe-tencies required to hold sucha license, and we look forwardto seeing these final details inthe second tranche of thelegislation,” she said.

Slattery said SPAA hadbeen advocating for theremoval of the AustralianSecurities & InvestmentsCommision class order withinRG200, along with advocatingfor intra-fund advice andscaled advice to have thesame level of competencyand best interest duty require-ments as all other advisors.

Life industry consolidatesTHE Australian life insurance industry hasundergone significant change in the past 20years to be now dominated by the majorbanking groups, according to a new analysispublished by the Australian Prudential Regula-tion Authority (APRA).

The analysis, published in an article lastmonth, pointed out that life insurers that arepart of banking groups now account for 55 to60 per cent of policy-owner assets and premiumincome.

Looking back at the evolution that hasoccurred over the past two decades, the APRAarticle said the concept of mutuality had all butbeen forgotten after the demutualisations in the1990s.

“State governments have vacated the marketcompletely through privatisations and publiclisting of their interests in life insurance,” it said.

“Today, there are only 18 financial servicegroups, some with more than one life insurancelicence, writing new business in Australia,” thearticle said.

“The local banking industry has evolved intoits now prominent position through a combi-nation of organic growth of their own life insurerbrands and aggregation of other life insurers,either by direct purchase or through acquisitionof smaller banks that had earlier establishedtheir own life insurer brands,” it said.

The APRA article said this trend had contin-ued with a spate of acquisitions during 2008-10.

Winding-up can be hard to do

Andrea Slattery

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By Damon Taylor

WHETHER it’s due to a payout of allbenefits or to the changed circum-stances of the trustees, the naturalend to a self-managed super fund(SMSF) comes in its wind-up. But it isa process that requires a great deal ofcare and attention to detail, accordingto Peter Hogan, Principal of PlazaFinancial.

“Generally, what people do is aim towind-up the fund by 30 June,” he said.“And that’s because as soon as you’vegot any assets left in the fund and youroll into the next financial year, thenyou’ve got another annual return andanother set of accounts, and so on.

“You really want to get it all tidied upbefore financial year’s end,” Hogan said.

Another issue to be aware of, accord-ing to Hogan, lies in how readily realis-able the fund’s assets are.

“If you’ve got property or somethingthat’s not going to be instantly realis-able within a couple of days – so some-thing other than managed funds andshares – then that needs to be takeninto account as well,” he said. “It couldsignificantly impact when you’ll be ableto wind-up the fund and when you’regoing to get the proceeds for thosethings.”

“Even something like propertywhere yes, you might have your con-tract of sale and it might be datedbefore 30 June – you may not actuallyget the proceeds until afterwards,”Hogan said.

The final key issue highlighted by Hoganwas the question of whether the fund’strustees were going to sell the assets orwhether the members wanted to retainthose assets permanently.

“So do we do an in-specie transfer ofthe assets or do we sell them?” askedHogan. “That’s another question youmight want to ask yourself, and in that

situation, valuations become importantas well.”

“Most people know that an SMSF isallowed to transfer or sell assets toanyone – even related parties,” hesaid. “But if it is a related party trans-action, and you haven’t got a readilyavailable market value, it’s prettyimportant that you get an independ-ent valuation.”

“You want to make sure that thevalue you’re transferring it at is one thatcan be backed to avoid any ATO [Aus-tralian Taxation Office] dispute,” Hogansaid.

But overall, Hogan said SMSF wind-ups were about dotting the i’s and cross-ing the t’s.

“It’s definitely a process that trusteesneed assistance with, and not one they’regoing to be able to do off their own bat,”he said. “And it’s important; when youlook at those net numbers that getreported each year and when they say2,500 funds a month are being set up –in fact, it’s more like 3,000 funds being setup and 600 to 1,000 funds being woundup.”

“It’s something that gets done regu-larly and for all sorts of reasons, but it’salso not as well understood as it shouldbe,” Hogan said.

Peter Hogan

Count Financial executive chairman,Barry Lambert is a pragmatic man.Thus, when certain representativesfrom the Commonwealth Bank (CBA)

approached him some 10 years’ ago to discussthe acquisition of his accountancy-based finan-cial planning group he listened to what they hadto say, but ultimately said “no”.

From time to time over succeeding years,Lambert received similar approaches and,given the prevailing circumstances, continuedto say “no”.

His decision this year to refer the matter forfull and serious consideration by the board ofCount Financial was therefore based on a prag-matic assessment of the circumstances facingthe company at the present time – the uncer-tainties generated by the Federal Government’sFuture of Financial Advice (FOFA) changes andthe reality that, like most similar financial serv-ices companies, Count’s share price has strug-gled to recover from the worst impacts of theglobal financial crisis.

By any objective assessment the CBA’s offerto acquire Count Financial at $1.40 a share, andthe underlying terms it agreed to facilitate thetransaction, were generous but in the minds ofboth Lambert and Count’s chief executiveofficer, Andrew Gale, the most importantelement were the undertakings with regard toCount’s continuing independence in terms ofstructure, open architecture and the mainte-nance of its own approved product list.

However, if anyone had been closely listen-ing to Gale over the past 12 months they wouldhave gleaned from his comments that he haslong believed the direction being pursued bythe Federal Government via its FOFA changesstrongly encouraged vertical integration.

While Colonial First State (CFS) chief execu-tive Brian Bissaker told Money Managementlast week that FOFA had not been a key deter-minant in the CBA’s decision to acquire CountFinancial, the proposed legislative and regula-tory changes were certainly front and centrefor Lambert and Gale.

Bissaker, probably aware of the number of

times the bank had approached Count, saidthe company would have been attractive withor without FOFA, but Gale said there could beno denying that the Government’s changeswere a catalyst.

“We have been saying for the past 15 monthsthat FOFA will encourage vertical integrationand you have to be pragmatic in how you dealwith that,” he said.

Indeed, both Lambert and Gale are as onein arguing that as big as Count Financial hadbecome, its options in the proposed newlegislative landscape were limited and theuncertainties were considerable.

In essence Count, which had taken strategicstakes in a number of competitor financialplanning groups as well as the mortgage broker,Mortgage Choice, had two options – it couldseek to become bigger by pursuing vertical inte-gration or it could accede to the sort of offerdelivered by CBA.

For the ever-pragmatic Lambert it was aquestion of which option would generate thegreater number of referrals, and there is noquestion in his mind that far more referrals arelikely to flow from the vast bulk of theCommonwealth Bank than would ever flowfrom Mortgage Choice or aligned but stillcompetitive dealer groups.

As well, and unlike their counterparts atdealer group Professional Investment Services,Lambert and a number of the Count boardmembers exhibited no particular enthusiasmfor pursuing vertical integration with respectto funds management.

In Lambert’s view you could seek to grow

organically and by acquisition at the same timeas building products, but such a strategy carriedwith it both considerable risk and expense withfew guarantees of success.

He said it was a strategy that Count waspursuing but with an eye to the sort opportu-nities that might arise from an unsolicited bid,such as that which ultimately came from CBA.

While the Count shareholders are yet to voteon the CBA offer, it is already evident thatLambert and Gale feel comfortable dealing withthe likes of Bissaker and believe the big bankinggroup would not be prepared to spend $400million acquiring Count Financial only to ruinthe business.

Lambert and Gale believe CBA will deliverCount the scale, resources and all-importantreferrals necessary to see the business growand survive in the new FOFA world.

They see synergies for both businesses, withGale believing CBA’s bulk will help Countdevelop a viable model for the competitivedelivery of scaled advice along with new prod-ucts such as a general insurance offering, whilethe CBA will benefit from the reach Count willprovide into the advisory space, especially withrespect to Self Managed SuperannuationFunds.

While there have been plenty of critics of themotivations for the Count board recommend-ing the CBA offer, there will be plenty of dealergroup heads reflecting upon a major independ-ent player such as Count moving under thevertically-integrated umbrella of the Common-wealth Bank.

They will also be reflecting upon Lambertand Gale’s acknowledgement that for manyplanning companies the FOFA changesdemand scale but limit the options via whichthat scale is achieved.

While some of those accountant/plannersworking within Count practices may have theirreservations about working under a bankumbrella, it is doubtful Count shareholders willfind a great deal wrong with an offer whichdelivers them a considerable premium to themarket value of their holdings.

InFocus

The Commonwealth Bank has moved to acquire Count Financial and, as MikeTaylor reports, pragmatism and the realities of the Future of Financial Advicechanges are the driving forces behind the Count board’s decision torecommend acceptance of the bid.

“Lambert and Gale believeCBA will deliver Count the scale,resources and all-importantreferrals necessary to see thebusiness grow and survive in thenew FOFA world.”

