money management (june 9, 2011)

www.moneymanagement.com.au

The publication for the personal investment professional

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By Lucinda Beaman

THE Australian Securities andInvestments Commission (ASIC)has turned its attention to theinner workings of the investmentresearch industry, includingresearch houses’ remunerationrelationships with fund managersand the quality of research beingproduced.

Treasury has confirmed toMoney Management that ASIC hasrecently been in discussions withresearch houses and a number oftheir ‘user groups’, including finan-cial advisers.

Treasury said ASIC had lookedinto “key issues such as businessmodels, conflicts of interest,disclosure/transparency and thequality of research”. The regulatoris now considering “what meas-ures (if any) it should put in placeas a result of this work”.

ASIC has expressed its concernsabout pay-for-ratings research

models in the past. During theRipoll Inquiry, ASIC recommend-ed the Government considerwhether fees paid by productmanufacturers to research housesshould be reviewed. This practice“creates an obvious conflict ofinterest and has the potential todistort the quality of research

reports often used by advisers inmaking product recommenda-tions to clients”, ASIC said.

The regulator suggested a “user-pays model for research houseremuneration might help improvethe quality of the research used byadvisers”.

ASIC is likely to have encoun-tered a wide range of opinions onthis topic during its recent investi-gations. At one end of the spec-trum are research clients such asDKN chief executive Phil Butter-worth and Professional Invest-ment Holdings (PIH) managingdirector Grahame Evans, whofirmly believe any conflicts of inter-est in a pay-for-ratings model canand are being adequatelymanaged – at least by the now-market-leading research houseLonsec.

Neither Butterworth nor Evanswould like to see fund managersubsidisation of the researchprocess legislated against. Evans

believes this would unnecessarilyplace more financial pressure onadvisers’ businesses and, ultimate-ly, consumers. Butterworth arguedthat product manufacturersshould share the cost of theresearch process with advisers.

“From a commercial point ofview, fund managers are as mucha user of research as a dealergroup, so they have a responsibil-ity for paying for their role in that,”Butterworth said.

At the other end of the spectrumare those including Matrix Plan-ning Solutions managing directorRick Di Cristoforo and AustralianUnity head of financial planningCraig Meldrum. They believe it’stime for the industry to move to apurely subscriber-pays model, amove which would remove anyreal or perceived conflict of inter-est and increase the confidence ofboth advisers and clients.

Both Di Cristoforo and Meldrumbelieve advisers should be willing

to pay for a service their recom-mendations lean so heavily on.

“It is intellectual property – ifyou want it, you should pay for it,”Di Cristoforo said.

RI Advice Group chief executive,Paul Campbell, said while hedoesn’t believe the pay-for-ratingsmodel necessarily leads toconflicts of interest or a poorerquality of research, committing toa subscriber-pays model removesany question of those concerns.

“I think it does raise questionswhen you see where the researchis being paid from. We’ve removedthat conflict,” Campbell said.

“I wouldn’t stand here and saythe research is unequivocallybetter as a result. But I think advis-ers need to know that theresearcher is acting in their bestinterests and not anyone else’s.”

For more on the research houses,see the Rate the Raters feature onpage 14.

By Mike Taylor

CAPITAL protected products, whichreceived a boost amid the uncertainty ofthe global financial crisis, are now beingshunned by financial planners as tooexpensive and inappropriate for theirclients.

New research undertaken by WealthInsights into the market for capital pro-tected products has found nearly three-quarters of advisers do not use capitalprotected products and most are unlikelyto do so any time soon.

According to Wealth Insights managingdirector Vanessa McMahon, the mainreason respondents cited for not usingcapital protected products was that theywere too expensive.

Indeed, the research revealed that 46per cent of respondents said they werenot using capital protected products dueto cost, while 32 per cent said they werenot doing so because they were not suit-able for their clients.

A further 29 per cent of respondentssaid they were not confident in the capitalprotected products,while 27 per cent saidsuch products were two complicated.

McMahon said the research painted agrim picture for the manufacturers ofcapital protected products because thenumber of advisers using them had notgrown in two years, and seemed unlikely

to grow in the future.She pointed to the fact that at the same

time in 2009, 37 per cent of adviserswere using capital protected products –compared to 27 per cent today.

What is more, McMahon said few ofthe planners who used capital protectedproducts recommended them to signifi-cant numbers of clients.

“Half the planners that use capitalprotected products use them for fewerthan 10 per cent of their clients,” shesaid. “And those planners place lessthan 20 per cent of a client’s portfolio inthem,” she said.

The Wealth Insights research detectedsome differences between the attitudes

of aligned and non-aligned advisers whenit came to the use of capital protectedproducts, with 21 per cent of non-alignedadvisers more likely to be concernedabout it being the wrong time for theirclients – compared to 8 per cent ofaligned advisers.

Similarly, non-aligned advisers (36 percent) were likely to be less confident inusing capital protected products thanaligned advisers (22 per cent).

McMahon said there appeared tohave been little change in attitude onthe part of advisers towards capital pro-tected products over the last two years,with just 1 per cent of market flowsgoing to such products.

ASIC canvasses opinions on research

Advisers shun capital protection

PRESSURE GROWING ON SALARIES: Page 4 | QUESTIONING US INFLATION FEARS: Page 24

Vol.25 No.21 | June 9, 2011 | $6.95 INC GST

Source: Wealth Insights 2011

Graph Capital Protected Products (CPP)

Use of Capital Protected Products (CPP)

70%

27%

3%

Use CPP Do not use CPP

Likely use in

next 6 months

Unlikely use in

next 6 months

73%

Reasons Advisers Do Not Use Capital Protected Products

46%

32%

29%

27%

25%

15%

6%

Too expensive

Not suitable for my clients

Not confident in capitalprotected products

Too complicated

Not on APL

Wrong time in themarket cycle

Other

By Chris Kennedy

THE mooted penalties that could apply to breach-es of components of the Government’s Future ofFinancial Advice (FOFA) reforms have drawn criti-cism from across the industry.

There have been suggestions that the maximumpenalties that apply to serious breaches, such as anadviser’s fiduciary responsibilities, could also applyto administrative breaches such as those pertain-ing to new opt-in requirements.

Financial Planning Association chief executiveMark Rantall said that the penalties should matchthe crime, and some of the maximum penaltiesalready in place would not be appropriate for opt-in breaches.

“Opt-in should not be law and this is why,” hesaid.

Much of the recent debate has been pushed bythe Industry Super Network and consumer groupCHOICE, but Professional Investment Servicesgroup managing director Graham Evans said hewasn’t too concerned with the threats and heavyhandedness coming from that side of the debate.

“A lot of this noise can go on – let’s deal with thefacts and consider what the real issues are,” he said.

He questioned the benefit of opt-in to consumers

Industry lashespotential opt-in penalties

Continued on page 3

Rick Di Cristoforo

FOFA needs a balanced approach

When the Assistant Treasur-er and Minister for Finan-cial Services, Bill Shorten,last month released the

Government’s latest Future of FinancialAdvice (FOFA) approach, most finan-cial planners assumed they had seenthe final iteration before the presenta-tion of the draft legislation.

Shorten’s announcement gave rise toa flurry of responses from the financialplanning industr y with particularconcern being expressed about theproposed two-year opt-in arrangementand the intended banning of all life/riskcommissions within superannuation.

However, in the weeks that havefollowed Shorten’s FOFA announce-ment and the handing down of theFederal Budget the battlefield dynam-ics have changed again with, on oneside, the Federal Opposition signallingit will be opposing the FOFA changesin their present form and Independent,Rob Oakeshott expressing his concernabout the opt-in arrangements.

On the other side of the equation,however, a strong campaign has beenwaged by industry fund advocates totighten the penal provisions flowingfrom the changes and the minutiae ofthe “best interest duty” in a way that

would increase the burden and thedangers confronting financial planners.

Of course it is in the nature of lobby-ing Governments in Canberra thatparticular groups will selectively briefthe media to portray their own argu-ments in the best possible light but thetenor of recent reports should place thefinancial planning industr y on itsguard.

This is something that has beenrecognised by the chief executive of theAssociation of Financial Advisers (AFA),Richard Klipin who last week warnedthat the industry funds were seeking todrive policy formulation in Canberra

“The financial advice industry is nowlooking to the Government to see pastthe hysteria being stirred up by theindustry funds and consumer advocategroups and provide independentmodelling which proves FOFA reformswil l result in better outcomes forconsumers,” he said.

Klipin is right in arguing for an objec-tive and balanced approach, but hemust also know that the balance ofpower in the House of Representativesmeans that nothing Shorten takes intothe Parliament represents a legislativefait accompli. While the industry fundsmay, indeed, have the ear of theGovernment the final shape of thelegislation will be a matter for debateand, probably, amendment.

The current speculation and themanner in which particular positionsare being promoted makes it impera-tive the Minister releases the draft legis-lation as soon as possible

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

2 — Money Management June 9, 2011 www.moneymanagement.com.au

[email protected]

“ The balance of power in the House ofRepresentatives meansthat nothing Shortentakes into the Parliamentrepresents a legislative faitaccompli. ”

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By Mike Taylor

ANY financial services statutory compen-sation scheme that fails to hold productproviders, auditors, trustees, managementand directors together with researchersand advisers equally accountable cannotbe deemed appropriate or equitable,according to big dealer group ProfessionalInvestment Services (PIS).

In a submission to the Government’sreview on compensation arrangements, thedealer group said the Government neededto consider the reason for client losses,which very often stemmed from corporatefailures and the insolvency of productproviders rather than advice-based failures.

“The current review, however, does notpropose to deal with loss or damagesuffered as a result of investment failure,

which has the potential to limit the effec-tiveness of any proposed compensationarrangements and is not likely to addressthe issue of client loss,” the submission said.

PIS made clear it would not be able tosupport a statutory compensation schemeof last resort if it was intended only to coverloss or damage as a result of licenseemisconduct.

“We are concerned that a statutorycompensation scheme for advice-based fail-ures, or losses associated with licenseeconduct, may simply be addressing asymptom instead of using the opportunityof assessing consumer protection andcompensation arrangements to recogniseand address the wider problems associatedwith corporate failures,” the submission said.

PIS then went on to reference corporatefailures and market failures, not least among

agribusiness managed investment schemes,along with the failures of directors andmanagement and the role of auditors insigning off accounts shortly ahead of a busi-ness collapse.

“Each of these components are key

stakeholders in the value chain which mayin fact contribute to the loss suffered byconsumers,” it said.

“Where these key players fail to performtheir role in accordance with their legal andprofessional requirements, they should beheld accountable and liable for theirinvolvement in the overall failures, similarto the measures taken by the AustralianSecurities and Investments Commission(ASIC) with respect to Westpoint incommencing compensation action againstthe directors, the auditor, trustee and finan-cial advisers,” the PIS submission claimed.

It said failure by the Government toprovide such a regime would not provideconsumers with adequate protection orprovide appropriate compensation underthe statutory compensation scheme forlosses arising from licensee misconduct.

www.moneymanagement.com.au June 9, 2011 Money Management — 3

News

Hold entire advice chain accountable: PIS

Industry lashes potentialopt-in penalties

and said it was important toarrive at solutions that arenot going to cost theconsumer more and putadvice out of reach for theeveryday person.

With the FOFA reformsstill to get through parlia-ment, Evans said he hadgreat faith in the independ-ents to understand theissues and make a decisionreflective of what theirconstituents were tellingthem – suggesting that thestrict penalties being associ-ated with opt-in wereunlikely to become law.

Matrix Planning Solutionsmanaging director Rick DiCristoforo also believed thepenalties were unlikely tocome into play.

“I think that commonsense will prevail. Treasuryis aware of the practicalimplications of somethingthat doesn’t make sense,” hesaid.

“This is so far fromcommon sense [and] it willbe exposed that way. If itgoes down that path itfurther threatens the credi-bility of FOFA. How is it inthe client’s best interests?”

Di Cristoforo said theappropriate course to rectifya situation where a clienthad been charged a feewithout opting in would beto refund the fee.

Association of FinancialAdvisers chief executiveRichard Klipin said it wasimportant that sanityprevailed. He was alsoconcerned that FOFA had

lost sight of its originalintent.

“We think the currentdebate is playing to section-al interests, in particular toindustry funds. MinisterShorten has a chance todemonstrate strong leader-ship and get the debate backon track,” he said.

Fiducian managing direc-tor Indy Singh expressedconcern that the FOFAdebate was becoming anincreasingly industry superfund driven agenda.CHOICE and the ISN wereacting as if they were theGovernment, and weretrying to take on the finan-cial community, he said.

If opt-in becomes law theindustry will have to livewith it, but it will do nothingto generate confidence inthe small investor, Singhsaid.

“Are we afraid? No. Letthem bring it on. We’recompliant, we’re doingeverything right, and wehave nothing to fear. We onlyhope [the Government] willget the point without creat-ing too much damage andfear among industry partic-ipants,” he said.

