Consumer revolution to reshape financial advice industry. Financial advisers will have to change their business models completely as consumer demand and market changes reshape the face of the industry, according to Ray Miles, executive director of Fortnum Financial Advisers. In a recent No More Practice blog, he said that in the future consumers will be able to get advice online at a reasonable price. “Change is inevitable, and it is only a short matter of time before the financial advice industry finds this out,” he said. “There is now some feeling around the marketplace that the model of financial advice as we know is over … My feeling is that the industry as we know it is about to get torn apart because we have very outdated models of advice.” Miles, who is also speaking at No More Practice Live, said the financial services industry has not delivered any efficiency in 20 years.
Independents can survive tough times. Financial advisory groups do not need to be aligned to large institutions to survive tough economic and regulatory times, according to Centrepoint Alliance managing director Tony Robinson. In a recent letter to shareholders, he said that both advisers and investors need a group that can provide “independence of choice” and quality of service to clients. Consolidation in the industry could also be put down to Future of Financial Advice reforms, he said. “This has seen several independent groups acquired by larger players such as the banks, who are keen to sell their own financial products through an expanded distribution network. This has resulted in fewer and fewer financial planning groups providing independence of choice,” he said.
Regulator warning over ‘bad apples’. There is significant variation between licensees in reference checking of new advisers, and as a result, ‘bad apples’ within the advice industry can move easily from one licensee to another, according to the Australian Securities & Investments Commission (ASIC). In a recent speech to the Association of Financial Advisers (AFA), ASIC commissioner Peter Kell said that while licensees we do conduct reference checks, they do not receive many requests to provide reference checks. “While reference checking is a standard employment practice across the economy, there is potentially more at stake in the financial services sector compared to many other industries if inappropriate recruitment occurs. There are risks for consumers, and reputational risks for advisers, if ‘bad apples’ remain in the industry,” he said.
Penalties for early release superannuation schemes. The Government will introduce penalties to deter promoters of illegal early release superannuation schemes. “Promoters of illegal early release schemes have in the past exploited vulnerable people within our community by encouraging applications for rollover of superannuation balances. In these situations the promoters have taken fees of up to 50 per cent of the member’s superannuation balance,” said Minister for Financial Services and Superannuation Bill Shorten. Illegal early release schemes are generally promoted to people as a means of accessing their superannuation benefits prior to being eligible to receive those benefits. Some schemes have facilitated up to $8 million in illegal release of superannuation benefits and generated millions in commissions for promoters.
Beware super contributions limits. Pre-retirees need to carefully calculate their concessional contributions in the light of the government halving the cap to $25,000 this financial year, according to research and ratings company CANSTAR. Those planning to retire in the near future could incur extra tax up to a nightmarish 93 per cent just by trying to catch up on the rules and putting as much as they can into their super account. Now that the government has reduced the concessional cap to $25,000 from $50,000 and previously from $100,000 not that long ago, CANSTAR research manager Chris Groth said it’s quite conceivable that some people will accidentally go over the threshold and lose on their retirement savings rather than build on them.
ATO to monitor SMSFs for compliance. The Australian Taxation Office (ATO) will target self-managed superannuation funds (SMSFs) in its compliance program for the 2012-13 financial year. The ATO will analyse the top 200 SMSFs based on total assets and select 25 SMSFs with the highest levels of risk for a comprehensive audit, in addition to ongoing monitoring and investigation of SMSF compliance with income tax requirements. The ATO will also be looking closely at SMSFs that fail to lodge returns on time, and Trustees who are late may have to pay interest and could face prosecution. “We are conscious that failure to lodge can be an attempt to avoid detection of a regulatory breach. We have access to extensive information to help us identify these SMSFs and we will focus on improving their lodgement performance,” the ATO said.
Addressing the $1.4 trillion retirement challenge. Dynamic multi-asset solutions, which include building complete portfolios from a much broader range of uncorrelated asset classes, styles and strategies, all with investors’ desired outcomes in mind, are a potential solution to Australia’s $1.4 trillion retirement challenge, according to Russell Investments Australasian CEO Chris Corneil. “The reality is that most people transitioning into and through retirement are not comfortable with the ongoing extreme volatility in markets,” he said. “One possible solution could include a new breed of adaptive asset allocation tools which are designed to create a more personalised multi-asset portfolio in retirement based on factors such as age, retirement funding goals and target account balances.”
Europe to impact corporates with higher debt levels. The crisis of confidence in Europe could potentially impact Australian corporates with higher debt levels as well as Australian banks seeking wholesale funding, according to Paul Taylor, Head of Australian Equities at Fidelity Worldwide Investment. Currently Australian corporates have very low debt levels and Australian banks have been reducing their dependence on wholesale funding due to the very strong growth in domestic term deposits. “The damage from a crisis of confidence would likely be fleeting. If anything, it might create a short-term buying opportunity for local investors in the Australian market,” he said. “Australian dividend yields are high and sustainable and even if world markets do not go anywhere in 2012-13 investors can receive close to a 6 per cent fully franked yield from the local Australian market.”