Count on reality over sentiment

SMSF Lending

30%

IPA Event: Tricks & Traps ofInternational Transactions16 Sep 2011Technology Park FunctionCentre, Bentley, Perthwww.publicaccountants.org.au

Finsia Career Services Semi-nar: Navigating for Success20 September 2011Christie Conference Centre,3 Spring St, Sydneywww.finsia.com

MFAA Commercial LendingLuncheon23 September 2011Waterview Convention CentreSydney Olympic Parkwww.mfaa.com.au/Event_Cal-endar.asp

ASFA National Conference &Super Expo9-11 October 2011Brisbane Convention & Exhibi-tion Centrewww.superannuation.asn.au

AFA National Conference23-25 October 2011RACV Royal Pines Resort, GoldCoastwww.afa.asn.au

Source: SMSF Loans

written for clients ofaccountants

written for clients whoenquired directly

WHAT’S ON

SMSFSNAPSHOT


35%

20%written for clients of boutique owned AFSLs

15%written for clients of institutionally-owned AFSLs


Adviser Choice Risk Awards

Page 16: Risk Company of the Year

Page 17: Risk Disability IncomeProduct

Page 18: Risk Term & TPD RiderProduct and BusinessOverhead Product

Page 20: Risk Trauma Product andResearch Criteria


New brand, old success –OnePath grabs top spotAs the risk market becomes more competitive due to the consistently strong demand forinsurance products, life companies have truly embraced adviser feedback. The MoneyManagement/Dexx&r Adviser Choice Risk Awards commend the high achievers in the risk space in2011, Benjamin Levy reports.

THIS year has seen consistentdemand for insurance products

amid volatile markets, as thePlan for Life data finds the risk marketrose a further 10 per cent over the 12months to March 2011. Of the largercompanies, OnePath, Tower (now TAL),AIA and BT recorded highest growth,according to the report.

However, the sector has also seenmajor changes, as two out of the threetop companies in the Money Manage-ment/Dexx&r Adviser Choice RiskAwards have rebranded during the pastyear. Nonetheless, they maintainedsteady performance.

This year’s winners demonstrate acontinuing trend of embracing onlinetechnology, as well as listening to adviserand consumer demands now more thanever. Most have introduced faster claimsprocessing, strengthening their onlineplatforms and applications. AdviserChoice Risk Awards praise those thathave stood out in 2011.

Risk Company of the Year: OnePathOnePath has secured the gold medal for thesecond year in a row in the Money Manage-ment/Dexx&r Adviser Choice Risk Awards.As well as winning the overall Risk Companyof the Year category, OnePath also beat othercompetitors in both the term and total andpermanent disability (TPD), and traumaproduct categories.

OnePath’s previous incarnation, ING

Life, secured first place in the same threecategories last year.

Gerard Kerr, head of product market-ing and reinsurance at OnePath, claimedthe win was a result of the seamless tran-sition the company had executed fromits former incarnation as ING.

OnePath wanted to maintain its focuson – and dedication to – advisers andcustomers throughout the operationalchanges involved in rebranding thecompany, Kerr said.

“We’ve really managed to seamlesslymove from ING into OnePath, so ourcustomers are still happy, the advisers arestill happy, and that’s probably the mostpleasing aspect of the business – to carryon the momentum we had,” he says.

Kerr added OnePath held on to thesame staff as part of the rebranding.

Part of the company strategy over thelast year has been to make incrementalimprovements to their products and oper-ations, rather than a radical reshapingfollowing their rebranding. Improvementsin technology have been one of the corefocuses for OnePath over the past year.

Advisers have been given online accessto track insurance business that iswaiting on underwriting requirementsbefore going into effect, and enhance-ments have been made to their electron-ic underwriting engine OneCare Express.

Those changes have improved trans-parency and communication betweenOnePath and advisers, as well as drivinghigher instant point of sale decisions,Kerr says.

Feedback from advisers has helpeddrive improvements to OnePath’s prod-ucts and technology, Kerr says.

“It’s a great way of testing your proposi-tion in the independent open market –they’ve got a lot of variations in terms ofwhat they demand of a provider,” he says.

ANZ’s acquisition of the then INGAustralia provided enormous stability whenmany insurers felt that the market was inan unstable state because of governmentreforms which are yet to be voted on andimplemented, according to Kerr.

Silver: TAL LtdEarlier this year, the then Tower wasacquired by Japanese insurer Dai Ichi –which was followed by the company’srebranding to TAL Ltd. This was thesecond major rebrand for the life indus-try over the past year, but TAL – a bronzefinalist in last year’s awards – demon-strated consistent performance.

Chief executive, retail life at TAL, BrettClark, attributed their strong productdevelopment process for the company’snomination this year.

“Our product development is ‘outsidein’. It’s very much taking input from themarket, from customers and from advis-ers, and bringing them strong into ourproduct development process,” Clark says.

Products need to be delivered in a waythat is quicker, more efficient, and withless hassle to attract clients and advis-ers, he says.

“We need to be able to service advisersand customers in the manner they feelmost comfortable in, be it web, phone,or traditional mail,” Clark says.

The Future of Financial Advice reformshave pushed TAL to offer a range ofdifferent remuneration structures forcustomers to choose from, includingcommissions and fees. Product manu-facturers need to provide the flexibilitywithin their products and operations tocater for both, Clark says.

However, it leaves the choice up to the

adviser and the consumer.TAL has flagged a more web-based

approach to their services in the future.More and more of the company’s strate-gy will be dedicated to increasing theironline presence, Clark says.

Bronze: BT LifeBT Life’s decision to launch stand-aloneinsurance products for independent finan-cial planners was the extra push it neededto win third place in the awards this year.

While BT always had strong value inits wrap master trust platform, it limitedits access for advisers and consumers,says BT national life insurance productmanager, Scott Moffitt.

The flexibility in BT’s stand-aloneinsurance products allows advisers tooffer clients the best product for them,regardless of where it is bought from andhow it is paid.

That unique flexibility complementsthe wrap platform and works within thesel f-managed super fund market ,Moffitt says. MM

Risk Company of the YearGold: OnePath

Silver: TALBronze: BT Life


Gerard Kerr

AIA.COM.AU

The Power of We

Committed to support.As an independent life insurance specialist, we are focused on building long-term, rewarding relationships with nancial ad isers.

e want to help ou grow our business and nd wa s to make it easy for you to do business with us, so you can focus on what makes your business work – your clients.

Speak to the AIA Australia team today about how we can support your business on 1800 033 490.

AIA Australia Limited (ABN 79 004 837 861 AFSL 230043) AIAGR06644 03/11_ADV745



OneCare notches up fourth product win

INCREMENTAL improve-ments to their OnceCare life

cover product has helpedOnePath hold onto the first place inthe term and total and permanentdisablement (TPD) rider product cate-gory for the fourth year in a row.

Age changes in the own occupationdefinition towards the end of last year

allow TPD damages to be assesseduntil age 70 – beyond the standardretirement benchmark age of 65.

Making life insurance cover affordablefor as many people as possible was a coreelement of their offering, according toOnePath head of product marketing andreinsurance Gerard Kerr.

OnePath has implemented adiscount package across all their prod-ucts, rewarding customers who areprepared to place more life insurancewith the company.

“With life cover, our product suiteactually all works together very wellbecause we allow the packaging toapply right across all our products.They all interconnect with each other,as opposed to standing out in isola-tion,” Kerr said.

OnePath also allows beneficiaries toreceive their life insurance package asa lump sum or as monthly instalments,with a reduced premium cost for theinstalment option.

Clients can also increase their levelof cover by up to $200,000 for each lifeevent – l ike the bir th of a chi ld –without supplying medical evidence.

Building on already strong productswill ensure OnePath stays at the frontof the market, Kerr says.

“We have carried on the continuitytheme in many ways – we certainlypushed the boundaries with our TPDoffer,” he says.

Chief executive, retail life at TAL,Brett Clark, attributed their strongproduct development to comingsecond in this category this year.

“The product development processis dynamic at [TAL], and we take inputsfrom all of our key stakeholders, fromadvisers and customers,” Clark says.

The company aims for at least twoupgrades per year to ensure TAL’sAccelerated Protect ion productremains competitive in the market.

“[TAL] is one of the few organisations

that is a life insurance specialist; thatis all we think about, and it gets all ofour attention. That’s important whenthe market is looking for specialisationand excellence,” Clarke says.