“Where these key players fail to perform their role in accordance with their legal and professionalrequirements, they should be held accountable.”

Continued from page 1

Indy Singh

News

By Milana Pokrajac

LONG-PREDICTED skills shortagesin the financial services sector arefinally emerging. When combinedwith other current market forces, theskills shortages are likely to create a‘perfect storm’ in salary pressure forthe financial services sector.

This is one of the main pointflowing from the 2011 Hays SalaryGuide, which noted widespreadsalary increases were yet to be seen

despite positive hiring intentionsand a shrinking talent pool, whichhas seen candidates starting tomove back into a position of powerin the jobs market.

Senior regional director of HaysBanking Jane McNeill said only 11per cent of employers in financialservices had increased salariesabove 6 per cent. Less than half ofthem had increased salariesbetween 3 and 6 per cent, McNeilladded.

“Looking ahead, our survey datashows that 45 per cent of financialservices employers intend to increasesalaries in their next review bybetween 3 and 6 percent … but 41per cent intend to increase salariesby less than 3 per cent,” she said.

“Such low intentions are at oddswith candidate expectations –particularly those of candidates indemand – and so we expect the gapbetween salary expectations towiden even further.”

Around three-quarters of finan-cial services firms expect businessactivity to increase over the next 12months, with more than halfintending to increase permanentheadcount.

Bonuses are also back in play,according to the survey, with manycandidates holding high expecta-tions for more lucrative bonuses,which if not met “would likely resultin higher turnover,” according toMcNeill.

GFC has createdgreat economicdividesBy Ashleigh McIntyre

MAJOR economies onceshared strong correlations,underpinned by stable growthand low inflation. But sincethe global financial crisis(GFC), different countries aregoing down very differentpaths, making it more difficultthan ever for fund managers,according to a report by Stan-dard Life Investments.

Standard Life Investments’Global Spotlight report hasfound that two key factorshave contributed to this diver-gence in economies followingthe GFC.

The first is the variousstates of disrepair economieswere left in following the GFC.The US economy showed allthe classic signs of a largeoutput gap, while UK signswere less clear. The Eurozonewas harder to pick due to itsdiversity, with core economieslike Germany performing verywell, while the periphery isstill mired in crisis.

The report found the secondmajor contributor to this diver-gence was that much of whatwas driving inflation in majoreconomies was now generatedexternally, such as rising foodand oil prices.

It said these influences wereharder for domestic economiesto control than internal factors,as it was difficult for centralbanks to respond to externalprice jumps.

To take advantage of thecurrent diverse environment,the report suggested investorsshould consider the globalinflation backdrop and therather different policyresponses between countries.

One avenue, it said, was topick and choose between infla-tion-linked bonds issued by dif-ferent countries to exploitmoves in relative inflation andinterest rate expectations.

‘Perfect storm’ brewing in salary pressure

��

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Jane McNeill


News

By Mike Taylor

THE Federal Opposition hasquestioned why a majority ofappointees to the body respon-sible for running the keyCommonwealth superannua-tion funds are former seniorunion officials, three of whomare directly appointed by theAustralian Council of TradeUnions (ACTU).

The Opposition spo-kesmanon Financial Services, SenatorMathias Cormann, raised theissue of the make-up of thetrustee board of the AustralianReward Investment Alliance(ARIA) during Senate Commit-tee hearings and questionedwhy four of the seven membershave union backgrounds.

When told by an ARIA repre-sentative the trustee boardappointments were made onthe basis of equal representa-tion and in accordance withthe statutory provisions of therelevant legislation, Cormannexpressed surprise and saidAustralian Bureau of Statisticsfigures showed that only 41 percent of public sector employ-ees were union members.

“Yet unions have a majorityon your board. Why is that a fairreflection of the employer/employee balance?” he asked.

Later during the committeeproceedings Cormann pointedto the recent merger of the ARIAboard with the various militarysuperannuation schemes, andreferred to unhappiness withinDefence Force Welfare Associ-ation about inadequate repre-sentation for veterans on theARIA board.

Big unionsdominate Govtsuper fund

By Chris Kennedy

THE global economic recovery still hassome distance to run, meaning long-terminvestors should remain overweight togrowth assets, according to Credit SuissePrivate Banking.

An economic upswing usually lastsaround five to seven years and there areplenty of reasons to think that the currenteconomic recovery will mirror previousupturns, according to Giles Keating, globalhead of research for private banking and

asset management at Credit Suisse.In particular, low interest rates in larger

economies such as the US and the largeamounts of cash on corporate balancesheets are stimulative factors and morethan offset the headwinds from the fewinstances of fiscal tightening, he said.

Keating recommended that long-terminvestors should overweight equities andcommodities and underweight bonds,although tactical short-term investorsshould remain neutral across theseclasses due to a recent softening in

global economic indicators.In particular, cyclical classes such as

technology and consumer stocks and someresources would be appealing in the comingmonths, he said.

Keating also expected the euro to risemodestly against the dollar, and added thatemerging currencies would be an impor-tant currency diversifier.

Keating tempered his positive outlook inacknowledging the risks posed by the endof the second round of US quantitativeeasing, an economic slowdown in China,

the European sovereign debt crisis andpolitical concerns in the Middle East.

While also acknowledging the damp-ening effect of the strong Australiandollar on export-reliant industries suchas industrials, Keating was bullish on thelocal market overall.

Keating said the ASX200 offered upsideover the next 12 months, with long-termvalue supported by attractive dividendyields. These would appeal in particular tointernational investors facing interest ratesclose to zero at home, he added.

Bullish Credit Suisse looks to long-term growth assets

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News

Fixed and asset-based fees can co-existBy Milana Pokrajac

FIXED and asset-based fees can co-exist as adviserremuneration methods as long as each method isused for the appropriate product, according to OneVuechief executive officer Connie McKaege.

McKaege’s comments followed the Industry SuperNetwork’s (ISN’s) claims that investors would be muchbetter off by paying fixed fees to financial advisers asopposed to asset-based fees.

She said it would be difficult to disagree with theISN’s arguments when it comes to listed securities,property or term deposits.

“Term deposits are automated; there is no morework for somebody with $1 million or $10,000 dol-lars,” McKaege said.

“They don’t transact any more, so why should some-body take 2.2 per cent going in with a $1 million versusa fixed fee?”

However, separately managed accounts and

managed funds services should be charged withasset-based fees, she said.

McKaege suggested the industry was already movingtowards fixed fees. Investment Trends’ October 2010Planner Business Model Report also noted a greaterprevalence of fee-for-service in adviser remuneration,particularly non-asset-based fees.

“By 2013,planners expect the proportion of their prac-tice revenue coming from non-asset based fees to nearlydouble from current levels,” analyst Recep Peker said.

OneVue has launched new products that will positionthe platform provider for the post-Future of FinancialAdvice (FOFA) environment. McKaege said that changein the way clients’ wealth is managed was inevitable,and that platforms needed to help advisers in adaptingto the new environment.

“When people are trying to resist some of the FOFAchanges and volume bonuses, all it does is it allowsadvisers to live in hope that these things won’t tran-spire,” she said.

ATO warns of tax time crackdownBy Ashleigh McIntyre

THE Australian Taxation Office(ATO) is warning investors to steerclear of tax avoidance schemes andseek independent financial adviceas the end of the financial year rollsaround.

Tax Commissioner Michael D’As-cenzo said there were many differenttypes of tax schemes, from publiclylisted marketed arrangements tospecialist financial arrangements

offered by experienced advisers. “Doing your research and seeking

independent financial advice fromsomeone not involved with thearrangement before investing is yourbest protection against promotersof tax avoidance schemes,” he said ina statement to investors.

Not getting the right informationand advice could lead to a large taxdebt, substantial penalties and insome cases even prosecution, headded.

Govt accused ofbreaching own rulesBy Mike Taylor

THE Federal Treasurer, WayneSwan, has been accused ofbreaching the Government’sown guidelines on “transpar-ent and merit-based selection”when appointing the newchairmen of the AustralianSecurities and InvestmentsCommission (ASIC) and theAustralian Competition andConsumer Commission(ACCC).

The Opposition spokesmanon Financial Services, SenatorMathias Cormann, said theGovernment had confirmed toa Senate estimates committeehearing that neither of thepositions had been advertisedaccording to the guidelines forsuch appointments.

Cormann said the Coalitionwas not reflecting on themerits of the men appointedto chair ASIC and the ACCC –

Greg Medcraft and Rod Sims,respectively – but believed theinadequate processes hadbeen followed in breach of theGovernment’s pre-electioncommitments and its ownguidelines.

He said the Labor Govern-ment’s promise to strengthentransparency and merit-basedselection was “not worth thepaper it was written on”.

AFSL requirementfor insurance raterTHE Australian Securities and Investments Commission (ASIC) hasmade clear that companies providing ratings services to financialplanners need to hold an Australian Financial Service Licence (AFSL).

The regulator’s position was revealed in its latest overview of deci-sions on relief applications, in which it said it had refused licensingrelief to a life insurance ratings provider

It said the ratings provider delivered a service to financial advis-ers that was a qualitative research tool and provided a rating of theterms of various life insurance policies.

“We took the view that the provision of ratings constitutes theprovision of general financial product advice and the ratings areintended to influence (or could reasonably be regarded as intend-ing to influence) a person’s decision in relation to a life insuranceproduct,” the ASIC documentation said.

It said that holding an AFSL for the provision of ratings wouldrequire the applicant to comply with certain key obligations in theCorporations Act, including ensuring that adequate arrangementsare in place for internal and external dispute resolution and for themanagement of conflicts of interest.

Tria opens Hong Kong officeTRIA Investment Partners hasshifted its Asian base of operationsfrom Singapore to Hong Kong,which the firm believes is becom-ing the preferred location for assetmanagement activity for the region.

Hong Kong is also a gateway to theemerging Chinese wealth manage-ment market, and Tria already hasseveral important clients in HongKong, the firm stated.

Tria said that developing a prof-itable business model in a marketas fragmented as the region is –including developed markets suchas Japan and Singapore and newermarkets like Indonesia and Korea –

can be challenging.However the outlook is steadily

improving as Asia grows rapidly asa retail fund market and alsobecomes a more important andoutward looking institutionalmarket, the firm stated.

Tria said its initial research focusin the new location would includeresearch and strategy developmentfor Asian wealth markets and highimpact implementation projects. Itwill also look at costing models forproduct development and manage-ment, as well as transferring itspension fund and exchange-tradedfund analysis expertise to the localmarket.

Tria said that client feedbacksuggested the region was not wellserved in terms of the consultingand project management servicesthat Tria provides, and Tria said itaimed to plug that gap.

Commercial property recovery slowingBy Chris Kennedy

THE Australian commercial property market has deliv-ered 12 months of strong returns, but the pace of therecovery in the sector is slowing, according to thePCA/IPD Australia Property Index.

The index returned 10.4 per cent in the year toMarch 2011 on the back of strong capital growth andincome return from the hotel sector, which returned13.6 per cent.

Office and retail also performed well while the indus-trial sector lagged due to a slight retraction in capitalvalues, according to the data based on 1535 property

assets worth $121 billion.Rolling annual nominal returns showed that while

the commercial property market is still in the upswingphase of the cycle, the return profile shows that recov-ery is slowing.

IPD managing director for Australia and NewZealand Dr Anthony De Francesco said the slowingrecovery is supported by macroeconomic factorsincluding employment and retail sales growth,which point to a softer economic outlook over theshort term.

The office sector will continue to outperform retaildue to more favourable market conditions, he added.

Michael D’Ascenzo

Many planners questionASIC’s effectivenessA SIGNIFICANT number of Australian financial advisers believe theAustralian Securities and Investments Commission (ASIC) isdoing a less than effective job.

New research released by Wealth Insights has revealed that asmany as 32 per cent of financial advisers regard the financial serv-ices regulator as being either ineffective or extremely ineffective.

Asked by Wealth Insights how effective they believed ASIC wasin its role as Australia’s financial services regulator, 45 per cent ofthe respondents rated the organisation as ‘average’ with only 20per cent rating it as ‘effective’ and just 1 per cent rating it as‘extremely effective’.

The research was conducted in May ahead of the recentappointment of Greg Medcraft as the new chairman of ASIC, but inthe wake of the announcement that the regulator would be con-ducting a further shadow shopping exercise.

Wayne Swan

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News

Opposition to crimp super trustee powerBy Mike Taylor

THE Federal Opposition hassignalled it would significant-ly crimp the powers of super-annuation fund trustees bymaking any fund mergers thesubject of member ballots.

The Opposition spokesmanon Financial Services, SenatorMathias Cormann, has flaggedsuch a move amid reports thata merger of two major industrysuperannuation funds – VisionSuper and Equipsuper – hadcollapsed.

Commenting on the mergerbreakdown, Cormann said

reports suggested trustees mayhave been putting their owninterests ahead of the bestinterest of members.

