Yesterday's News

Financial Planning

Higher costs for dealer groups. Australian Financial Services Licence (AFSL) holders such as dealer groups will be charged higher fees to pay for increased funding for the Australian Securities and Investments Commission (ASIC), under the recent Federal Budget. There will be a rise in fees for AFSL holders from $351 to $549 for a body corporate and from $144 to $225 for an individual, according to the Financial Planning Association. ASIC will receive $180.2 million over four years, of which $23.9 million will be to facilitate the implementation and enforcement of the Future of Financial Advice reforms.

Adviser fees under pressure. There is growing pressure on fees as clients seek to pay less for financial advice in the wake of the global financial crisis (GFC), according to an annual Investment Trends report. It found that the average Australian would pay $590 for financial advice in 2011, while in 2010 they were prepared to pay $670. The 2011 Advice and Limited Advice report also found that Australians would pay $770 for a comprehensive financial plan for the first time – however, planners estimate that it costs $2550 to provide comprehensive advice, according to Investment Trends.

Regulatory

Opt in out if Coalition in. If a Coalition Government was elected at the next election it would make a significant number of changes to the Future of Financial Advice (FoFA) reforms, according to Senator Mathias Cormann, Shadow Minister for Financial Services and Superannuation. In a blog posted on No More Practice, Senator Cormann said the best judge of what is good value for a client is the client and not the government. He also said a Coalition Government would remove the opt-in provision, revise the best interest test to make it clearer, refine the ban on product commissions and encourage competition in the advice sector to drive innovation.

ASIC codes may lead to new standards body. There is speculation that the ASIC professional advice codes could lead to the formation of a new financial planning standards body, according to InvestorDaily. It reported that an advisory panel, chaired by ASIC chairman Greg Medcraft, has been looking at the development and implementation of the FoFA reforms. It is understood one recommendation from the panel is the establishment of a new standards body to oversee certain parts of FoFA regulation – which would add another layer of red tape for the financial planning industry.

Superannuation

Superannuation regulation costs could outweigh benefits. Costs of implementation associated with increased regulation in the superannuation industry could erode the benefits of a favourable taxation system, according to AMP chairman Peter Mason. When new regulation that imposes additional costs on business is introduced, it is important that the regulation deliver real and practical benefits, InvestorDaily reports. The financial planning and superannuation industries are facing extraordinary change over the next 12 months, and Mason said that the new regulations and standards being introduced would result in a substantial cost being passed onto consumers.

Superannuation life insurance can lead to coverage gap. With more Australians holding life insurance coverage through their superannuation, there has been a fall in the number of people holding a standalone policy, according to Macquarie Life head Justin Delaney. Money Management reports the number of Australians with life insurance through superannuation has grown from 27 per cent to 48 per cent while those with a standalone life insurance policy outside of superannuation fell from 28 per cent to 18 per cent. However, this potentially creates an insurance gap as policy holders are not necessarily aware of the level of cover that life insurance through super provides, according to Delaney.

Investments

China still good for investors. China is still the best investment opportunity in Asia despite a recent wane in investor interest in Chinese equities, according to Fidelity Worldwide Investment (Hong Kong) investment director Catherine Yeung. Expected earnings growth in China stands at around 12 to 15 per cent and equity valuations are attractive in Asia with cheap price-to-earnings ratios, Yeung said. Money Management reports that while investors might question why China seems to leave policy setting to the last minute, investors underestimated the policy flexibility available to the Chinese Government without touching interest rates.

Interest rate cut leads to shift in term deposits. With interest rates likely to fall further, up to $90 billion in funds could shift out of term deposits, according to InvestorDaily. It reports that term deposit rates are likely to drop below 5 per cent following the recent Reserve Bank of Australia (RBA) rate cut. While investors and financial advisers had not yet responded en masse, Tria Partners managing partner Andrew Baker said a shift out of term deposits was likely as they came to maturity. About $180 billion of retail wealth management money is invested in cash and term deposits, according to Baker, who estimated that between $45 billion to $90 billion is likely to be reinvested in growth assets such as shares when rates drop too much.