AXA’s re-engineering of their claimsand in-force pol icy ser vices haspushed their product to the top of theindustry, according to AXA seniorproduct manager for individual lifeinsurance John Ashton. MM

– Benjamin Levy

Risk Term & TPDrider product

Gold: OnePathSilver: TAL

Bronze: AXA

Putting customers first makes AIA winnersA CUSTOMER-firstphilosophy during

product develop-ment has contributed to AIAAustralia’s win in the Busi-ness Overhead Product cate-gory of Money Management’s2011 Adviser Choice RiskAwards.

AIA’s Priority ProtectionBusiness Expenses insurancetook out gold, over BT Lifeand AMP, which snapped upthe silver and bronze awardsrespectively.

What differentiates thefirm’s risk products from itscompetitors is the customerfeedback it incorporates intothe product developmentstage, according to AIA headof product management, TimTez. AIA not only considerscomments from adviserswho support the product, hesaid, but also gauges theopinions of those who haveconstructive criticism.

AIA’s Priority ProtectionBusiness Expenses plan aimsto ensure that fixed business

expenses – such as rent andutility bills – can be paid whenbusiness owners can nolonger run their business.

Designed for self-employedindividuals, employed full-time, the benefits aim to makesure the fixed expenses of theirbusiness or practice will still bepaid, even if they cannot workdue to injury or sickness. Thebenefit covers businessexpenses, minus any amountsreimbursed from elsewhere.

Coming in a close secondwas BT Life’s Business Over-heads. BT’s national insur-ance product manager, ScottMoffitt, said the wide scopeof the firm’s business over-heads product was amongthe reasons for the accolade.

“ We launched to themarket in February with abroader product, new tech-nology, effective underwrit-ing, on-boarding technologyas far as the claims process-ing part [goes]”, he said.

Moffitt said BT aims tosimpli fy the interaction

between its income protec-tion and business overheadproduct range.

AMP’s Business Overheadsinsurance claimed bronze inthe awards. The companyhad formally acquired AXAearlier this year, which it saidwould help AMP not onlyexpand its financial planningnetwork, but its insuranceoffering, too.

AMP’s director of wealthprotection products, MichaelPaff, attributed the bronze tothe balance struck between

affordable pr icing andcovered events.

In the months where thebusiness has lower expenses,the insured party can accrueany unpaid monthly benefitto the next month, AMPstates in its product disclo-sure statement (PDS).

This means AMP is “able tooffer month to month paymentto reflect the peaks and troughsof a claimant’s business expens-es”, Paff said. MM

– Angela Welsh

Risk BusinessOverhead Product

Gold: AIA AustraliaSilver: BT LifeBronze: AMP

John Ashton

“With life cover, ourproduct suite actually allworks together very wellbecause we allow thepackaging to apply rightacross all our products.They all connect with eachother as opposed tostanding out in isolation. “

– Gerald Kerr

“We launched to the market in Februarywith a broader product, new technology,effective underwriting, on-boardingtechnology as far as the claims processinggoes. “ – Scott Moffitt


TAL has followed up its secondplace finish in the overall field,

with a win in the disabilityincome category of the 2011 MoneyManagement/Dexx&r Adviser ChoiceRisk Awards. The Accelerated ProtectionIncome Protection Premier offeringallows TAL to differentiate around itsbenefits, according to TAL retail life chiefexecutive Brett Clark.

“The income protection benefits areliving benefits and they’re definition-based,” said Clark. “Those parts of ouroffer are important, and we spend a lotof time thinking about them.”

Clark added that there had been ageneral move away from total andpermanent disablement, because thecomplexity of a lump-sum paymentplaces a lot of responsibility into themember’s hands.

“There has been a trend in recentyears for [superannuation] trustees tolook more for income protection andincome replacement benefits to sustaina member over a longer period in theevent of any disablement, and I thinkthat’s a good strategy,” Clark said.

OnePath took out second place in thedisability income section with its OneCareIncome Secure Standard product.

A key feature of OnePath’s incomeprotection offering was that it was “slowlybut surely” catering for certain occupa-tions so they could be covered up to age70, according to OnePath head of productmarketing and reinsurance, Gerard Kerr.

“ We see more and more peoplelooking to take out income protection.It’s one of these contracts that appliesto every single person, because everyperson wants to protect their income,

whether you’re married, single, old ormiddle-aged,” Kerr said.

Kerr added that OnePath had receiveda lot of positive feedback from advisersabout its default special f iduciarybenefit.

“So when fractures or breakageshappen, that’s automatically paid out.It’s inbuilt into the contract, so you don’thave to worry about adding it in as anoption,” he said.

AIA Australia rounded out the cate-gor y with its Priority Protection –Income Protection PLUS plan. AIA headof product management Tim Tez saidhis company took a ‘customer first’approach to its product developmentprocess, and even considered the feed-back of people who didn’t support AIA’sproducts.

Tez added that AIA includes specifiedinjuries within its PLUS contract. Hesaid AIA could potentially cover peoplefor up to $60,000 a month.

“We also have features like an incomeprotection lump sum … that convertsincome payments, if people so choose,into a lump sum benefit that’s paid tothem tax-free,” Tez said. MM

– Tim Stewart


Risk DisabilityIncome Product

Gold: TALSilver: OnePath

Bronze: AIA

Brett Clark

TAL takes first place with disability product award



Trauma helps OnePath to healthy winONEPATH has repeated i tssuccess from last year by taking

out the top honours in thetrauma category in the 2011 MoneyManagement/Dexx&r Adviser ChoiceRisk Awards.

The win came as OnePath added out-of-hospital cardiac arrest to its TraumaPremier product and changed its cancerdefinitions, according to OnePath headof product marketing and reinsurance,Gerard Kerr.

“Some of the changes are just recog-nising that the speed at which medicalknowledge is increasing is still at a fastrate, so we need to make sure that thedefinitions continue to capture thosechanges,” Kerr said.

He added that learning from clients wascentral to improving OnePath’s offering.

“We constantly talk to the clients, andthey tell us what happens in the realworld. They’re sharing some of theexperiences that they’ve seen in atrauma claim,” Kerr said.

TAL grabbed the silver in the traumacategory with its Accelerated ProtectionCritical Illness Premier product.

“Critical illness is a benefit that hasbeen more successful globally that in

Australia,” said TAL retail life chiefexecutive, Brett Clark.

“There’s more work to do around raisingconsumer awareness about what is avail-able here, and how it can help protectindividuals and their families,” he said.

Clark added that when it came down todifferentiation, culture was the key factor

– and TAL was one of the few organisa-tions that was a life insurance specialist.

“It’s all we think about, and it gets allof our attention. That’s important whenthe market is looking for specialisationand excellence,” Clark said.

CommInsure won the bronze awardwith its Total Care Trauma Plus offering,which CommInsure general managerfor retail, Tim Browne, put down to abusiness model that was focused oncustomer service.

“Our Fast Track Claims for short-termduration claims is a good example –instead of paying a client monthly inarrears, we will seek to advance themonthly payments,” Browne said.

But what really makes CommInsurestand out from the crowd is its positionas the only insurer in the Australianmarket to include trauma reinstatementas a built-in benefit.

“Following an initial full traumaclaim, all clients are given the opportu-nity to reinstate their valuable traumacover. Should a second unrelated illnessstrike, the full benefit may be payableagain,” Browne said. MM

– Tim Stewart

Risk TraumaProduct

Gold: OnePathSilver: TAL

Bronze: CommInsure

The adviser knows best: the judging processTHE Money Management/Dexx&r Adviser ChoiceRisk Awards, now in their eighth year, are based on anassessment of each product’s benefits, features, defi-nitions and premiums.

A panel of experienced risk insurance advisers whohave built practices specialising in the provision oflife risk insurance advice were contacted and invitedto complete a survey providing their feedback on:

• The relative importance of the features includedin term, trauma, total and permanent disability,disability income, and business overheads insuranceproducts;

• The relative importance of the definitions for coreand supplementary conditions; and

• The weighting they believe should be appliedbetween features and benefits, definitions, and price(premiums) in each product category.

The adviser responses were then converted intoa weighting for each item (determined by theaverage of the weightings nominated by the advis-ers) and combined with weighted score from theprevious year. These scores were summed to give atotal weighted score for each feature, benefit anddefinition.

These weightings were then applied to the Dexx&rRisk Ranking system to calculate a final weightedscore for each product.

Examples of items encompassed as featuresinclude the availability of the product as personalsuperannuation business, the range of premiumoptions available (eg, stepped, level and blended);entry and expiry ages.

Examples of items included as benefits includepersonal and business guaranteed insurability, termi-nal illness benefits, premium waiver options, andoccupationally acquired HIV benefits.