“To scuttle a proposedmerger because union-backedtrustees don’t want democraticelections but want guaranteedunion-nominated positionssmacks of institutionalised self-interest,” he said.

Cormann said he believedthere should be better regula-tory supervision and review of merger arrangements andmore adequate remedies formembers when the handlingof a merger by trustees ended up disadvantaging thosemembers.

“Superannuation funds holdthe money of their members on

trust,” he said. “Those membersshould have a say as part of themerger process instead ofrelying on the trustees doing theright thing in satisfying theirtrustee fiduciary duties to act inthe best interests of theirmembers.”

Cormann said the trusteefiduciary duty could becomeclouded and give rise to poten-tial conflicts of interest, “espe-cially where some trusteesserve on multiple superannu-ation boards or where trusteeshave not directly beenappointed by the members inthe first place.”

Most Australians still unready for retirementNEW research commissioned by majorinsurer Metlife has confirmed that Aus-tralians are still ill-prepared for retire-ment, with only one in four saying theyhave achieved their retirement goals orare likely to do so.

The new research, released at aRetirement Incomes breakfast hostedby Money Management’s sister publi-cation, Super Review, confirmed thatonly four in 10 Australians haveplanned for retirement in terms of

utilising investments over and abovethose contained within their superan-nuation fund.

“Sixty per cent of Australians are rely-ing solely on their superannuation fortheir retirement planning,” Metlife’s chiefmarketing and distribution officer, EricReisenwitz told the breakfast.

However, he said that most employ-ees had not accumulated enoughtowards their retirement, with the aver-age superannuation balance for Aus-

tralians aged over 50 sitting at $52,500for men, and less for women.

Reisenwitz said women were atgreater risk due to longer lifeexpectancy and less planning.

The good news contained in theresearch is that those people who hadactively planned for their retirementappeared confident in their ability toreach their goals in the next five years,with fewer than a third of such peoplefeeling they were still behind.

Director liability changes a positiveBy Chris Kennedy

FEDERAL Budget changesmaking company directorspersonally liable when theircompany fails to pay employ-ee superannuation paymentscould have far-reaching conse-quences but will ultimatelybenefit employees, accordingto Holding Redlich Lawyers.

The legislation, intended totarget counter fraudulent andphoenix activity, could extendto all directors in a blanketapproach, although we are yetto see the details, said HoldingRedlich partner Jenny Willcocks.

If the legislation does endup taking a catch-all approachrather than being limited tocases where there has been aphoenix scheme in place, thenit will have a significant impacton directors’ risk of personalliability, she said.

Even when there is nophoenix scheme in place acompany director wouldusually be aware if theircompany is getting into trouble,and where super paymentshaven’t been passed onto thefund or wrongly used to paycompany cash flow, she said.

The end result will be a posi-

tive from an employee ortrustee perspective if it makesdirectors more aware andmore focused on their respon-sibilities concerning employ-ee super, she said.

The fact that there is discus-sion out there sends a positivemessage that the Governmentis taking the situation serious-ly from a deterrent point ofview, meaning those temptedto use such schemes maythink twice if they are morepersonally liable and there isgreater capacity to go after thedirectors personally, she said.

What the situation really

highlights is a need for an over-haul in the system of superan-nuation payments fromemployers to funds, with thelead time currently far too longand creating the potential forsuch dishonest conduct, Will-cocks said.

If super payments had to bepaid in the same way as wages,that would close the loopholeallowing phoenix schemes totake place and would alsobenefit members, who arecurrently missing out onhaving their own moneyinvested while it sits in anemployer’s account, she said.

Macquarie showsinterest in YBR offeringBy Ashleigh McIntyre

THE newly transformed YellowBrick Road Holdings (YBR) hassuccessfully completed its capitalraising of over $12.5 million, withMacquarie Investment Manage-ment showing a late interest in thegroup.

The initial public offering wasoversubscribed, with all 31,250,000ordinary fully paid shares at $0.40each being taken up by investors.

YBR has since announced to thestock exchange that a further

1,000,000 shares have been allottedto Macquarie Investment Manage-ment as follow-on public offer,giving Macquarie a 7.06 per centshare of the company.

Furthermore, the company hasofficially acquired Yellow BrickRoad Group and issued over84,000,000 shares to vendor share-holders.

The company stated it has beenworking with the stock exchange tore-comply with listing rules, andexpected to be reinstated to officialquotation in early June.

Ascalon pushesinto AsiaWESTPAC subsidiary Ascalon Capital Managers hasengaged a Hong Kong-based funds managementspecialist to support the firm’s push into Asia,Westpac has announced.

Chuak Chan, who helped establish the BankersTrust Singapore fund management business in1996, will be based in Westpac’s Hong Kongoffices and will work on the licensing process thereprior to Ascalon’s launch.

Ascalon Capital Managers chief executiveAndrew Landman said the manager was looking toexpand in Asia to source potential new invest-ments into boutique managers and accelerategrowth in the offshore investor base of its currentboutique partners.

The market will be critical due to the quality ofabsolute return managers and the access it pro-vides to large US, European, Asian and MiddleEastern Investors, he said.

“While Ascalon’s boutiques have successfullygrown in Australia, the market for some of our part-ners’ strategies is far larger offshore and it’s impor-tant that we seek to provide active offshore distribu-tion to our partners,” Landman said.

“It’s our aim to take equity stakes in Asian bou-tique firms, with the objective of expanding ourstable and offering prospective partners strongoperational support and access to the ever-growingAustralian funds management market.”

Chan was previously chief operating officer ofSegantii Capital Management in Hong Kong, andpreviously held roles at ING Investment Manage-ment, including chief risk officer for the Asia Pacificinvestment.

Chan said Ascalon’s business model will be uniquein Asia, as it will seek to partner with boutique firmsthrough investing in their business, seeding funds,raising capital and providing operational support,while the large institutional support should reduceinvestor concerns.

Ascalon, which is 100 per cent owned by West-pac, is an equity partner in some of Australia’smost successful investment management bou-tiques, Westpac stated.

Mathias Cormann

MLC launches tool to help with client leadsMLC has developed a newtool called My Client Leads,to help advisers who arestruggling to market to theirexisting client base.

The tool identifies client trig-ger events and gives advisersopportunities to make contactwith a client to discuss apotential advice need.

My Client Leads is availableto advisers who use MLC plat-forms and insurance, withleads refreshed every night.

It was developed after 50per cent of advisers surveyedby MLC said marketing to their

own clients was their biggestchallenge.

Richard Nunn, executivegeneral manager of adviceand marketing for MLC & NABWealth, said the tool lever-ages life stages, regularevents or circumstancechanges to encourage contactwith clients.

Nunn cited examples suchas change of name oraddress, withdrawal of super-annuation funds or whenincome protection insurancecover hasn’t increased for fiveyears. Richard Nunn

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Slater & Gordon’s new planner litigation productBy Mike Taylor

LAW firm Slater & Gordon has launched anew service which it claims is specificallyaimed at assisting people who suffer loss asa result of receiving bad financial advice.

The new service, carrying the trade-marked name RECOVER, was launched bySlater & Gordon’s head of commercial andproject litigation Ken Fowlie, who said it

would “fill a void in the Australian legalmarket by giving mum and dad investorsoptions, including not having to pay upfrontthe ongoing legal costs of often expensivelitigation to pursue valid claims against negli-gent advisers”.

“It will give people the option of pursuingjustice without worrying about throwinggood money after bad investment,” he said.

The Slater & Gordon announcement

claimed that for many individuals the upfrontcost of legal action or the risk of adverse costshad discouraged them from pursuing theirlegal rights unless as part of a class action.

Under the new product being promotedby the law firm, investors will be able to geta fixed price assessment on the merits of theircase, with some eligible clients being givenaccess to success fee arrangements.

The company said that insurance could

also provide protection for eligible clients ifa claim ultimately proved unsuccessful.

Fowlie described the product as innovativefor Australian investors with the prospect ofa “no win, no fee” arrangement for their ownlegal fees as well as the potential to accessinsurance in relation to the other sides’ costs.

He said the model was already widelyavailable to claimants in the UnitedKingdom.

Opt-in to reduce costs for consumers, claims ISNBy Milana Pokrajac

A TWO-YEAR opt-in proposal willreduce the cost of financial advice,with asset-based fees resulting inconsumers paying up to 17 timesmore, according to the IndustrySuper Network (ISN).

ISN chief executive DavidWhiteley said a research reportconducted by Rice Warner Actu-aries and commissioned by theISN found consumers were up to10 times better off paying set feesto financial planners as opposedto ongoing asset based fees.

The report, entitled ‘Value ofIFFP Advice’, looked at fivecommon advice scenarios such as

retirement and pre-retirementplanning, insurance and co-contribution, comparing theresults of different fee-chargingmethods.

The biggest disparity could beseen in the transition-to-retire-ment graph, showing set feeswould amount to a little over$4,500 over six years, whereascosts of asset-based-fee-generat-ed advice were assessed as $40,706over the same period (the fee was0.27 per cent on the accumulationaccount balance and 0.5 per centon the retirement income productvalue).

Whiteley said the financialplanning industry favoured asset-

based fees, which were “typicallythe most expensive way to pay forfinancial advice”.

“The report shows that, asproposed in the Government’s[FOFA] reforms, one-off and trans-parent charging for financialadvice will reduce costs toconsumers,” he said.

“The opt-in measure willensure that consumers are notpaying for advice that they do notreceive and this will make advicea lot more affordable and accessi-ble for ordinary Australians,”Whiteley added.

The Association of FinancialAdvisers chief executive, RichardKlipin, fully rejected the findings of

Rice Warner’s report, saying finan-cial advisers knew the costs ofrunning their businesses and werealready factoring price increases in

positioning their business for thepost-FOFA environment.

“Financial advisers work withclients in all segments, they run arange of business models and arange of pricing models. It’s alwaysbeen the AFA’s view that it’s up tothe adviser and the client to deter-mine what works best for them,”Klipin said.

“We are also keen for the indus-try fund movement to start todisclose and fully unbundle theirfee proposition so that their clientunderstands what they’re payingand what they’re getting and canturn off the payment for servicesthey don’t want or they don’t get,”he added.

David Whiteley


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WMP invests inproperty researchBy Chris Kennedy

PERTH-based financial services groupWealth Management Partners (WMP)has acquired a substantial stake inproperty advisory service REaffirm.

WMP describes itself as a ‘one-stopshop’, and the firm’s director SteveBeattie said that with the growing trendof self-managed super fund investorsinvesting in property, planners can’tprovide a total service by focusing onlyon investments such as managed fundsand bonds.

“Wealth Management Partnersrecognises that the financial advisoryfirm of the future must provideinformed advice across all assetclasses if we wish to place ourselvesat the centre of our clients’ financiallives,” he said.

REaffirm will provide specialisedproperty research and advice to WMPclients while building its own client

base, according to REaffirm directorSimon Moore.

Moore, who has previously workedwith Hegney Property Group and PlanB, said that much of the informationpublished about property trends wasgenerated by sellers and their agentsand suited a particular agenda.

REaffirm said that its client servicemodel was similar to that of tradition-al financial advisers.

“We assist with strategy, implemen-tation through identifying particularproperties, and look after the ongoingmanagement and review goingforward,” Moore said.

“We’re trying to work on developinga financial planning-type model fordirect property that’s not sales-based –we see that as an important gap to fill.”

REaffirm already has another, largerfirm on board that can’t be disclosedyet, and is in talks with two other firms,Moore said.

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Fund targets philharmonic philanthropistsTHE Australian Chamber Orchestra (ACO) istargeting sophisticated philanthropic investorswith a new wholesale fund aimed at benefitingfrom the appreciating value of rare musicalinstruments.

With an Australian Financial Services Licenceprovided through JB Were, the other purpose ofthe fund is to provide high quality musicalinstruments to musicians in the ACO, withassets loaned from the fund trustee (the Aus-tralian Chamber Orchestra Instrument Fund)to the orchestra to be played by the musicians.

The wholesale unlisted unit trust will fea-ture a unit price of $50,000, with a targetcapacity of around $5 to $10 million andan investment horizon of 10 to 15 years,with limited redemption opportunities everythree years, according to ACO director Bren-dan Hopkins.

In the past 10 to 15 years the types of assetsthe fund will be targeting – which include a Stradi-varius violin worth $1.6 million that the fund hasalready purchased – have returned around 7-10per cent compound, he said.

The fund is hoping to appeal to the philan-thropic investor who would not only benefit

from the financial returns but also appreciatethe musical aspect, he said.

“While it is not unusual for musicians toreceive rare and valuable instruments on loan,ordinarily they are lent by wealthy individuals orphilanthropic organisations who retain owner-ship,” he said.

“In this case, the instruments remain underthe stewardship and control of the orchestra,and in the ownership of the fund. This is for thelong-term benefit of investors, the musiciansand the listening public.”

By Milana Pokrajac

T. ROWE Price has announced the launch of itsAustralian equity capability, which is likely tohappen at the end of November, according to direc-tor for Australia and New Zealand Murray Brewer.

Brewer said the company had $510 billion infunds under management, $70 billion of whichcame from non-United States-based investors.

Launching the Aussie equity capability wouldhelp T. Rowe Price in its goal to grow the non-USclient base.

Brewer said there hadn’t been many players inthe market who started up Aussie equity boutiquesafter the global financial crisis, which he said mayhave been caused by the increased number ofboxes investors now wanted ticked.

“People are looking at stability of the organisa-tion, risk framework and debt; our view is that unlessyou are globally integrated with your research (thatis, getting the information load daily) you’re not going

to be able to cover those stocks as well,” he said.Brewer added that for the past year T. Rowe Price

had been building its equity capability team, whichis currently being integrated with the rest of thecompany.

Viral Patel has recently been appointed as asso-ciate director of research in the new Aussie equitiesteam, while Randal Jenneke, who moved fromSchroder Investment Management, has beenrecruited as portfolio manager.

Brewer said the launch of the company’sAustralian equity capability had been four yearsin the making.

ETFs to become moreattractive for advisersBy Ashleigh McIntyre

THE proposed Future of FinancialAdvice reforms could boost the useof exchange-traded funds (ETFs) byAustralian retail investors, accordingto an industry expert.

The proposed ban on upfront andtrailing commissions to financialadvisers will encourage advisers tolook for solutions that do not carrythese types of fees, said DeborahFuhr, Blackrock global head of ETFresearch and implementation strat-egy.

“ETFs will become the ideal solu-tion,” she said.

While the Australian ETF industryhas lagged behind its American coun-terpart, Fuhr believes it is on track tofollow global trends and increase by20 to 30 per cent per year.

Australian ETF assets are expected

to surpass US$10 billion by the endof 2013, growing from the currentUS$6 billion.

According to Russell Investmentsdirector of ETFs Amanda Skelly, theAustralian ETF landscape is thereverse of what is happening glob-ally, with retail and self-managedsuper fund investors taking a lead inETF usage.

New research from Deloitte Actuar-ies & Consultants and commissionedby Russell found that while institu-tional investors have used ETFs inthe past, obstacles such as cost andliquidity stand in the way of furtheruse.

Skelley said it was up to the ETFindustry to meet the growing needsof the institutional market and edu-cate institutional investors on the dif-ferent ways they can use ETFs in port-folio management.

Murray Brewer

T. Rowe Price tolaunch Aussieequity capability

A $1.6 million violin isamong the fund’s assets.

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Lonsec has taken the lead as theresearch house of choice for many ofAustralia’s top 50 largest dealergroups.

The research house is now the preferredinvestment supplier to more than 16 of the top50 dealer groups, including Professional Invest-ment Services (PIS), groups owned by Nation-al Australia Bank (NAB), notable new clientsincluding Count Wealth Accountants and ANZFinancial Planning, and numerous other inde-pendently owned groups.

Over the past year Lonsec has more thandoubled the number of top 50 dealer groupswho point to the Melbourne-based group astheir key research partner.

Sydney-based Morningstar has alsoincreased its number of top 50 clients, attract-ing new clients, including the CommonwealthBank-owned (CBA) dealer groups, Common-wealth Financial Planning and FinancialWisdom, and Industry Fund Financial Plan-ning, while retaining top 10 clients includingMillennium3 Financial Services and RBSMorgans.

Van Eyk Research retained its key contractwith Australia’s largest dealer group, AMPFinancial Planning, and a number of other

dealer groups owned by AMP, including Hill-ross Financial Services and Genesys WealthAdvisers, as well as Suncorp-aligned dealergroups. But client losses over the year meantthe research house lost its long-held industryleading position.

Standard & Poor’s (S&P) lost its CBA contract,but extended its relationship with rival bankWestpac. And while Mercer is working hard tobreak into the retail investment market, it stillhas a way to go. Mercer signed RI Advice Groupas a new client, with the ANZ-owned groupjoining Charter Financial Planning and AXAFinancial Planning as some of the only groupsin the top 50 using the traditionally institution-ally focused research house as their keyprovider.

Van Eyk Research and Morningstar are now

neck and neck as preferred suppliers for thetop 50 dealer groups. But the number of top 50dealer groups pointing to Morningstar as theirpreferred secondary supplier places Morn-ingstar in second place, behind leader Lonsec,in terms of overall market reach.

It is common practice in the industry fordealer groups to use investment research as adifferentiator in value propositions betweenadvisers, with ‘premium’ advisers receivingresearch from the dealer group’s preferredsupplier.

Many dealer groups are also working toimprove their offer to advisers by boosting theirinternal investment research teams, whoprovide an additional overlay to the outputreceived by the traditional research houses.

A number of dealer groups, including CentricWealth, Perpetual Private Clients and AustralianUnity Financial Planning make a point ofnoting their advisers rely primarily on theoutput of their own internal investment teams,who in turn rely on a variety of research sources.

Some dealer groups, including PerpetualPrivate Wealth, have said this is the only wayto ensure quality for advisers when even thetop research houses have areas of strengths andweaknesses in their assessments.

InFocusLonsec overtakes van Eyk

Growth fundperformance overone year:

Financial Planning CareersExpo14 JuneMelbourne, TBAwww.fpa.asn.au

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5.3%Mastertrusts

WHAT’S ON

GROWTHSNAPSHOT


6.2%Industryfunds

Over 10 years:

4.7%Mastertrusts

5.9%Industryfunds

Source: Chant West

Money Management’s Top 100 Dealer Groups survey reveals research house Lonsechas surged ahead of its competitors over the past year, taking the long-heldindustry-leading position from van Eyk Research. Lucinda Beaman reports.

Alternative research providers to the top 50 dealer groups- AAG (Australian Financial Services)- Adviser Edge (Genesys Wealth)- Aspect Huntley (Shadforth Financial Group)- CPG Research and Advisory (Western Pacific Financial Group)- Dexxr (NAB-owned dealer groups)- eQR (Magnitude Financial Planning, Securitor)- Officium Capital (Western Pacific Financial Group)- Prescott Securities (WHK Financial Planning & Prescott Securities) - Rob McGregor (Matrix Planning Solutions)- Russell Investments (State Super Financial Services) - Shaws (Financial Services Partners)- Zenith (Futuro Financial Services)

Preferred investment research suppliers – top 50dealer groups

LonsecClients: Professional Investment Services, Count WealthAccountants, NAB Financial Planning, Garvan Finan-cial Planning/MLC Financial Planning, ANZ FinancialPlanning, Aon Hewitt Financial Advice, Lonsdale Finan-cial Group, Australian Financial Services, GodfreyPembroke, Apogee Financial Planning, Bendigo Finan-cial Planning, Consultum Financial Advisers, MadisonFinancial Group, Capstone Financial Planning,Australian Unity Financial Planning, NAB Private WealthAdvisory

Van Eyk ResearchClients: AMP Financial Planning, Hillross FinancialServices, Genesys Wealth Advisers, Guardian FinancialPlanning, Suncorp Financial Services, AAA Financial Intel-ligence, Lifespan Financial Planning, Gold Financial

Morningstar Clients: Millennium3, Commonwealth Financial Plan-ning, RBS Morgans, Financial Wisdom, Ord Minnett,Infocus Money Management, Shadforth FinancialGroup, Matrix Planning Solutions, Industry Fund Finan-cial Planning

Standard & Poor’sClients: Westpac Financial Planning, St George FinancialPlanning, Futuro Financial Services, Magnitude Finan-cial Planning

MercerClients: Charter Financial Planning, AXA Financial Plan-ning, RI Advice Group

MorningstarClients: Charter Financial Planning,ANZ Financial Planning, AXA FinancialPlanning, Bridges Personal InvestmentServices, Financial Services Partners,Guardian Financial Planning, GoldFinancial

LonsecClients: AMP Financial Planning, WHKFinancial Planning & Prescott Securi-ties, Infocus Money Management

Van Eyk ResearchClients: Professional InvestmentServices, Commonwealth FinancialPlanning, RI Advice Group

Standard & Poor’sClients: Aon Hewitt Financial Advice,Hillross Financial Services, AustralianFinancial Services, Consultum Finan-cial Advisers

MercerClient: Genesys Wealth Advisers

First choice for top 50 dealer groups1. Lonsec2. Van Eyk Research and Morningstar3. S&P4. Mercer

Source: Money Management Top 100 Dealer Groups

Overall market reach1. Lonsec2. Morningstar3. Van Eyk Research4. S&P5. Mercer

Preferred secondary suppliers – top 50 dealer groups

“ Many dealer groups are alsoworking to improve their offerto advisers by boosting theirinternal investment researchteams. ”

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Rate the Raters 2011In Money Management’s annual Rate the Raters survey, Lonseccame out at the top of the pack, with Standard & Poor’s closebehind. Ashleigh McIntyre analyses the results.

Rate the raters


THE past year has proved to bean uncertain time for the finan-

cial ser vices industr y, withresearch houses being no exception.

The potential introduction of the Futureof Financial Advice reforms has forcedmany companies to consider the possibleconsequences for their business.

But while many changes have alreadybeen made in preparation for thesereforms, the industry is still uncertainabout what the final legislation will looklike and the true impact it will have.

With that in mind, 2011 will be thefinal year in which the Money Manage-ment Rate the Raters survey shines thelight on research houses in the contextof the current regulatory environment,since there is no doubt that things willsoon change.

As is the case every year, this year’ssurvey asked fund managers to rateresearch houses on a number of crite-ria rather than pitting houses againsteach other.

Instead of naming a winner, thesur vey focused on the individualresearch houses to gain an insight intohow fund managers felt about eachresearch house and what they consid-ered to be the valuable qualities in eachbusiness.

This year’s survey revealed Lonsec tobe the clear favourite among fundmanagers, while Standard & Poor’s andvan Eyk appeared to have reaped therewards for investing in their serviceoffering. Morningstar and Mercer werenot far behind, with Zenith seeming tohave fallen out of favour with fundmanagers over the last 12 months.

LonsecOnce again the favourite research houseamong fund managers was Lonsec,which was made evident by the ratingshouse’s outperformance in almost everycategory.

The firm did particularly well in thearea of methodology, where 33 per centof respondents considered it to be excel-lent, while 60 per cent said its methodswere good.

Lonsec general manager of researchGrant Kennaway attr ibuted thefavourable rating of its methodology totwo things.

“As a business, we are always tryingto incremental ly improve. So wecertainly do formal reviews of method-ology on a regular basis,” he said.

“The other thing we try and do isclearly articulate our methodology toour clients and the market, so that it isclear to people what Lonsec stands forand what we believe makes up a qualityproduct,” he added.

Another key factor that contributedto Lonsec’s success was its consistentturnaround time, which 77 per cent ofrespondents were positive about.

It was also the only house not toreceive a ‘below average’ or ‘poor’ ratingin this category, which is a significantachievement considering the volume ofproducts rated.

Kennaway said the size and depth of

the f i r m’s team, coupled with i tsproductivity, helped significantly reducethe turnaround time in the work it does.

“It’s important to allocate the rightamount of resources to produce thework required, and I think we are goodat doing that,” Kennaway said.

Kennaway’s high opinion of his staffwas also reflected in the survey, with 63per cent of respondents rating Lonsecstaff as ‘above average’.

The number of products rated byLonsec from the same manager alsoleapt up this year, with the majority ofrespondents (60 per cent) saying Lonsecrated ‘two to five’ products, and 37 percent stating the firm rated ‘more thanfive’ products. This, coupled with thefact that Lonsec rated 100 per cent ofthe respondents this year, shows strongsupport for Lonsec as the favouredresearch house for fund managers.

Standard & Poor’sInvestment in turnaround time, trans-parency and quality of staff has paid offfor Standard & Poor’s (S&P) in this year’ssurvey. The research house received oneof the highest rat ings from fundmanagers and was considered to be themost improved firm over the past 12months.

Source: Money Management. Note: due to rounding, not all percentages will add to 100.

Figure 1 Have you been rated or reviewed by any of the following groups inthe past 12 months?


Figure 2 How did you rate the research methodology of these firms?


Figure 3 Looking at the firms that rated your fund, how would you describe the rating they gave?

Continued on page 16

“ It’s important to allocate the right amount ofresources to produce the work required, and I think we are good at doing that. ” - Grant Kennaway

Rate the raters


Rate the raters

S&P Fund Services head of researchLeanne Milton said improving produc-tivity and turnaround time withoutcompromising quality had been a focusfor the team.

“A lot of people were really looking fora 12-month cycle, and I know a numberof houses haven’t been doing that.Clearly we were one of them a few yearsago,” Milton said.

But from 2010 to 2011, S&P hasimproved its turnaround time by 27 percent, with part of that coming fromincreasing the size and depth of theteam with three new hires, Milton said.

“ We also improved our repor ttemplates and our back-office and ITdevelopment to help reduce the timeanalysts spend on non-analytical work,”she said.