Examples of items included for definition scoringinclude own and ETE TPD definitions, total and partialdisability definitions, and all included core (eg, cancers,heart conditions and stroke) and ancillary diseases (eg,

dementia, motor neurone disease, osteoporosis) intrauma products.

Price score premiums were calculated for a widerange of sums insured for all lump sum risk productsand monthly benefits for disability income and busi-ness expenses insurance. Separate premium calcu-lations were conducted for males and females,smokers and non-smokers, over a range of ages from21 to 60, at five-yearly intervals. The relative cost for

each product was weighted by age, gender,smoker/non-smoker status, occupation, and sumsinsured.

The total weighted score for features, definitionsand price per product was then calculated out of amaximum of 100.

The winning products in each product categoryare determined by calculating the total score of thehighest scoring product for each company in eachcategory – term, TPD, trauma, disability income andbusiness expenses.

The leading risk company was determined byadding the total score for the highest scoring productfor each company in each product category. Thescores within each product category are also weight-ed to reflect the relative size of new premium in eachcategory. For example, business expenses categoryscore accounts for 10 per cent of each company’stotal score.

All product information is based on data collectedby Dexx&r and published in the Dexx&r online riskresearch and print versions of term life analysis anddisability analysis. Premium calculations are basedon those generated by the Dexx&r Risk DeveloperSoftware.

Details of the features, definitions and pricecomparison criteria, and standardised scores arepublished in Dexx&r’s Risk Ranking Report.

In 2011, the adviser feedback resulted in a smallreduction in weighting applied to price. This reduc-tion biases the results of products with a higher defi-nition, features, and benefit scores.

Virtually all risk products have benefited fromincremental improvements in benefits and defini-tions over the past 12 months. The results this yearreflect the higher benefit scores where they have beenassociated with no change in premiums, or in thecase of term insurance, lower premiums. MM

– Mark Kachor

Tim Browne

It’s a bit of an understatement thatequity markets are nervous at themoment. Investors are nervous, scep-tical, cautious and scared – and for

very good reasons: there has been a lot ofnegative macro-economic news lately.

However, there are also several posi-tives that have been overshadowed. Forexample, even if the global economyslows, some Australian companies willstill be in a comparatively good position.

Some macro-economic conditionscould change over the next year andpotentially have a different impact onthe market.

Concern around Chinese economicgrowth, for example, is one that couldchange through the year. The worseconditions are for global economicgrowth, the higher the likelihood Chineseauthorities will stop tightening mone-tary conditions and seek to resumegrowth. At the moment, the Chineseauthorities are trying to bring growthdown to more sustainable levels byincreasing interest rates and tighteninglending standards.

Should global economic growth getworse, the Chinese authorities are morelikely to reverse this policy stance as theydid moving from 2007 into 2008 and2009. This would see the government inBeijing try to boost growth, which wouldmaintain if not increase Chinese demandfor Australian commodities, which wouldin turn buoy our resources and associat-ed stocks.

This highlights how while macro-economic concerns continue to over-shadow the market and impact senti-ment, it’s key to talk to companies to seehow they are actually being impacted bythese factors. Some are being impactedmuch less than others.

The Australian market remains attrac-tively valued at well below long-termaverage levels. The earnings and divi-dend yield of the market also indicatesattractive valuation levels. Over the pastyear, the macro-economic concerns havedominated bottom-up fundamentalsand company valuations.

At individual company levels, you arenow able to buy great quality Australiancompanies with strong balance sheetsand good long-term growth prospectsfor very attractive long-term valuations.

I believe the bottom up fundamentalsand attractive market valuations will winout over the long-term, but it’s alwaysdifficult to pick the exact timing.

With these macro concerns now verywell priced into the market, and some

improvement likely over the next 12months combined with very attractivevaluation levels means that the likeli-hood of getting better returns from theAustralian market over the next year ismuch improved.

Two-speed opportunitiesAustralia’s two-speed economy is creat-ing divisions within the sharemarket.Some sectors – such as those reliant onconsumers – were depressed, as house-holds remained concerned about furtherincreases to interest rates.

At the moment, we have overweightpositions in the industrial, healthcareand energy sectors.

Within the mining sector, we still seeopportunities to invest in the larger diver-sified miners over the smaller miners. Theminers – big and small – are trading onsimilar multiples, which is unusual. Onereason is when commodity prices are

rising, the market generally gets excitedabout small-cap miners and bids themup. The fact that all miners are trading onsimilar valuations presents a fantasticopportunity to invest in the big miners atgood prices, as that’s where the long-termvalue is. The larger miners tend to ownthe best quality assets, such as the lowcost, long life mines. They also havestrong operational and managementteams – and they are currently trading onthe most attractive valuations.

Australia’s banks are also attractivelypriced, but are facing some headwindsin slowing lending growth and higherinterest rates.

Investors also have to take intoaccount what the high Australian dollarmeans for each company, and this couldwell be a feature during the reportingseason.

While the strength of the Australianeconomy relative to other parts of the

world, health of commodity markets,and yield on the Australian dollar prob-ably mean the Australian dollar willcontinue its strength against other majorcurrencies, exchange rates – especiallyin the short term – are notoriously diffi-cult to predict.

Some of the macro-economic concerns,like sovereign debt issues and US econom-ic growth, are likely to remain with usthrough at least this financial year. But withthe Australian market very attractivelypriced and with good quality companieswith strong balance sheets and solid long-term growth opportunities combined withpotential improvement in some macro-economic issues, the probability of achiev-ing good returns in the Australian marketfor the next 12 months is much improved.

Paul Taylor is the head of Australianequities at Fidelity and portfolio managerof the Fidelity Australian Equities Fund.

A flip-side to a downside

OpinionEquities


Paul Taylor points to severalpositives that have been overlookedamidst the nervousness surroundingthe equity market volatility.

“You are now able to buygreat quality Australiancompanies with strongbalance sheets and goodlong-term growth prospectsfor very attractive long-term valuations. ”

When I last wrote about goldin early April, the editor ofthis magazine suggestedthat enough had been said

about the topic and it should be the lastpiece on gold for the year. However, giventhe rise in the gold price of almost$US500 since then to a recent peak of$US1,917 and the growing importanceand interesting dynamics of gold relatedexposures in a fragile economic andinvestment environment, the case torevisit the topic is strong.

Indeed, the time-worn arguments thatgold should be treated as just anothercommodity, to be included in portfoliosonly as a small part of a broader commodi-ties basket, has been ruthlessly thrown outby recent events. Gold has surged in recentmonths, as most other commodities havefallen sharply in a world increasinglyworried by slowing growth – asserting itsunique monetary/currency characteristicsand role as a store of value against ficklepaper currencies.

Of course, it has not been all one-wayand volatility has recently increased –after breaching $US1,900 gold fell almost$200 in just a couple of days. Further,while gold mining stocks held up well inthe sharemarket weakness of recentmonths, they have dramatically under-performed the spectacular progress ofthe metal itself through 2011 to date. Thisdivergence between gold and goldmining equities has been one of the bigchallenges for many gold investors in2011. However, as we discuss below, goldshares may well be the best investmentavenue for those seeking to maintain goldexposure but cautious about the pace ofbullion’s recent rise.

For most investors contemplating gold,the big issues today are: Is gold a bubble? Ifso, when will it burst? Is it too late to getexposure? How should one go about this?

I have always believed that the goldbull market, which has lasted more thana decade so far, would eventually end asa bubble. Further, I do believe we areseeing some indicators that gold may beentering the final, more speculativephase of its bull market. Such indicatorsinclude the recent near vertical rise,subsequent increased volatility, increas-ing retail interest, the promotion of a

range of new ways to access gold andwidely quoted, extremely high pricepredictions from so called “experts”.

Recently a local TV show presented a‘go for gold’ segment with an expertpredicting a gold price of $5,000 in fiveyears. The front page of the businesssection of a major newspaper on thesame day interviewed a high profilecompany director who bought $1 millionof gold in late 2007.

Of course, no one knows how long thislast phase of the gold bull market maylast. It could well extend for years and theprice gains from current levels could stillbe dramatic, although volatility is likely tobe significantly higher than experiencedso far. Unlike many, I make no attemptto predict the price of gold at its ultimatepeak. Indeed, the more precise acommentator’s forecast, the more Iignore their views. Gold’s rise is about thefalling confidence in paper currenciesand the financial system. If you can tellme when developed country govern-ments (especially the US) are going to gettheir fiscal houses in order, when interestrates are going to offer a real return inthose countries, and when currencydebasement and inflation is not seen asdesirable economic policy, then maybeyou can develop some (vague) idea whenthe gold bull market boom will end.

A key driver for the gold price is, there-fore, its ability to gradually ‘recruit’ newbuyers who are losing faith in paper

currencies and other investments gener-ally. While retail investors are now beingencouraged to buy gold directly, and havea greater array of vehicles to do so, rela-tively few mainstream investors havedone so for any meaningful part of theirportfolio.

Institutions have been even more scep-tical, although there are some signs thatthis is changing. Interestingly, it is centralbanks – particularly in the rapidlygrowing emerging economies – that havebecome active buyers in the last year,after many years of net sales by ‘oldworld’ central bankers. This widespreadscepticism suggests that this last phasecould go on for some time.

These sceptics have plenty of high profilesupport, claiming that gold is a bubbleabout to burst. Of course, most of thesehave had little or no exposure to goldthroughout the course of the bull market.

Take Warren Buffett: as a very success-ful investor, his views on most issuesshould be heeded, but on gold he hasbeen consistently wrong – particularlyregarding gold’s role in a portfolio.

Buffett has regularly trashed gold,comparing its non-income earning andpassive characteristics to other favouredassets such as global companies or farm-land. Yet it is interesting that Buffet’s Berk-shire Hathaway continues to hold tens ofbillions in US dollar cash – earning close tonothing in nominal terms, losing at least2-3 per cent per annum in real terms afterinflation, and watching the foreignpurchasing power of those US dollarsdepleting. Which is the true dud asset here?

One of Buffet’s challenges in recentyears – partly due to his enormoussuccess – is he has become perceived as,and is under pressure to play the role of,saviour and cheerleader for the US finan-cial system and its economy. (Note hisrecent equity injection into Bank ofAmerica.) In that role, he has no choicebut to be negative about gold.

Ultimately though, gold is not aneither/or story. Investors don’t need todecide to have cash or gold, great compa-nies or gold, farmland or gold. You canhave some or all of them. Well diversifiedportfolios do. Used properly in a portfo-lio, gold is not some all out, concentrat-ed “Armageddon” bet, but rather just part

of a portfolio diversification story.Of course, those calling for gold to

collapse will be right one day, and asnoted above, we are beginning to seesome warning signs that the gold bullmarket is becoming more vulnerable. InSelect’s own diversified portfolios we haveactually sold a meaningful proportion ofour gold bullion exchange traded fund(ETF) exposure into the recent strength.However, we certainly have not given upon gold exposure across our portfolios,and have in fact used the proceeds ofthese sales to increase our holdings ingold mining stocks.

In our view, a sensible gold exposurehas always consisted of a mix of gold andgold mining stocks (and has generallybeen skewed to the latter). Lookingforward from here, however, we believethe risk reward clearly favours goldmining stocks. They have dramaticallylagged the gold price this year, are pricingin gold retracements half to two thirds ofcurrent levels, and on a range of valua-tion measures such as price to netpresent value are as cheap as they havebeen in the past two decades.

After all, gold mining stocks representreal gold exposure – it’s just that the goldis largely still in the ground. They do


Observer

“Used properly in aportfolio, gold is not someall out, concentrated“Armageddon” bet, butrather just part of aportfolio diversificationstory.”

Mainstream or agolden bubble?

Recent market events have put an emphasis on the value ofgold, leaving investors curious to know whether investing in thiscommodity would be a good decision. Dominic McCormickargues the gold bull market would eventually end as a bubble.

come with a range of additional chal-lenges and risks – political, cost, techni-cal, and management (etc). However,even after all this, their attractive valua-tions suggest they may well be a lowerrisk way to gain exposure to gold thangold bullion at the current time.

What explains this recent poorperformance and cheap valuations ofgold stocks in a massive gold bull market?There are certainly some company andindustry specific issues – rising costs,depleting reserves at some big miners,and some questionable managementdecisions (eg, Barrick’s recent takeover ofcopper producer Equinox). However, themain reason seems to be the self-rein-forcing effect of the preference ofinvestors for direct gold related expo-sures, such as the Gold ETFs. At one pointin August, the main US listed Gold ETFbecame the largest ETF in the world(worth over $US75 billion). As this inter-est in direct gold exposures helps supportthe gold price it attracts more investorinterest. Meanwhile, in comparison, goldshares have languished as investors seekto avoid ‘equity risk’, which further justi-fies investors’ decisions to seek directexposure.

Another factor may be the distorted

way the investment community analysesand presents gold mining stocks asinvestments. In many cases, analystsdon’t seem to fully recognise the realityof the gold bull market and are seeming-ly using inputs from a different era.

For example, in a report on gold stocksissued in July this year, Citigroup used along-term gold forecast of $US950. InAugust, this was revised upwards to$US1,050. The gold price was around$US1,500 at the time of the initial reportand around $US1,800 at the revision. It begsthe question: why don’t the analysts simplyuse the current spot price or the forwardprice curve as inputs into their models andthen also provide an upside and downsidecase around that? The standard brokingpractice of starting with the spot price butusing gradually lower prices over the nextfew years and then a significantly lowerlong-term gold price – with little, if any,sensible justification for such prices –makes their analysis of the fair value for theshares largely meaningless.

Of course, good investors can usetheir own numbers and markets ulti-mately see through such analysis towhere real value lies. Some gold miningcompanies are also seeking to generatemore investor interest through better

capital management and higher divi-dends. In the case of US gold minerNewmont, these dividends have evenbeen explicitly linked to the gold price.As dividends rise due to current highprofit margins, gold mining stocks havea key differentiator from the Gold ETFs.Lack of income has always been the bigcriticism of gold as an investment.

Many will argue that gold stocks aremore volatile and don’t have the samelow correlation and portfolio diversifica-tion benefits of gold itself, but such anassessment is backward looking andperhaps out of date. It is interesting tonote that in the recent sharp movementsup and down in August, the gold stockindices were generally less volatile thanthe gold price itself. Arguably, the valua-tion gap suggests that gold mining stockscould handle some significant weaknessin the gold price without similar falls instock prices.

In any case, the days of low volatilityfor gold itself are likely over. While thefinal phase of the gold bull market cankeep going for some time, it is likely tobe an increasingly wild ride for bothbullion and gold shares.

The role of gold in a portfolio has beendramatically vindicated in recent

months. However, its ongoing bull marketis a worrying sign for the global economy,and a clear demonstration of the lack offaith in the world’s politicians and policybureaucrats. The world faces some majorproblems, with no easy fixes and somereadjustments in the global monetarysystem necessary. Despite the heady riseof late, some diversification into goldcontinues to make sense.

In the current challenging environ-ment, investors should be comforted thatthere is still an attractive, discounted wayto get exposure to gold via gold stocks. If,as I expect, the next phase of this bullmarket includes a dramatic chase forquality (and non-quality) gold miningstocks, achieving sensible gold exposurefrom an investment perspective is goingto become much harder in the future.Ironically, that will be a time when it hasbecome increasingly mainstream andwidely accepted to include some goldbullion and gold equity exposures in port-folios. When such sentiment and compla-cency start to rule, it will be the trulydangerous time to own gold exposure.That time is getting closer.

Dominic McCormick is the chief investmentofficer at Select Asset Management.


The average percentage of aftertax income spent servicing debtin Australia is 45 per cent,according to a Genworth Inter-

national Mortgage Trends reportreleased this year.

In its Economic Roundup, the AustralianTreasury found that the ratio of householddebt to annual household income wasaround 160 per cent, and household saving(ie, the part of current after-tax income thatwas not directly used) was around 2 percent in 2008.

For those reliant on their ability to workin order to derive an income, sickness orinjury will very quickly have a devastatingimpact on them and their family.

Income protection insurance is oftentouted as an essential component of therisk insurance portfolio of clients because“it will protect your income”. While thesentiment is definitely correct, the wordingmight benefit from a slight adjustment.

There are two things that can be done

with income; it can be spent and it can besaved. That which is spent will dictate thecurrent lifestyle of the client and theirfamily, and that which is saved will dictatetheir future lifestyle.

Thus, the adjusted wording of the abovestatement might be that income protec-tion insurance is not protecting income – itis protecting the current and future lifestyleof the client and their family. The distinc-tion is important.

When it comes to current lifestyle, itseems that on average people spend about90 per cent of their income maintaining it– that is, 100 per cent of income less 9 percent compulsory superannuation and 2 percent average savings, as per above.

If, however, those same people canonly protect a maximum of 75 per centof that income under income protectioninsurance, the problem becomes appar-ent – current lifestyle may be reasonablymaintained, but the ability to save islikely to quickly cease.

In the short-term, this may not be toobig a problem, but over time the fundinggap grows exponentially.

Case studyJeff is aged 45 and earns $200,000 a year.He contributes 10 per cent of his yearlyincome into superannuation.