Another area in which S&P improvedwas transparency, with 39 per cent ofrespondents rating the transparency ofthe process as ‘above average’, while 57per cent said it was ‘average’.

Milton said introducing new researchreports has helped to provide greaterclarity for fund managers about S&P’sopinions.

“We’ve worked hard on being moretransparent with fund managers aboutour process,” she said.

S&P also performed well in the ratingsstakes, with 24 per cent of managersconsidering their ratings to be ‘excel-lent’ while 66 per cent thought theywere ‘fair’.

Milton said this shift to a more posi-tive view of their ratings process couldbe a result of having a more open rela-tionship with fund managers.

“We’re not afraid to use our ratingsscale and we make a point of explain-ing the strengths and weaknesses of afund manager’s strategy after theyreceive their rating, and I think thispromotes an open and honest dialogueabout the ratings outcome,” she said.

Van Eyk Despite losing tract ion with fundmanagers in last year’s survey, van Eykstaged a comeback this year, seemingto have reaped the rewards for invest-ing in its offering.

First off, it should be noted that vanEyk operates a different model to manyof its peers, preferring a subscriber-paysmodel and not taking payments forresearch conducted internally.

One area van Eyk improved on wasthe quality of its personnel, with 55 percent of respondents rating them ‘aboveaverage’, while 41 per cent said theywere ‘average’.

Chief executive Mark Thomas said thefirm had spent a lot of time reinvestingin its core research team and was nowback to a full team after making somechanges mid-year.

“In certain situations where we lost oneperson we hired two … or if we lost aperson we would hire someone with twiceas much experience,” Thomas said.

“I’ve taken a personal interest in mostof the senior positions we’ve hired …because culture is important in ourorganisation,” he said.

Respondents were also particularlypleased with van Eyk’s methodology ofresearch, which Thomas said couldmost likely be put down to an increasein experience.

“While nothing has changed in termsof methodology, the devil is in the detailand the interaction. Having people thatare a bit more experienced involved inthe process has made the methodologyseem a bit more user friendly.”


Figure 4 How many products have you sought to have rated?


Figure 5 How much time (on average) did you spend with the ratings house representatives?


Figure 6 How would you rate the turnaround time?



Mark Thomas

“ In certain situationswhere we lost one personwe hired two, or if we lost a person we would hiresomeone with twice asmuch experience. ”- Mark Thomas

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One category that received a mixedresponse from fund managers was turn-around time, which Thomas put downto the business model run by van Eyk.

“We’ve made a conscious effort tomake sure we’re back on track with ourschedule of delivery, but at the end ofthe day advisers are our clients, notfund managers,” he said.

Van Eyk has also consistently stoodout as the research house that spent themost time with managers year-on-year.

Thomas said the firm was not in thebusiness of making a set time to spendwith managers, but rather spent asmuch time as was required.

“It’s about getting engaged in discus-sions and asking questions rather thanjust receiving information, which makesit take longer,” he said.

MercerHigh-quality and experienced person-nel coupled with a sound methodologysaw Mercer fare reasonably well in thisyear’s Rate the Raters survey.

The research house lifted its game tobecome top firm for quality personnel, with67 per cent of respondents rating Mercer’sstaff ‘above average’ and 20 per cent givingan ‘average’ rating for the category.

Fund managers were also particular-ly happy with the quality of Mercer’sresearch methodology, with 67 per centof respondents giving a positive rating,while no negative ratings were received.

Mercer principal Marianne Feeleysaid that while there had been no mate-rial changes in these areas, time andexperience played a big role in the posi-tive outcome of the survey.

“We have great people and I thinkthey work well together and enjoy whatthey do,” she said.

Specialising by asset class was also anadvantage for Mercer, Feeley said, asmore time working together has helpedto boost the firm’s performance.

While Mercer performed well in mostaspects of the survey, there is still work tobe done in the categories of turnaroundtime, transparency and feedback.

Feeley said this tended to be a resultof having a different business model toother research firms, namely one thatdoes not accept payment from fundmanagers for ratings.

“Our work is for our c l ients[subscribers]. We’re available to providefeedback, but even then it is not goingto be a detailed conversation,” she said.

Feeley said the shif t towards aresponse of ‘below average’ for trans-parency may have been driven by thefact that Mercer only tel ls fundmanagers their rating, but does notshare its output that it shows to clients.

“Our relat ionships with fundmanagers are very important to us andwe want to have a collegial relationship… but it basically comes down to thefact that our work is for our client – theyare paying for the research,” Feeley said.

MorningstarAlthough Morningstar has a differentbusiness model again – preferring torely on funds from clients (ie, financialadvisers) rather than receive paymentfor ratings – it still managed to performreasonably well in the 2011 Rate theRaters survey.

With that in mind, Morningstar did tendto polarise opinion in some categories.

One aspect that had managersdisagreeing was the quality of Morn-ingstar’s personnel, which received bothhigh praise and cr i t ic ism frommanagers.

Co-head of fund research Tim Murphysaid the mixed response could be a resultof his firm’s policy of not hiring peoplefrom the research industry.

“We like to hire people who think differ-ently. We think we have a somewhat differ-ent way of approaching things and there-fore we need somewhat different people to

“ Our relationships withfund managers are veryimportant to us and wewant to have a collegialrelationship. ”- Marianne Feeley



Figure 7 How do you rate the transparency of their ratings process?


Figure 8 How would you rate the quality and experience of the ratings house personnel?


Figure 9 How would you rate the feedback you received from the ratings house?

Marianne Feeley

Rate the raters


fai l under a ‘best of breed’approach, given that under abroad coverage ratings housemodel ‘everyone gets a seat onthe bus’,” Smythe said.

Zenith were also criticised forthe quality of their personnel,with only 17 per cent statingthey thought staff were ‘aboveaverage’.

Smythe said that while therehad been new additions to theteam, these had been qualityhires with lots of experience.

“Furthermore, we have oper-ated the most stable researchteam in the marketplace foralmost nine years now, ensuringconsistency of approach andretention of intellectual proper-ty,” he said.

In contrast, one aspect fundmanagers praised Zenith highlyfor was its turnaround time, with37 per cent of respondentsgiving it a positive review, whileonly 8 per cent were negative –one of the lowest negative scores

in the category.Smythe said the global finan-

cial crisis had reinforced thefirm’s approach to emphasisedepth of research over volume.

By spreading the ratings nettoo wide, you risk being under-resourced for analysis and thereview cycle blows out, Smythesaid.

“This means funds are beingcovered less regularly, in less detailand your turnaround times getstretched,” he added. MM

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fulfil that capability,” hesaid. “Some fund managerscan appreciate that, andsome can’t.”

Respondents were alsopositive about the ratinghanded out to them byMorningstar, with 72 percent believing they weregiven a ‘fair’ rating.

Murphy said thatalthough most fundmanagers would love anideal rating on everythingthey run, managers arerealistic enough to knowthat won’t always happen.

“As long as they feel thatwe have been fair, reason-able and transparent inreaching the outcome thatwe have reached, thenthey haven’t got a reasonto be unhappy with us,” hesaid.

The survey also foundmanagers were mixed onthe issue of feedback given,with a wide spread ofanswers from ‘aboveaverage’ to ‘below average’.

Murphy said beingopen and transparent wasfundamental to Morn-ingstar’s approach. “Wetry to be open and honestwith fund managers whenwe deal with them and wetry to be open and honestwith dealer groups whentalking about fundperformance and the callsthat we make,” he said.

Zenith InvestmentPartnersWhile Zenith performedextremely well in last year’ssurvey, the ratings houseseems to have experienceda slight slump in populari-ty among fund managersthis year.

Director and jointfounder David Smythe saidthat despite this decrease inmanager’s sentiment, hisfirm had not changed itsapproach and was contin-uing to implement its ‘bestof breed’ model. This modelfocuses on research depthand deliberately coversapproximately half of thenumber of funds relative toits peers to ensure onlyfunds worthy of considera-tion for client portfolios arerated.

Smythe said it was prob-ably this same model thatcontributed to the negativeresponses received for thefeedback category, where63 per cent of managerscited the feedback given as‘average’, while 21 per centthought it was ‘belowaverage’.

“Some fund managersdon’t like being told they

David Smythe

Rate the raters


Rate the raters

ASIC researching the researchers

The pay-for-ratings model, inwhich research houses acceptpayments from fund managersto subsidise the investment

research process, has long been accept-ed in the Australian financial servicesmarket. In fact, it is prospering.

Some major movements in theclients’ books of research houses inrecent months has meant that, for thefirst time in many years, the majority ofAustralia’s top-50 dealer groups now relyon research that is heavily subsidisedby fund managers.

It’s a model the regulator hasexpressed concerns about in the past.During the Ripoll Inquiry, the AustralianSecurities and Investments Commission(ASIC) recommended the Governmentconsider whether fees paid by productmanufacturers to research housesshould be reviewed.

In its submission to the inquiry, theregulator noted the common practicein the Australian research industry forresearchers to be paid by productproviders. This situation “creates anobvious conflict of interest and has thepotential to distor t the qual i ty ofresearch reports often used by advisersin making product recommendationsto clients”, the regulator said. ASICsuggested a “user-pays model forresearch house remuneration mighthelp improve the quality of the researchused by advisers”.

The recommendation was not pickedup in the resulting Future of Financial

Advice package, but that doesn’t meanASIC’s concerns have been forgotten.

The regulator has recently been indiscussions with representatives fromresearch houses and dealer groups todiscuss issues, including businessmodels, conflicts of interest, and disclo-sure and transparency in the researchmarket, as well as the quality of researchbeing given to advisers.

Treasur y confir med to MoneyManagement that ASIC is “currentlyconsidering what measures (if any) itshould put in place as a result of thiswork”.

It’s clear that for many of Australia’stop dealer groups, the potential forconflicts of interest in a pay-for-ratingsbusiness model is not a serious concern– at least not for clients of the mostpredominantly used research house,Lonsec. But there are also many whobelieve the model is not the best solu-tion for the financial planning industry,or investors.

Confident or concerned aboutconflicts of interest?The financial services industry is underpressure to restructure its businessmodels to remove any potential for, oreven perception of, conflicts of interestthat could create question marks in theminds of existing and prospective clients.There are some who believe this restruc-turing should extend to the investmentresearch industry, one of the most inte-gral and influential sectors of the market.

“In an ideal world, there would be nosubsidisation of the cost of investmentresearch; it would be independent andbased on a pure subscription fee,”Austral ian Unity head of f inancialadvice, Craig Meldrum, said.

“The industry should be coming tothe realisation now that there is a philo-sophical as well as a physical decou-pling of advice and product. In thatrespect, the better the research and themore independent the research fromthe actual product you’re recommend-ing, the better the outcome for theclient.”

Matrix Planning Solutions managingdirector, Rick Di Cristoforo, is anotherwho has concerns about any financialrelationship between fund managersand research houses. In addition to anaversion to a pay-for-ratings model, DiCristoforo is concerned about researchproviders subsidising the cost ofresearch by offering funds managementproducts, a model employed by thegroup’s former research supplier, vanEyk Research.

“We want clean research withoutproduct provision or without paymentsbeing taken from fund managers,” DiCristoforo said.

“I don’t believe you can be a productprovider and a researcher like that inthe same entity. That was an issue forus.”

Other dealer groups, however, believethe potential for conflict in these busi-ness models can be adequately

managed. Professional InvestmentHoldings managing director, GrahameEvans, agreed that dealer groups mustbe comfor table with the businessmodels and research methodsemployed by their research suppliers,conclusions that can only be drawnafter thorough due diligence is conduct-ed.

Based on the due diligence undertak-en by his internal research team, Evanssaid he’s “very comfortable” with hisresearch partners (Lonsec, van EykResearch and Zenith Investment Part-ners) relying on a hybrid fee model.

DKN chief executive, Phil Butter-worth, is similarly confident. Butter-worth believes there is an importantdistinction to be made between fundmanagers paying to be rated, and fundmanagers paying for ratings.

“The pay-for-ratings model … it’s notpaying for the ‘right’ ratings,” Butter-worth said.

There are significant-enough disin-centives for researchers to avoid such atrap, Butterworth said, using DKN’sprimary research supplier, Lonsec, asan example.

“If Lonsec give poor products goodratings, they’ll lose subscribers. If theylose subscribers, fund managers won’trequire their research because nobody’susing it,” Butterworth said.

“As soon as they compromise a rating,they’ve just compromised their wholebusiness model. They know that and Ithink that is a very powerful relation-ship.”

This is an argument Lonsec and otherresearchers relying on both adviser andfund manager revenue streams havesought to make to the regulator inrecent years.

“We certainly have dialogue withGovernment when we have an oppor-tunity. I know they’re still certainlyinterested in the sector and we havediscussions on our model to make itclear how we operate,” Lonsec manag-ing director, Grant Kennaway, said.

“The model is only as successful asthe quality of the work you do. You can’tcompromise on quality or integrity ormaking sure your research is robust,because the industry wouldn’t toleratethat.”