Jeff starts to suffer from depressionwhich over time becomes increasinglydebilitating. Finally, he is forced to stopwork, and he remains off work for the bestpart of the next two years.

The benefits he receives from hisincome protection insurance are a life-saver, and enable Jeff and his family tokeep up their mortgage payments and areasonable standard of living. Unfortu-nately, however, he is unable to maintainhis superannuation contributions overthe two years he is not working.

Assuming inflation is at a steady 5 percent per annum, when Jeff retires at age 65,the two year suspension of contributions

will have grown to an overall funding gap ofaround $105,000 – ie, $20,000 x 2 x 0.05compounded over 20 years.

Of course, the longer Jeff is unable towork the greater the problem, and in fact,if Jeff remained disabled through to age 65,his income protection benefits would ceaseand he would likely be left destitute.

The only possibly good news for Jeffmight be that he would have seen thiscoming for many years, and thus wouldhave had time to discuss legal options inregards to the appropriateness of the finan-cial advice he had originally received.

An ironic value of advice might well bethat the client has someone who can beheld accountable – and the client may beable to afford to hold them accountable.

The issues associated with a superannu-ation funding gap are not only created bythe duration of disability. Consider theplights of Jack and Jill.

Jack is aged 35 and is unable to work forfive years due to an illness. He has no


OpinionInsurance

Income protection insurance doesn’t just protect income, it protects clients’ lifestyles.However, there is a greater need to regard superannuation protection as a must, ratherthan an option within this cover, writes Col Fullagar.

Protectingmore than

income

income protection insurance, so in orderto survive, he has to cash in all his assetsincluding his superannuation. The goodnews is, however, that he has 25 years fromage 40 to 65 to recover financially.

Jill is aged 55 and is unable to work forfive years due to an illness. She is in thesame position as Jack, in that she isforced to cash in all her assets, includ-ing her superannuation. The really badnews for Jill, is that she only has five years(from age 60 to 65) to recover financial-ly, which makes it just that much moredifficult for her.

The point is that the older the client,potentially, the more important it is toprotect future lifestyle – because theability to rebuild it grows increasinglydifficult.

A primary role of insurers is to provideproducts that enable advisers to, in turn,provide reasonable advice.

Around 15 years ago, it was the realisa-tion of the problem surrounding themaintenance of superannuation savingswhile on a disability claim that led insur-ers to introduce an optional benefit toincome protection insurance that iscommonly referred to as the superannu-ation protection option.

The original concept and design wassimple:

• Up to 75 per cent of earnings could beprotected under the basic policy and

• Up to an additional 10 per cent of earn-ings could be protected under the super-annuation protection option.

Thus, up to 85 per cent of earnings couldbe protected in total.

If disability occurred, the 75 per centwould be paid to the client, and the 10 percent would be paid into their superannua-tion as a substitute for their own “suspend-ed” contributions.

Because the amount in excess of 75 percent (ie, the additional 10 per cent) was notgoing directly into the hands of the client,the theory was that it would not impact toany material extent on the client’s motiva-tion to return to work.

In essence, the problem of maintainingsome level of superannuation savings wasreasonably solved.

This innovative optional benefit receivedgeneral support, and was introduced bymost of the mainstream insurers.

As time went on, however, the clarityand simplicity of this optional benefit hasbeen blurred such that today the choicefacing advisers is somewhat morecomplex.

Returning to Jeff ’s situation, set outbelow is how he would have fared had hebeen offered, and taken up, the originalsuperannuation protection option.

The maximum protection package forJeff would have been:

Basic cover of $200,000 x 0.75/12 =$12,500 a monthSuperannuation cover of $200,000 x0.1/12 = $1,670 a monthTotal = $14,170 a monthReplacement percentage = 85 per cent

In the current risk insurance market,there are several ways in which thesuperannuation protection option is nowstructured.

(i) Original basisOnly one insurer was identified as usingthe original basis of implementation.

With that insurer, the client can insureup to 75 per cent of basic income protec-tion insurance cover, plus up to 10 per centof superannuation cover, for a totalmaximum replacement ratio of 85 per cent.

Another insurer did something similar;however, the maximum superannuationcover was 5 per cent of earnings for a totalreplacement ratio of 80 per cent.

(ii) Contributions deducted from earningsSeveral insurers covered up to 100 percent of the contributions made tosuperannuation in the previous 12months, including salary sacrifice andemployer contributions; however, thisamount was then deducted from totalearnings in order to arrive at a benefitamount under the basic income protec-tion insurance policy.

Thus, in Jeff ’s situation, his benefitamount would be:

Basic cover of ($200,000 - $20,000) x0.75/12 = $11,250 a month

Superannuation cover of $20,000 x 1/12= $1,670 a monthTotal = $12,920 a monthReplacement percentage = 77.5 per cent,

which represents an additional $420 amonth over the standard 75 per cent cover

(iii) Contributions not deducted fromearningsOne insurer allowed up to an addition-al 12 per cent of the basic benefitamount to be insured as superannua-tion contributions. The basic benefitamount was based on the client’s fullearnings, without the deduction ofsuperannuation contributions.

Therefore, in Jeff’s situation the benefitamount would be:

Basic cover of $200,000 x 0.75/12 =$12,500 a monthSuperannuation protection cover of$12,500 x 0.12 = $1,500 a monthTotal = $14,000 a monthReplacement percentage = 84 per cent

Another insurer had a variation of theabove, whereby the basic cover could beincreased by up to 25 per cent of superan-nuation contributions.

Basic cover of $200,000 x 0.75/12 = $12,500 a monthSuperannuation cover of $20,000 x0.25/12 = $416 a monthTotal = $12,916 a month.Replacement percentage = 77.5 per cent

The reason for the difference in atti-tude between insurers appears to be tiedto the belief by some that failing to reduceearnings by the amount covered underthe superannuation option creates anadverse double dipping situation – ie, theinsured can insure 75 per cent of earn-ings (including superannuation) undertheir basic cover, and then a furtherpercentage of the same amount as thesuperannuation option.

In reality, however, the basic cover stillonly represents 75 per cent of what theinsured previously used to support theirlifestyle. If the insured’s earnings arefurther reduced by deducting superannu-ation contributions, the replacementpercentage under the basic cover becomes67.5 per cent in Jeff ’s example – ie,($200,000 - $20,000) x 0.75/12 as a propor-tion of $200,000/12.

Irrespective of the different approachestaken in arriving at an insured benefitamount, the approach in regards to otheraspects of the superannuation contribu-

tions option appears reasonably consistent.

Benefit Payment The majority of insurers indicated theywould pay the superannuation benefitamount direct to the designated super-annuation fund, rather than paying it tothe claimant.

TaxationVarious insurers were asked about theirunderstanding of the tax position inregards to the option.

The view generally held was (and, ofcourse this is a general view which shouldbe checked for each particular client):

• Premiums for this optional benefitwould be tax deductible;

• If the policy is owned by the employ-er, then the benefit payments to the desig-nated superannuation fund would beconsidered employer/concessionalcontributions that will count towards thesuperannuation guarantee obligations;

• If the policy is owned by the insured,then the benefit payments to the desig-nated superannuation fund would beconsidered non-concessional contribu-tions, and be taxed as normal income tothe insured. The insured may claim thecontribution as a tax deduction if it canbe demonstrated that they are “substan-tially self-employed” (Section 290 ITAA1997).

Irrespective of the philosophies behindthe different bases of cover, the issuesfacing the adviser include:

• What priority is the client placing onhaving maximum coverage?

• How to balance the situation of aninsurer with a higher cover percentageagainst another insurer with a lowerpremium rate;

• How to balance the situation of aninsurer that has an appropriate contribu-tion option against another insurer thatis more appropriate in its basic cover; and

• Identifying which contribution optionstructure will best suit a particular client’sneed.

Income protection insurance is not justabout protecting income – it’s aboutprotecting lifestyle. For clients who wantmaximum cover, and who seek protec-tion of their future lifestyle by way ofensuring the ability to make ongoingsuperannuation contributions, thevarious superannuation protection bene-fits available are not an option – they area must.

Col Fullagar is the national manager forrisk insurance at RI Advice Group.


The Gap

Time Period

Level of

Superannuation

Contribution

Period ofDisability

Graph: The Superannuation Gap

Source: RI Advice

With global sharemarketsvolatility dominatingdiscussions on superannu-ation and retirement, it can

be easy to lose sight of the activity comingout of Federal Parliament from a techni-cal financial planning perspective.

Given the new financial year is wellunder way, now is a good time to high-light some of the key developmentspassed by the Federal Government.