But for some, the perception ofconflict can be just as concerning as thereal thing.

RI Advice Group chief executive, PaulCampbell, said while he doesn’t believethe pay-for-ratings model necessarilyleads to conflicts of interest or a poorerquality of research, subscribing to auser-pays model removes any questionof those concerns in the minds of bothadvisers and clients.

“I think it does raise questions whenyou see where the research is being paidfrom. We’ve removed that conflict,”Campbell said.

“I wouldn’t stand here and say the

The financial relationships between fund managers and research housesescaped scrutiny in the most recent round of regulatory reforms. But thatmay not be the case for long, writes Lucinda Beaman.


Rate the raters

research is unequivocally better as aresult.

“But I think advisers need to know isthat the researcher is acting in their bestinterests and not anyone else’s. That’sthe key to it.”

Meldr um said his group wouldwelcome a research industry in which“you could rely on knowing the researchyou are receiving is unblemished andnot bent towards a particular messagebecause one fund manager is payingmore than another, for example”.

“We haven’t seen any example of that,it’s just one of those feelings in theindustry, because fund managers arewell funded and they do have a lot ofsway with research providers, and somedo take the cake,” Meldrum said.

He pointed to the fact that someresearchers had “publicly stated thatthey do not accept the sometimes lucra-tive offers from some product providersto favourably rate their funds”.

When the repor ts generated byresearch houses shape the recommen-dations of the entire industry, “you cansee why the fund managers are so moti-vated to throw everything they have atthe research houses”.

“We know all the bells and whistlesand salesmanship that goes on betweenresearch houses and fund managers and

equities brokers and that sort of thing.We can’t be party to that, we need some-thing that’s really open and transparentand independent,” Meldrum said.

“The industry has been open to criti-cism for far too long. Anything that drivesprofessionalism, we’re very happy with.”

Di Cristoforo agreed that the pay-for-ratings model leaves the advice indus-try more vulnerable to criticism.

“Unless you charge the person that’sreceiving the research, you’re alwaysgoing to run that risk.”

Price pressuresOne of the roadblocks to an Australianresearch industr y founded on asubscriber-pays model is that manydealer groups and advisers aren’t willingto pay the full price of research.

“The Australian market, while it’s astrong financial services market, stilldoesn’t seem to be large enough for apure subscription-only business tofunction without any other revenuestreams,” Kennaway said.

The gap between what research coststo produce and what dealer groups arewilling to pay “depends on what you’retrying to offer”, Kennaway said.

“We want to have a high quality andbroad research offer ing. That’s anexpensive business to run.”

Opponents to this argument say it isa poor excuse from advisers whose busi-nesses, and the l ivelihood of theirclients, lean heavily on the quality ofinvestment research.

“I don’t think that’s a valid excuse fortaking money from a fund manager. Ithink i f people are going to haveresearch, they should pay for it. It isintellectual property – if you want it, youshould pay for it,” Di Cristoforo said.

Meldrum is another who believes advis-ers should be willing to pay for research.

“Research is absolutely necessary towhat we do. We need it. And if it meanspaying more to ensure that our clients’money is safe, then we’d be up for that,we’d do that,” he said.

“ The gap between whatresearch costs to produceand what dealer groupsare willing to pay dependson what you’re trying tooffer. ” - Grant Kennaway

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Rate the raters

“Professionalism and the best outcomefor clients is what we’re all driventowards. If that means you’re looking atthe research that’s out there and you’regoing to get a better cost deal from one asopposed to another, and you have afeeling that the research you’re beinggiven is not exactly transparent – andmay be tarnished by fund manager subsi-dies, for example – then we’d rather paymore and have independent and trans-parent research.”

Campbell, whose advisers use Merceras their primary research supplier,acknowledged that while subscriber-paysresearch is significantly more expensivethan research subsidised by fundmanagers, he believes it’s a price worthpaying.

“You’ve got to put in the appropriateamount of time and money to get goodquality outcomes,” Campbell said.

Evans, meanwhile, argued that advis-ers, and their clients, should not beexpected to bear the full cost of research.

“If you took away that payment fromthe fund managers to the researchers,what you’re going to end up doing ispushing that cost onto the client, in someway or another. It’s got to go down theresomewhere. And I think the whole indus-try business model is under enoughstrain as it is without putting another costonto the client,” Evans said.

“So I’d hate to see that go.”Evans said while removing payments

from fund managers to researchers might“completely remove any potential forconflict”, he considers it an unnecessaryadditional cost in an environment inwhich he believes any potential conflictsof interest are being more than adequate-ly managed.

Butterworth also believes advisersshould not have to bear the full burdenof the cost of research in an environmentwhere fund managers are just as relianton research reports for their survival asadvisers.

“There are two parties that rely on

research. The adviser absolutely has torely on research to ensure they’re invest-ing their clients into the appropriatefunds, but on the flipside, fund managersneed their products to be researched toensure they can get in front of an adviser,”Butterworth said.

“From my point of view, from acommercial point of view, fund managersare as much a user of research as a dealer

group, so they have a responsibility forpaying for their role in that. A dealergroup also needs research, and theyshould absolutely be paying a commer-cial fee for accessing that.”

Meldrum acknowledged that whileremoving fund manager payments fromthe research value chain would “perhapsdrive the cost of subscription up” foradvisers, he said this would be a priceworth paying for unquestionably inde-pendent research, and would “do somuch to improve the advice profession’sview of and reliance on the researchproviders”.

And while the price of researchsubscriptions may be driven higher by amove away from a pay-for-ratings model,Meldrum believes this could lead to cost

savings elsewhere.“I think it would drive down [profes-

sional indemnity insurance] costs for thePI insurer to know that the research alicensee is depending on is unbiased andindependent,” he said.

“At the end of the day, if clients are nothappy with the advice that’s been provid-ed – if you’ve relied on research that’ssubstandard for example – there’s the

potential for brand risk, the risk of ASICcoming in … I think it’s a small price topay for the benefit that you’re getting.”

Quality of researchDi Cristoforo believes a pay-for-ratingsmodel does place limitations on someresearch houses, and their dealer groupclients, by restricting their potential poolof research. Di Cristoforo said this canparticularly be an issue where invest-ments outside the managed funds space,such as direct equities and ETFs, areconcerned.

Morningstar co-head of fund research,Tim Murphy, said Morningstar’ssubscriber-pays business model meansthis doesn’t cause a concern for him.

“We determine what we do and don’t

want to cover at the start of every sectorreview based on our own criteria, notbased on what the fund manager’smarketing agenda is,” Murphy said.

“That’s meant that there are heaps ofproducts that some managers would loveus to cover that we haven’t, and equallythere are products that we do cover thatfund managers have not particularlywanted us to cover in certain circum-stances. Our agenda is dictated to bywhat our clients and investors want orneed, and not what fund managers wantor need,” Murphy said.

Lonsec’s Kennaway argued his group isalso focused on “meeting the needs ofsubscribers and focusing on the areas theywant”. Kennaway said that while fundmanagers in traditional asset classes werebeing “more meticulous” in their process-es before launching new products, therehad been movement in other areas,including in the ETF and SMA spheres.

DKN’s Butterworth, with the significantpulling power of dealer group Lonsdaleand his network of boutique licenseesbehind him, said he can influence productproviders to pay for a rating from hispreferred research house, or alternativelyrequest the research house to examine anew product – although it’s a demand notall advisers are able to make.

For Campbell, committing to Mercer’ssubscriber-pays model makes him confi-dent the research house is focused fullyon meeting the needs of its dealer groupclients.

From Kennaway’s perspective, this“healthy competition” between differentmodels in the investment researchmarket is vital in ensuring there is “choicefor dealer groups and advisers”.

“I think the market will allow modelswhere they see their research provideradding value to their business and theirclients,” Kennaway said.

“The market will judge what the rightmodel is.”

But with ASIC making its investigationsinto the workings of the research indus-try, that decision may no longer rest inthe market’s hands. MM

“ I think the market willallow models where they see their research provideradding value to theirbusiness and their clients.”- Grant Kennaway


Rick Di Cristoforo

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Iam not a trained economist – one of themany things I am grateful for in this life.I am a three-decade practitioner infinancial markets who has noted the

empirical failure of many orthodox econom-ic and investment theories. As a result,whenever I confront a theory that I don’tunderstand – that is, most of them – I haveacquired the habit of looking at the data.

Currently, there is a widespread view thatthe massive ‘printing’ of money will lead toan outbreak of inflation. The theory goesthat increasing the volume of money morerapidly than the increase in goods and serv-ices, must force prices upward. More moneyis chasing the same amount of goods, as it issometimes put.

This has prima facie credibility. If a lot ofnew money is thrown into an economy itmust have consequences, and surely one ofthem will be upward pressure on prices. But

before we accept this idea we must look atthe evidence.

To do this we need to understand theconcept of the quantity of money in acountry. How much money exists in Americadepends on how you measure it. Certainlynotes and coins are money, but are travellers’cheques money? And should the value onmoney market funds be counted as money?Different measures of money (eg, the mone-tary base or ‘money base’, M1, M2, etc)include or exclude various items. If manyitems are included in a measure it is calleda broad measure. If few items are includedit is a narrow measure. Money base is anarrow measure.

Figure 1 shows that from The Declarationof Independence in 1716 through to 2008the US money base grew to almost US$1 tril-lion. In the three years since then it hasapproximately tripled – there has been

unprecedented money creation. The FederalReserve (the Fed) hopes that this will supportthe weak American economy.

However, it happens that there is littlecorrelation between changes in money baseand inflation, as was highlighted in the1970s. Annual inflation was more than threetimes its 50-year average for this decade,while the money base grew at a slower thanaverage rate.

Perhaps we should look at a broadermeasure of money, say M2, to see if there isa meaningful historical relationship betweenmoney creation and inflation. Bank reservesrepresent a large portion of money base, butthey are not counted in M2. It is important,in what follows, not to confuse money baseand M2.

Figure 2 shows rolling annual changes inthe consumer price index (CPI) and M2. It

transpires that the correlation between thetwo is only 16.6 per cent. However, this weakrelationship is not unexpected, as commonsense would suggest that it would take timefor changes in money supply to affect prices.

If inflation is lagged by three years, allowingthree years for changes in money supply toflow into prices, there is a correlation betweenchanges in M2 and subsequent inflation of54.3 per cent. This is shown in figure 3, whichis a scattergram. Each dot represents CPI andM2 for a particular year. CPI is the vertical axisand M2 is the horizontal axis.

In layman’s terms, a correlation of 50 percent is halfway between a perfect one-to-one relationship and no relationship at all.M2 is clearly related to inflation to someextent but not to the extent that changes inone will always be accompanied by changesin the other.

Incidentally if we lag inflation for a greateror lesser period than three years, the rela-tionship is not so strong.

Where is the cash?Now we must note some unexpected facts.Over the last half century, rolling annualgrowth in M2 has averaged 6.9 per cent. Butover the three years since the money basetook off, M2’s growth has been belowaverage.

How can this be? Where is all the newmoney? Why hasn’t it hit M2? How can abroad measure of money growth be slower


The Messenger

Inflated fearsThere are widespread concerns that the large-scale quantitativeeasing by the US Federal Reserve will lead to a resurgence ofinflation. Robert Keavney weighs up the evidence.

0

500

1000

1500

2000

2500

3000

Jan-

59

Jul-6

1

Jan-

64

Jul-6

6

Jan-

69

Jul-7

1

Jan-

74

Jul-7

6

Jan-

79

Jul-8

1

Jan-

84

Jul-8

6

Jan-

89

Jul-9

1

Jan-

94

Jul-9

6

Jan-

99

Jul-0

1

Jan-

04

Jul-0

6

Jan-

09

Fed Adjusted Money Base

Sources: CPI - Bureau of Labour Statistics (BLS), using their price index for all urban consumers (ie, everyone who lives in areas with a popula-

tion of 2,500 or greater); Money supply and M2 - Federal Reserve Bank of St Louis. All data is since 1960.)

Figure 1 Fed-adjusted money base January 1959 to latest (billions)

-3.0%

0.0%

3.0%

6.0%

9.0%

12.0%

15.0%

Jan

-60

Jul-6

2

Jan

-65

Jul-6

7

Jan

-70

Jul-7

2

Jan

-75

Jul-7

7

Jan

-80

Jul-8

2

Jan

-85

Jul-8

7

Jan

-90

Jul-9

2

Jan

-95

Jul-9

7

Jan

-00

Jul-0

2

Jan

-05

Jan

-10

Jul-0

7

p

M2 CPI

Sources: CPI - Bureau of Labour Statistics (BLS), using their price index for all urban consumers (ie, everyone who lives in areas with a

population of 2,500 or greater); Money supply and M2 - Federal Reserve Bank of St Louis. All data is since 1960.)