Reduction in minimum pensionrequirementsThere is a 25 per cent reduction in stan-dard minimum annual superannuationpension income requirements for 2011-12 – an extension of the 50 per centreduction enjoyed by some in recentyears. The Government has also indi-cated no reduction will apply from2012-13 onwards.

Excess concessional contributions— ATO discretionLegislation has been passed allowingthe Australian Taxation Office (ATO) tomake a formal determination to disre-gard or reallocate contributions for thepurposes of excess contributions tax(ECT ) without first issuing an ECTassessment.

This will permit a person to requestthe ATO to use its discretionary powerat an earlier time. However, the ATO willonly be able to make a determinationafter it is satisfied all contributions thatare to be potentially disregarded orreallocated for that year have beenmade.

Importantly, there is no change to thecriteria used in determining whether afavourable determination should bemade.

Deductibility of TPD premiums bysuperannuation fundsFrom 1 July 2011, super fund trusteesare only allowed to claim a tax deduc-tion for the cost of total and permanentdisability (TPD) insurance premiums,to the extent that the definition of TPDin the insurance policy is aligned withthe definition of “disability superannu-ation benefit” used for income taxpurposes.

While this represents a shift fromrecent practices, the Government hasmoved to make this process morestreamlined by allowing the percentageof TPD insurance premiums a superan-nuation fund is allowed to claim as atax deduction – which would be spec-ified in tax regulations.

According to draft regulations, adeduction for TPD insurance premiumswill broadly be available as follows:

Concessional contribution cap forindividuals aged 50+ — consultationpaperThe Government has released a consul-tat ion paper in relat ion to i tsannouncement that from 1 July 2012individuals aged 50 and over, with totalsuperannuation balances below$500,000, will be allowed to make up to$50,000 per year in concessional super-annuation contributions.

The paper presents a broad overviewof how the concessional contributionscaps for individuals aged 50 and overwill operate – although, it should benoted that these are preliminary viewsonly.

A key parameter of the paper is in thedesign of the account balance of lessthan $500,000 – including whether ornot to include those who havecommenced drawing down their super-annuation.

Industry submissions on this paperhave now closed. At the time of writing,final details had not been released.

Low income earners governmentsuperannuation contribution —consultation paperThe Government has released a consulta-tion paper regarding the proposed intro-duction of a low income earners govern-ment superannuation contribution.

Under this measure, the Governmentproposes to provide a superannuation

payment of up to $500 annually foreligible low income earners directlyinto the individual’s account. Thispayment will be separate, and in addi-tion to the existing Government co-contribution.

The paper suggests the amountpayable under this measure will becalculated by applying a 15 per centrate to concessional contributionsmade by, or for, eligible individuals on,or after, 1 July 2012 – up to a maximumannual payment of $500 (not indexed).

To be eligible, an individual musthave an adjusted taxable income of upto $37,000 (not indexed).

Industry submissions on this paperhave now closed.

Refunding excess concessionalcontributions — consultation paperA consultation paper has been releasedin relat ion to the Gover nment’sannouncement to introduce a ‘onceonly’ option for eligible individuals tohave their excess concessional contri-butions refunded. Once refunded, thesecontributions would then be assessedat the individual’s marginal tax rate,rather than incurring excess contribu-tions tax.

Importantly, refunded concessionalcontributions will not be included inany non-concessional cap calculations.

The closing date for submissions haspassed.

50 per cent tax discount for interestincome — consultation paperThe Government proposes to allowindividuals a 50 per cent tax discountfor interest income, including interestreceived from deposits in banks, build-ing societies, and credit unions, as wellas from bonds, debentures, and non-superannuation annuities – whether itis received directly or indirectly, suchas via trusts and managed funds.

The discount will apply on up to $500of interest in the 2012-13 income year(ie, a $250 discount) and $1,000 insubsequent years (ie, a $500 discount).

Commencement and cessation of anincome stream — draft ATO rulingThe ATO has issued a draft taxation ruling(TR 2011/D3), which considers when asuperannuation income streamcommences and when it ceases. Theseconcepts are relevant to determining thetaxation consequences for both the super-annuation fund and the member inreceipt of the income stream payments.

The contents of this draft rulingcome as little surprise. They are viewsthat have been the subject of discus-sions with the ATO since 2004. Addi-tionally, they are likely to be views thatare primarily relevant to advice provid-ed to the self-managed superannuationfund (SMSF) sector.

This ruling is still in draft format – assuch, the final version may vary follow-ing industry consultation.

More may yet comeIn addition to the changes above, thereis a raft of other measures still in thepipeline, including a gradual increaseof SG contributions to 12 per cent.

One catalyst for further technicaldevelopments is likely to be from theStronger Super Peak Consultat iveGroup (SSPCG). The SSPCG was taskedwith providing the Government withbroad and high level advice on thedesign and implementation of theStronger Super (Cooper) reforms.

Separate working groups were formedto consider more technical input on keycomponents of the reforms such asSuperStream, MySuper, SMSF measures,and broader consumer, governance andregulatory issues.

The SSPCG has handed its report tothe Government, which contains theirrecommended reforms to Australia’ssuperannuation industry. The industrynow awaits the Government’s responseto this report, expected to be releasedmid to late September.

John Perri is technical services managerat AMP.


Understanding the legislative mix

Toolbox

The 2011 financial year brought many changes to the financial services industry, andmany are yet to come. John Perri has provided a snapshot of the activity coming out ofthe Federal Parliament from a technical financial planning perspective.

Policy type Deductible portion of premium (proposed)

TPD — Any occupation 100%

TPD — Own occupation 67%

TPD — Own occupation bundled with death (life) cover 80%

Table 1

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

PRIVATE WEALTH ADVISERLocation: MelbourneCompany: Helm RecruitmentDescription: An independent planning firm isoffering a new opportunity for a financialadviser. The role involves promoting a fullservice offering to high net worth (HNW)clients, including financial advice, retirementplanning, client administration, stockbroking,lending and life insurance.

To be suitable for this role, you will have asuccessful track record as a private wealthadvisor, together with experience in providingtailored financial advice to HNW clients. Astrong network and relevant financial servicesqualifications, such as DFP/CFP will beassumed.

For more information and to apply, pleasevisit www.moneymanagement.com.au/jobs orcontact Brendon Jukes at Helm Recruitment,(03) 9018 8001.

FINANCIAL PLANNERLocation: MelbourneCompany: FS Recruitment SolutionsDescription: A financial planning business isseeking an experienced paraplanner with theCFP accreditation to progress into advising. If

accepted for the role, you will provide adviceto clients and help grow the company’s clientbase. You will work closely with three riskadvisers who will refer complex financialplanning advice issues to you.

Benefits of this position include ongoingtraining and education, an established clientbase, increased earning potential andopportunities for progression.

For more information and to apply, pleasevisit www.moneymanagement.com.au/jobs orcontact Kiera Brown at FS RecruitmentSolutions – 0409 598 111,[email protected].

FINANCIAL PLANNERSLocation: PerthCompany: ANZDescription: ANZ Financial Planning is seekingplanners to fill a number of positions in Perth.

Reporting to a practice manager, you willassist clients to plan for their financial goalsby providing financial planning strategies,access to a diversified product range andongoing services. You will also identify andanalyse business opportunities, network andbuild internal and external relationships topromote services.

In return, you will receive managementsupport and attractive financial rewards.

You must have an extensive knowledge ofthe financial planning industry and beprogressing towards your CFP qualification.

For more information and to apply, pleasevisit www.moneymanagement.com.au/jobs.

ASSOCIATE ADVISER/ SENIOR PARAPLANNERLocation: MelbourneCompany: FS Recruitment SolutionsDescription: This high net worth financialplanning business is now seeking anexperienced senior paraplanner. An increasein business activity will see you helping thebusiness owner in managing his client base.

You will be responsible for theconstruction of comprehensive statementsof advice, ranging from wealth accumulationstrategies to self-managed superannuationfunds, direct equities and managed funds.As the technical expert, you will assist in thecreation of new templates and themanagement of any template changes dueto new legislation.

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

Kiera Brown at FS Recruitment Solutions [email protected],0409 598 111.

RELATIONSHIP MANAGER – HNW FOCUSLocation: PerthCompany: Terrington ConsultingDescription: A leading bank is now seeking arelationship manager to build the high networth client segment within a strategiclocation.

The role will require effective portfoliomanagement to ensure continueddevelopment and growth of a diverse rangeof personal account relationships. This isan opportunity to work for a dynamiclender offering a range of financialservices, including personal andcommercial finance, private banking,financial planning, trade finance, treasuryand financial markets, cash managementand global banking.

The successful applicant must have astrong background in lending as well asproven sales and service results.

To find out more about this opportunity, pleasevisit www.moneymanagement.com.au/jobs.

THE Australian SecuritiesExchange (ASX) has employedElmer Funke Kupper as its newmanaging director and chiefexecutive officer, who is expect-ed to commence his new role inOctober.

Funke Kupper would receivean annual salary of $1.7 million,which would be subject to hisperformance, and the perform-ance of the group.

His appointment wasannounced by ASX Chairman,David Gonski, who welcomedFunke Kupper to the company.

“Elmer has enormous experi-ence as chief executive officer ofa major Australian listedcompany, and extensive involve-ment in the financial servicesindustry, as well as in industriesthat are highly regulated withimportant and diverse stake-holders,” Gonski said.

Funke Kupper’s appointmentcomes after Robert Elstone lefthis role as ASX chief after 11years.

CHALLENGER Limited hasappointed Aaron Minney to thenewly created position of head ofretirement income research.Minney will report directly toChallenger’s chairman, retire-ment income, Jeremy Cooper,and the new role will extend thecompany’s research and analysiscapabilities specific to that sector.

Commenting on theappointment, Cooper said, “Weare delighted to appoint anexperienced investment strate-gist to help strengthen andgrow the existing retirementincome team. Aaron’s appoint-ment supports our leadershipambitions in the retirementincome market, which isbecoming increasingly impor-tant as the first wave of babyboomers start moving intoretirement this year.”

Minney joins the firm fromColonial First State Global AssetManagement, where he washead of investment research anddevelopment. He has previouslyheld portfolio managementroles as head of Australian fixedinterest at Macquarie FundsManagement and as a seniorportfolio strategist at InsuranceAustralia Group.

Minney will be responsible forgenerating additional researchin the areas of decumulation,portfolio construction, invest-ment strategy, retirement riskmitigation, new product solu-tions and policy support.

IOOF has appointed KevinWhite as an independent, non-executive director, effective from4 October.

White, whose original callingwas engineering, has spent themajority of his career in the

finance industry, most recentlyas managing director ofaccounting business WHKGroup for the past 15 years.

He has merchant bankingand corporate finance experi-ence, as well as an understand-ing of the financial planningindustry.

He will remain a director onthe board of the Royal Automo-bile Club of Victoria (RACV) anda number of its associatedcompanies, including InsuranceManufacturers Australia.

IOOF shareholders will beasked to consider White’sappointment at the upcoming

annual general meeting on 23November.

ALLIANCEBERNSTEIN hasannounced the appointment ofAnthony Moran to the BernsteinAustralian Value team as aresearch analyst coveringconstruction, building materialsand infrastructure.

Moran was previously a seniorinvestment analyst withMacquarie Group, where hecovered infrastructure equities.Before joining Macquarie, heworked as a strategy analyst withPort Jackson Partners , a

boutique management consult-ing firm, and as an institutionalresearch sales executive atDeutsche Bank.

Moran’s appointment is ademonstration of Bernstein’s“commitment to the Australianmarket”, to the firm’s AustraliaValue clients, and to the value itsees in Australian equities, RoyMasten, AllianceBernstein co-chief information officer anddirector of research – Australianvalue equities said in a statement.

“The team has more dedicat-ed resources now than at anystage since the launch of our firstportfolio in 2003,” he said.

Move of the weekAUSTRALIAN Financial Services Group (AFS) has announced theappointment of Meaghan Unsworth to the newly created role of headof strategic development.

Unsworth was previously the national dealer group’s regionalmanager for NSW and ACT, a position she held since joining theorganisation in 2009.

Prior to this, she was general manager Australia for KBC AssetManagement, and director - head of adviser business developmentat Fidelity International.

AFS Group chief executive and managing director Peter Dalyannounced the move saying, “Meaghan’s appointment reflects theevolution of our business and reinforces the dealer group’s commit-ment to being a dominant player in the financial services industry”.

Daly said Unsworth would work closely with the group’s executiveteam and senior advisers to “research, develop and implement strat-egy” that would “pre-position the dealer group for the future, andunderpin the AFS Group’s business growth and direction in the newFOFA environment”. Meaghan Unsworth

““OUTSIDER must confess to being some-what taken aback by the news that CountFinancial might ultimately find itselfoperating under the golf-sized Common-wealth Bank umbrella – something whichmight see Count executive chairman,Barry Lambert, once again dealing witherstwhile Count chief executive and nowColonial First State financial planninghead, Marianne Perkovic.

Outsider recalls that Perkovicannounced her departure from Countshortly after she and Lambert hadembarked on a kayak marathon up theHawkesbury River, suggesting that exec-utive bonding can sometimes be taken toextremes.

However, Outsider is assured that theCount board’s decision to recommendthat shareholders accept the unsolicited

CBA bid has vastly more to do with thepremium contained in the $1.40 per shareoffer than any desire to resume paddlingduties.

Outsider is a lso del ighted that ,notwithstanding the busy scheduleattached to dealing with the CBA bid,“The Great Lamberto” intends defend-ing his t i t le in the annual MoneyManagement Dealer Group Golf Opento be held at Sydney’s Roseville GolfClub on 19 October.

The question is, of course, which otherdealer group heads will find time incoping with Future of Financial Advicechallenges to hit a ball for charity?Outsider recalls that Professional Invest-ment Services last year fielded a highlycompetitive team ably led by GrahameEvans, as did Matrix and AMP.

Proceeds from the charity golf day willgo to the eMerge Foundation. Entries andenquiries to [email protected]

Outsider


“If institutions were too big to

fail a few years ago, now they’re

even too bigger to fail.”

van Eyk head of research John O'Brien

turns to creative grammar to express

the extent of consolidation seen in

global financial sectors since the GFC.

“There’s no modeling and

there’s no evidence”

AFA chief executive, Richard Klipin

explains why his organisation

remains opposed to the two-year

opt-in.

“It was a matter of what was

better for our network”

Count Financial executive chairman,

Barry Lambert explaining the attrac-

tion of the Commonwealth Bank’s bid

for Count.

Out ofcontext

Wager a kiwifruit

Breakfast debriefing

WITH the Rugby Union WorldCup just around the corner,Outsider notes that ANZ plan-ning guru Paul Barrett has notbeen slow to indicate his will-ingness to take bets from anyAustralians willing to puntagainst his beloved All Blacks.

Barrett, unlike MoneyManagement’s Mike Taylor,may have been a resident inAustralia for some years, buthe has held firm to his NewZealand roots and supportsthe All Blacks with almost asmuch zeal as Australia’s majorpolitical parties support off-

shore processing of refugees.Taylor has been a resident

in Australia for much longerthan Barrett, and freely admitsthat he has not supported theAll Blacks since 1979 except, ofcourse, when they are playingSouth Africa or England, butthen again, he supports anyteam playing South Africa orEngland.

The rugby test season hasalready seen money changehands between Taylor andBarrett as a result of a wagertaken during the FinancialServices Council annual

conference on the Gold Coast,and the World Cup appearslikely to be the venue forfurther monetary exchanges.

Outsider is thereforewondering whether some ofthe financial services indus-try’s other well-known Kiwiswill be fielding bets fromtheir Australian colleagues –TAL’s Jim Minto comes tomind, along with Brillient’sGraham Rich.

Outsider is prepared to holdthe bets if the World Cupthrows up an Australia versusNew Zealand final.

OUTSIDER has rubbed shoulderswith a number of Australian primeministers – Whitlam (fleetingly, andpost-Prime Ministership), Fraser,Hawke, Keating and Howard. Headmits, though, that geographyand other factors have precludedhim from meeting either KevinRudd or Julia Gillard.

Even though the FinancialServices Council invited Outsiderto attend a breakfast event with thePrime Minister in late August, hecould not drag himself away fromMoney Management central longenough to grace the presence ofAustralia’s first female PM.

Outsider’s inability to attend,saw Money Management’s mosteligible bachelor (Chris Kennedy)vigorously raising his hand for the

gig, giving your venerable corre-spondent reason to wonderwhether Kennedy harbouredhopes beyond simply gathering astory for the morning newsbulletin.

It is now history that the PrimeMinister delivered a reasonablybland dissertation to those of thefinancial services glitterati who gotup early to attend the FSC break-fast, and while it is true thatKennedy returned to the office sansstory, he did not return complete-ly empty-handed.

As the attached image reveals,the days when bachelor Kennedyreturned from industry breakfastswith a pocket full of crumpet havechanged. Outsider thinks he hasclearly developed other tastes.

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

Down for the count

Money Management (September 8, 2011)

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Transcript of Money Management (September 8, 2011)