Figure 2 M2 & CPI January 1960 to latest

y = 0.5422x + 0.0046R2 = 0.2952

16.0%

14.0%

12.0%

10.0%

8.0%

6.0%

4.0%

2.0%

0.0%

-2.0%

-4.0%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0%

Jan 1960 - Latest

Sources: CPI - Bureau of Labour Statistics (BLS), using their price index for all urban consumers (ie, everyone who lives in areas with a popula-

tion of 2,500 or greater); Money supply and M2 - Federal Reserve Bank of St Louis. All data is since 1960.)

Figure 3 M2 & CPI (3-year lagged) January 1960 to latest

Source: John P Hussman, www.hussmanfunds.com/wmc/wmc101025.htm

Figure 4 Change in US money base velocity since 1947

US$

than average after massive money creationusing another measure?

Here we must touch on the question ofvelocity and liquidity traps. The Economistdefines velocity as:

“The speed with which money whizzesaround the economy, or, put another way, thenumber of times it changes hands. Technical-ly, it is measured as gross national productdivided by the money supply (pick your ownmethod of measuring money supply).”

Dr J Hussman, of Hussman Funds,describes velocity as the dollar value of grossdomestic product that the economyproduces per dollar of monetary base, or thenumber of times that one dollar ‘turns over’each year to purchase goods and services inthe economy.

Hussman points out that the Fed’s beliefthat the expansion in the money base willgrow the weak economy relies on anassumption that velocity won’t decline inproportion to the increase in money. Heconcludes that “this assumption fails spec-tacularly in the data – especially at a zerointerest rate”.

He supports this with figures 4 and 5,which show money base and velocity inAmerica over 47 years and in Japan over twodecades, respectively. Both graphs showunambiguously that, as money base isexpanded, velocity reduces. In simple terms,the new money doesn’t make it to theeconomy. This is called a liquidity trap.History suggests the Fed’s massive quanti-tative easing won’t produce the desiredresult. Mr Bernanke is trying to push a riverfaster than it flows. This won’t affect the river,but it can exhaust the one pushing.

We have already seen that the recentincrease in the money base is not making itto the economy because it has not appearedin M2. In fact, over the last half-century thecorrelation between M2 and the money baseis close to zero.

So where is the new money produced byquantitative easing? Sitting on bank balancesheets and in reserves (which, as notedabove, are not included in M2). Why?Because Americans are deleveraging, not

borrowing. It doesn’t matter how much newmoney banks have available to lend if noone wants to borrow. Increasing the amountavailable won’t fix the problem, because theconstraint is not a lack of available funds.

But this leads us to a question: if themoney doesn’t make it to the economy, howcan it affect inflation?

Let’s summarise where we are so far:• The money base is exploding but histor-

ically this bears no relationship with infla-tion or M2;

• Historically, large expansions in moneybase do not necessarily impact the economybecause velocity falls; and

• M2 has a moderate correlation withsubsequent inflation, but M2 is growingmore slowly than average.

At this point it could be tempting todismiss fears about inflation outright.Nonetheless, there are some qualificationsto this conclusion.

Since 1959 M2 has, on average, been ninetimes greater than the money base, so thelatter has been far less relevant to the overalleconomy. However, in the last few years thisratio has rapidly changed. M2 is now less thanfour times the money base. It is not clear what,if any, consequences this change could have.

The last half-century also suggests thatneither the money base or M2 ever materi-ally contract. If this continues, the newly‘printed’ money in the money base willremain there. If so, surely at some time inthe future it must find a way into theeconomy. But when is ‘some time’? Testingdoes not reveal any identifiable lagging rela-tionship between money base and M2 (ie,there is no known pattern for expansions inmoney base flowing into M2).

Finally, Zimbabwe’s experience doessuggest that there is a level of money creationthat drives inflation to absurd levels – thoughfantastic money expansion was only one ofmany bad policies pursued in that country.Presumably, America’s money expansionwill never reach those levels.

Inflation – why worry?Large and sustained changes in inflation

have many consequences for markets. Thetransition to high inflation in the 1970screated a crippling headwind for most assetclasses. Conversely the transition back tolow inflation in the 1990s created benignconditions for most markets.

Significant and sustained changes to infla-tion are rare, but investors must be preparedfor them when they occur. This is behindour interest in whether the explosion in themoney base could herald a resurgence ofinflation.

ConclusionThe Fed has been too active over the lastdozen years, and the decisions it has madehave been consistently wrong.

Interest rates were at high settingsleading into both of the last two reces-sions, which contributed to the slowdown.Rates were held so low after the dot.comrecession that they contributed to thesubsequent mania that culminated in theglobal financial crisis. The Fed recentlyvastly increased the money supply, blindto the reality it would simply result in alowering of velocity and would not mate-rially benefit the economy.

The situation would have been better ifeach of these actions had been less extreme.

Undoubtedly there will be consequencesfrom the Fed’s expansion of money. Thereis no free lunch, and if you conjure approx-imately US$2 trillion out of the air in threeyears, there will be a price to pay. However,they won’t be the consequences the Fedseeks. I fear they will be negative.

Nonetheless, in a failure to recognise thelessons from Japan’s experience, there is a realpossibility that there will be further quantita-tive easing. It would seem that little is beinglearnt from the past. It makes me glad I’m notan economist (with apologies to Dr J Hussmanand all the other exceptional economists).

We must acknowledge that recent eventsin America are unprecented, including thescale of the expansion in the money base.This must qualify any conclusions we drawfrom history. However, the fact is that historysuggests that an expansion of the moneybase need not be inflationary.

This does not guarantee that inflationcan’t rise, but it will require other factors tobring it about.

Robert Keavney is an industry commentator.


Source: John P Hussman, www.hussmanfunds.com/wmc/wmc101025.htm

Figure 5 Change in Japanese money base velocity (last 20 years)

On 30 June this year, transitional reliefthat has enabled super funds toclaim a full deduction for premiumson insurance policies with a range

of Total Permanent Disablement (TPD) defini-tions will cease. From 1 July, super funds willonly be able to claim a full deduction for TPDpremiums where there is a liability to providea ‘disability superannuation benefit’ as definedin paragraph 295-460(b) of the Income TaxAssessment Act (ITAA) 1997.

Broadly, this definition requires that twomedical practitioners certify that, becauseof ill health (physical or mental) it is unlike-ly the person can ever be gainfully employedin a capacity for which they are reasonablyqualified because of education, experienceor training.

The ATO also stated in draft taxation rulingTR 2010/D9 that in order to provide a disabil-ity superannuation benefit, the relevant condi-tion of release that must be met is ‘permanentincapacity’.

Implications for own occupation TPDpoliciesIt is broadly accepted that the any occupationTPD definition is based on the same condi-tions required to establish permanent inca-pacity. Where this is the case, the super fundshould meet the disability superannuationbenefit definition and, therefore, should gener-ally be able to continue to claim a full deduc-tion for the TPD premiums.

Implications for other TPD definitionsIf the trustee is uncertain whether the fundwill always be able to meet the disability super-annuation benefit definition, it will be neces-sary to determine the deductible and non-deductible portion of the premiums.

This will generally be the case where theTPD policy has an own occupation definition.This is because, in some situations, while afund member may not be able to perform hisor her own occupation, they may fail to meetthe disability superannuation benefit defini-tion because they are able to be gainfullyemployed in a capacity for which they arereasonably qualified because of education,experience or training.

It may also be necessary to determine thedeductible and non-deductible premiumportions where the policy contains other

broader TPD definitions, particularly if a specif-ic amount is included in the premium for thesedefinitions.

Apportioning the premiumsThe Government has stated that wherebroader TPD insurance cover is provided,super funds must obtain an actuary's certifi-cate to determine the deductible portion ofthe premium, unless that portion is specifiedin the insurance policy.

However, on 26 May 2011, the Govern-ment announced that legislation has beenintroduced that will streamline the waysuper funds calculate the deductible portionwhere broader TPD insurance is provided.These amendments:

• allow the percentage of certain TPD insur-ance premiums that can be claimed as adeduction to be specified in regulations; and

• will give many super funds the option ofusing a simpler method to determine thedeductible portion without having to engagean actuary.

The percentages to be prescribed in regu-lations will be finalised following consultationwith industry.

Cost implicationsAdditional tax may be payable where the superfund is not able to claim a full deduction forown occupation (or other) TPD policies. Wherethis results in an additional cost to themembers, it is anticipated that holding thesepolicies in super will generally still be cheaperthan insuring outside super, as the case studybelow illustrates.

This is because the cost increase is likely tobe relatively small and it will still be possible tobenefit from some tax concessions generallynot available when insuring outside super. Forexample, assuming certain conditions are met,fund members may be able to claim supercontributions as a tax deduction or make pre-tax salary sacrifice contributions.

Case studyDavid, aged 42, pays tax at a marginal rate of38.5 per cent (including a Medicare Levy of1.5 per cent) and has a Self Managed Super-annuation Fund (SMSF). He wants to takeout a Life and own occupation TPD policywith a sum insured of $1 million. Thepremium is $2,000 in year one, comprising

$800 for the Life Cover and $1,200 for theown occupation TPD policy.

If David purchases this insurance in his ownname (outside super), the pre-tax cost will be$3,252, after taking into account the tax hewould have to pay on his salary.

Under the current (pre-1 July 2011) rules,his SMSF will be able to claim a deduction forthe total premium and the deduction couldoffset the 15 per cent contributions tax payableif he makes salary sacrifice contributions tofund the premiums. As a result, the pre-taxcost of insuring in super will be $2,000.

Let’s now assume, for illustrative purposes,that the Government specifies in regulationsthat the percentage that can be applied todetermine the non-deductible portion of ownoccupation TPD policies from 1 July 2011 is 33per cent.

In this example:• the non-deductible portion of the TPD

premium will be $396• 15 per cent contributions tax (ie, $60) will

be payable in the fund on this amount; and• he chooses to increase his salary sacrifice

contributions by $70 to make a provision forthe contributions tax.

As a result, under the new rules, the totalpre-tax cost will increase from $2,000 to $2,070.So taking out the cover in super will still beconsiderably cheaper for David than insuringoutside super.

Other issues• It is anticipated that under the new rules,

insuring in super will still generally be cheaperthan holding the cover outside super if the suminsured is grossed up to make a provision forlump sum tax.

• There is a risk (albeit historically small) thatthe super fund may not be able to release anown occupation TPD benefit under the perma-nent incapacity condition of release.

• Provided the permanent incapacity (orother) condition of release is met, the benefitcan be received as a tax-effective pension.Alternatively, the money could be kept in theaccumulation phase, where it won’t becounted towards the social security incomeand assets test until the member reaches agepension age.

Martin Breckon is a senior technical consultantwith MLC Technical Services.


TPD insurance in super from 1 July

Toolbox

Martin Breckon outlines the forthcoming changes to TPDinsurance in super, including recent amendments to simplify theway funds can determine the deductible premium portion.

BriefsMLC has unveiled a new tool,which the company said wouldhelp advisers navigate clientsthrough the complex superannua-tion contribution cap rules.

The MLC Contributions CapDecision Tool would give advisers astep-by-step guide on how tomanage a client’s contributionsand avoid incurring excess contri-butions tax.

Gemma Dale, Head of MLCTechnical Services said over twoyears the ATO issued 65,000 let-ters to investors for breaching thecaps, which had resulted in a totalcost to superannuation investorsof $180 million.

“Not only must advisers knowwhat can be contributed to eachcategory, they must also know howto administer the contributions.Failure to file the right formschanges the classification of a con-tribution and can lead to inadver-tently breaching a cap.”

MLC’s Contributions Cap Deci-sion Tool had been developed inresponse to significant demandfrom advisers both inside and out-side MLC’s network.

MASON Stevens has launched itsEquity Insulator Instalment in part-nership with UBS Australia, whichis available to investors until 29June, 2011.

The new product provides lever-aged access to a portfolio of 20leading ASX-listed shares via instal-ment warrants.

Managing director Thomas Big-nill said one of the key features ofthe product is that investors getto keep the winning stocks (abovethe loan amount) and hand backthe losers.

He said this is possible becauseevery instalment warrant in the port-folio is individually capital protectedfor the entire investment term.

Bignill said it was likely toappeal to investors in the lead-upto the end of the financial year dueto the possible tax deductions onpre-paid interest, as well as entitle-ments to dividends and frankingcredits.

*Source: Wealth Insights 2011 Platform Service Level Report and survey of 867 aligned and non-aligned advisers, conducted Mar/Apr 2011. This is general information only. FirstWrap is operated by Avanteos Investments Limited ABN 20 096 259 979, AFSL 245531 (AIL). AIL is the Trustee of The Avanteos Superannuation Trust ABN 38 876 896 681. Colonial First State and AIL are owned ultimately by Commonwealth Bank of Australia ABN 48 123 123 124 through the Colonial First State group of companies. Commonwealth Bank of Australia and its subsidiaries do not guarantee performance or the repayment of capital of Colonial First State or AIL. CFS2027/MM

2011 Wealth Insights Service Level Survey

Ranked No.1 by advisers for overall platform satisfaction.*

Find out how FirstWrap could give your business the winning edge with the key elements for success: efficiency, control, value for your clients,choice and flexibility. Contact your Business Development Manager,call 1300 769 619 or visit colonialfirststate.com.au/firstwrap

FirstWrap

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

PRACTICE MANAGER VIC – FINANCIALPLANNINGLocation: MelbourneCompany: ANZ Financial PlanningDescription: ANZ Financial Planning is a key areaof ANZ’s Wealth business.ANZ is currently seekingto appoint a practice manager to lead a team ofsalaried financial planners. Reporting to the statemanager, the practice manager will be responsiblefor growing business profitability, developing a highperforming team and driving internal and externalrelationships to promote our services.

You must have extensive knowledge of thefinancial planning industry and are an expert in theapplication of investment management andinsurance strategies.

Academically, you must have completed arecognised tertiary qualification in a business-related field such as Bachelor of Business,Commerce or Accounting.You must be RG146compliant and ideally have completed your ADFSor CFP qualification.

Please apply at www.anz.com/careers quotingref: AUS001265 or contact Sue Cusdin on (02) 9234 8034 for a confidential discussion.

PHONE ADVISERS Location: SydneyCompany: Godfrey GroupDescription: An opportunity exists for capable andclient focused individuals to join a new team

offering financial advice to existing customers. Theprimary focus is the provision of excellent clientservice and phone-based advice initially in thearea of insurance.

To be considered for an interview, you must beRG146 compliant and have previous experience inthe financial planning industry.Alternatively, youmay have gained experience in adviser servicesand wish to progress your career in financialplanning.

You will possess a thorough knowledge ofappropriate advice processes and proceduresincluding Statement of Advice production. Ideallyyou will have a strong sales background andexpertise in direct sales through phone-basedteams.

Training will be provided in product knowledgeand compliance. For more information and toapply, phone Mary O’Neill on (02) 8223 1314 oremail [email protected]

BUSINESS DEVELOPMENT MANAGER –WRAPLocation: MelbourneCompany: PraemiumDescription: This is a newly created role focusedon selling and promoting SMARTwrap to theadviser market.

An experienced wrap platform specialist issought to drive sales and manage keyrelationships to expand the take-up of SMARTwrap.

The role will involve engagement with existingclients, working with advisers and dealer groups toencourage the inclusion of SMARTwrap onAuthorised Product Lists and undertake analysis toidentify new market opportunities.

Some national travel and attendance atindustry events to build awareness of SMARTwrapis required.

Sound financial services sales managementexperience, strong dealer group contacts and agood understanding of the wrap market andcompeting wrap features is essential, along with apro-active and well organised approach.

Please email your application including CV andcover letter to [email protected]

RISK SPECIALIST Location: Wollongong, NSWCompany: WealthInsure Financial Services CentreDescription: If you’re a Financial Planner whospecialises in risk, then WealthInsure FinancialServices Centre can offer you an opportunity inWollongong where you’ll be rewarded for yourcontribution and results.

You will work in a dynamic small businessenvironment backed by AMP Financial Planning.Risk specialists will receive leads from the existinginvestment and mortgage client base and you willwork alongside experienced professionals.

To apply, you’ll need a Diploma in FinancialServices, a track record in risk planning, excellent

communication skills and a capable manner thatinspires confidence.

Please contact Sean Butcher on 0418 243 159 or send an email [email protected]

FINANCIAL PLANNERLocation: SydneyCompany: Jonathan Wren Financial RecruitmentSpecialistsDescription: Our client is currently expanding andis seeking a financial planner to add to theirwealth management and planning team.

This is a newly created position where you willlead a team to deliver a broad suite of financialinsights in order to drive strategic decisions.Yourfocus will be on servicing, retaining and providingongoing advice to internal clients, developingrelationships with referral partners and prospectingnew opportunities.

Your key responsibilities will include financialplanning and structuring services and providingclients with individually tailored wealthmanagement solutions.

If you possess solid financial planningexperience, business insurance accreditation andhave superior communication skills then this is therole for you.

For a confidential discussion regarding this role, please contact Kathy Bass fromJonathan Wren on (02) 8031 6224.

MACQUARIE Private Wealth hashired a new private client adviserto its Noosa office, expanding itsQueensland team.

Mark Inglis joins from RBSMorgans and brings more thansix years of experience in thefinance industry to the role.Macquarie stated Inglis wouldfocus on advising clients on directequities, making sure he under-stood their investment objectivesand delivered strategies to helpclients meet their financial goals.

Head of Macquarie PrivateWealth, Eric Schimpf, said Inglis’appointment added furtherexpertise to the Macquarie PrivateWealth advice team in Noosa.

“We are delighted to welcomeMark to the Noosa office as weexpand on our highly-skilledteam,” he said.

MACQUARIE InvestmentManagement has appointedAndrew Savage as a senioradviser in its Australian PrivateMarkets team, which currentlyhas over $6.5 billion of assetsunder advice.

Savage will focus on the PrivateMarkets team’s co-investmentstrategy, and private equity andgrowth capital fund investmentsin Australia, according toMacquarie Investment Manage-ment.

Savage spent 15 years withCHAMP Private Equity and co-

founded CHAMP Ventures priorto his new role.

In welcoming Savage to theteam, head of Macquarie Invest-ment Management PrivateMarkets Michael Lukin said thatSavage “brings deep direct invest-ment and portfolio companyboard expertise which will furtherstrengthen our Australian privateequity credentials”.

“Our team of more than 30professionals is committed todelivering direct fund and co-investment as a means of addingvalue to client portfolios and, inthe process, reducing the overallcost of private equity,” Lukin said.

BLACKROCK InvestmentManagement has recruited aformer National Australia Bankproprietary trader to manage oneof its global funds.

Evan Jones has been appoint-ed senior portfolio manager forthe BlackRock Asset AllocationAlpha Fund and will report tolead portfolio manager DavidHudson.

Jones joined BlackRock with 17years of experience in financialmarkets, having previouslyworked for the Royal Bank ofCanada, Macquarie Bank andSociété Générale.

Strategies adopted in the AssetAllocation Alpha Fund arethematic and concentrate onexploiting trends, likely develop-

ments and mis-pricing in globalasset markets, BlackRock stated.

Announcing the appointment,Hudson said Jones’ risk manage-ment philosophy was alignedwith BlackRock’s, and that thecompany respected his funda-mental approach to investing.

IN the first step of its strategy tobuild its business and administra-tive support capabilities followingits acquisition by Nikko AssetManagement, Tyndall Invest-ments has established an enter-prise risk, compliance and legalteam.

Craig Giffin has been appoint-ed as head of risk, compliance andlegal covering Tyndall’s Australianand New Zealand operations, andNathan Harris has been appoint-

ed as risk and compliancemanager for Australia.

Giffin is a former executivedirector at Fortis InvestmentManagement, also having workedwith ABN AMRO Asset Manage-ment, Barclays Global Investorsand St George Bank in varioussenior risk management andcompliance roles.

Harris has worked as an inde-pendent compliance and riskmanagement consultant for overten years, specialising in strategicadvice and prudential programdevelopment and support fororganisations in the financial serv-ices industry.

ANTON Allen has joinedBetaShares Capital Limited asgeneral counsel and head of

compliance. The appointmentcomes as BetaShares listed its fourthexchange traded fund (ETF) withinsix months.

Allen has legal, compliance andrisk management expertise and waspreviously head of legal at Macquar-ie Funds Group, part of MacquarieBank. He has 18 years of experiencein the legal profession, specialisingin institutional and retail fundsmanagement. Allen’s experiencealso included providing legal advicefor products in the equities, fixedincome, currency, commodities andalternatives space.

Alex Vynokur and DavidNathanson, joint managing direc-tors of BetaShares, said Allen’sappointment would further bolsterthe business as it continues toexpand the range of ETFs availablefor local investors.

Move of the weekBT Financial Group (BTFG) has recruited Bravura Solutions head ofoperations and former AMP corporate strategy executive, Wes Hall, asits new head of practice management.

Hall’s appointment has been announced by BTFG’s general managerof advice Mark Spiers, who said the role would cover the develop-ment and delivery of key financial planner services to all of thecompany’s advice businesses, including BankSA, Bank of Melbourne,Magnitude, Securitor, St George and Westpac.

He described Hall’s appointment as being part of BTFG’s continuedcommitment to developing market-leading capabilities for planners.

Spiers detailed Hall’s responsibilities as being dealer services forbank channel and dealer group planner, technical support and serv-ices, paraplanning and advice documentation, research and invest-ment strategy and practice and professional development. Wes Hall

““FROM time to time in hislong career, Outsider hasfound himself playing atbeing a boss. Looking back,he likes to think he was notan unreasonable boss, butperhaps that is for others tosay. Sure, he might havedemanded his journos cometo work every Wednesdaywearing a particularlypatterned shirt, but some-times one must do thingssimply because one can.

However, after having abrief chat to one of the final-ists for the Money Manage-ment’s Young Achiever of theYear Award, Outsiderbelieves he’s been a model ofreasonableness.

This young chap, who is

the chief executive of afinancial planning firm, hasintroduced a no-smokingpolicy during work hours,the mention of which gotOutsider’s head spinning.

Having enjoyed smokingboth cigarettes and cigars in

his youth, at a time whensmoking was consideredcool and was welcomedindoors, Outsider must sayhe was quite surprised.

“Not even a short ciggy-break?” Outsider asked him.“No. But, they can smoke on

the weekend!” the youngchap replied proudly.

While Outsider admiredthe youngster’s determina-tion to promote a healthylifestyle in the workplace, healso realised the youngOutsider would not have cutthe mustard in such an envi-ronment. Outsider has, afterall , always been a rebelwithout a clue.

Outsider also wishes toassure the young achieverthat, if any of his financialplanners smoke on theweekends, they are alsoundoubtedly smokingduring lunchtime behind theoffice building. Such are thedemands of the tobaccodemons.

Outsider


“The ‘crap’ bit was off the

record.”

When OneVue chief executive officer

Connie McKaege realised she uttered

the C word at a recent lunch function,

she made sure journos didn’t quote

her on it.

“There’s only seven more people

to go on that table to ask

questions.”

FSC chief executive John Brogden

counts down the number of attendees

at the Templeton table hogging

question time.

“The Human Nature of funds

management!”

Fund Manager of the Year MC and

comedian Peter Berner thought the

under-30 Money Management Young

Achiever of the Year finalists looked so

good that they could have joined a

boy band right there and then!

Out ofcontext

Unorthodox rewards

An anti-smoking gun

OUTSIDER used to believe that owning abrewery was a sure way to wealth andhappiness. Sadly, that belief was shat-tered back in the 1980s when the likesof Alan Bond proved that brewing didnot constitute a licence to print money.

However he has come across newdata that has persuaded him that hemust invest in one of life’s certain-ties: death.

According to new data released byIBIS, funeral services is a growthsector and is likely to keep growingas Outsider’s fellow baby boomersgrow old and have little choice but tomeet their maker.

According to IBIS, “Australia’s ageingpopulation is good news for thefuneral services industry – which is

expected to increase its revenue from$931 million in 2010-11 to $1.08 bil-lion by 2015-16.

“What with the proportion of thoseaged over 70 years expected toincrease from 9.4 per cent (equatingto 2.15 million) in 2010-11 to 10 per

cent (2.5 million) in 2015-16, the prospective number of

clients for this industry is on the rise,”said Ibis general manager in Australia,Robert Bryant.

Now there are any number of taste-less clichés that Outsider could chooseto terminate this subject, but he is feel-ing a tad old and may be losing theplot. So he’s going to go for the dead-set, obvious – “people are just dying toget into the funeral business”.

AS recently as last week Outsider was on recordonce again outlining his profession’s shortcomingsin the area of employee bonuses.

And while the financial services industry is wellknown for occasional largesse when it comes tocash bonuses, Outsider is occasionally drawn toopine on the nature of other perks intermittentlydoled out throughout the industry.

But even this humble scribe was given pausewhen he heard recently about the unusual perksreinsurance giant Munich Re lavished upon its topperforming sales reps back in 2007.

Readers of this column will no doubt have heardby now that the salesmen were flown to Budapest,Hungary, where they received services providedby, shall we say, the oldest profession on the planet.

Readers who have been isolated from civilisa-tion for the past few weeks can read up on thedetails elsewhere, but suffice to say Outsiderhimself has never been rewarded for his services inany such manner.

In fact Outsider generally considers himselflucky when, once a year in December, those whopull the purse string see fit to reward Outsider andall his hardworking colleagues with a couple ofcold drinks and an afternoon off.

At any rate it’s hard to say what such a risqué incen-tive regime would do to Outsider’s productivity levels– but it would be fairly easy to determine what Mrs O’sopinion would be of such a plan.

Probably safer to stick with the Chrissy drinksand leave it at that then.

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

Six feet under

money management (june 9, 2011)

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