Three key challenges for practice buyers. Buyers of financial planning practices often do not cover off all the important steps of a potential acquisition, according to Matt Englund, head of dealer groups for BT Financial Group. In a recent No More Practice blog, he said there are three steps that they should be looking carefully at in such a transaction. The first and most important consideration is in understanding what the client base looks like, particularly from a cultural perspective. The second due diligence challenge for buyers is in properly understanding the business they are looking to acquire, while Englund said the third challenge lies in the often secretive nature of the early stages of a potential transaction. "This challenge relates to the cultural alignment of the two practices, and in particular, key staff," he said.
Accountants questioned over referral arrangement. Members of the Institute of Public Accountants (IPA) have questioned the independence of a recent referral arrangement set up with MLC and AMP/AXA. Under the arrangement, IPA members will be provided with online referrals to financial planners but the IPA stressed that a minority of the products on the advice groups’ approved product lists were manufactured in-house. Money Management reports that IPA members were concerned about the deal while the Institute of Chartered Accountants (ICA) said it was unfortunate accounting firms were pursuing the establishment of referral systems with financial planners. “A lot of accountants say to me that they want to maintain their independence,” said ICA head of superannuation Liz Westover.
APRA to release fund performance data. The Australian Prudential Regulation Authority (APRA) is looking to produce superannuation fund performance data to assist investors in comparing funds and their various levels of investment performance. In a recent Senate Estimates hearing, APRA deputy chairman Ross Jones said the regulator would start consulting the financial services industry about the process in the second half of this year. The performance data could assist advisers in servicing clients and meeting obligations under the best interest test. Jones said the data will provide more granular information than what is currently available and the information will also go beyond the standard prudential requirements.
Trio demonstrates need for last resort compensation scheme. A last resort compensation scheme for the financial services sector should be established, according to the SMSF Professionals' Association of Australia (SPAA) CEO Andrea Slattery. In the case of Trio it was the product providers who committed the fraud and the compensation was paid to the APRA regulated superannuation fund members. As such, Slattery said a last resort compensation scheme operating at the product provider level would go a long way to spread the cost of compensation across the whole industry. "If a compensation scheme was in existence before the Trio collapse, adequate but limited financial compensation could have been available to the SMSFs and the thousands of other independent mums and dads who lost their hard earned savings,"Slattery said.
Default super fund selection needs more transparency. The process of selecting default superannuation funds under modern awards should be a lot more transparent, according to the Productivity Commission. Productivity Commission deputy chairman Mike Woods recently commented that there was widespread recognition that transparency around default super fund selection could be increased. The commission, which is due to issue an interim report on the issue this month, said many submissions acknowledged the issue. Speaking before a Senate Estimates committee, he said increased transparency should also be applied to the process by which default funds are considered for nomination in awards and that the process would benefit from having clearly defined criteria.
Superannuation FUM on the rise. Total estimated assets under superannuation fund management rose by $47.4 billion (3.6 per cent) to $1.38 trillion over the 12 months to 31 March 2012, taking into account an increase of $73.2 billion (5.6 per cent) in total assets over the March quarter. A recent Australian Prudential Regulation Authority (APRA) report found that, over the March quarter, the total estimated assets of industry funds increased by 7.3 per cent ($17.9 billion) to $264.5 billion, corporate funds’ assets by 6.4 per cent ($3.4 billion) to $57 billion, public sector funds’ assets by 6.3 per cent ($12.9 billion) to $218.1 billion and retail funds’ assets by 5.2 per cent ($18.8 billion) to $376.9 billion. Further, contributions to funds with at least $50 million in assets over the March quarter were $20.1 billion, with employers contributing $16.9 billion and members contributing $3.1 billion.
Australian shares outperform for best real returns. Australian shares have outperformed all other asset classes – including residential investment property, fixed interest and cash – over a 20 year period, according to a Russell Investments/ASX Long-Term Investing Report. It found that growth assets including Australian shares and residential property delivered superior returns compared to more conservative asset classes such as cash and fixed income, over the 10 and 20 year periods to 31 December 2011. Over the 20 year period, Australian shares returned 9 per cent per annum and 7 per cent per annum at both the lowest and highest marginal tax rates respectively, while residential investment property achieved the second highest return of 8.1 per cent per annum and 6.6 per cent per annum at the lowest and highest marginal tax rates respectively.
Advisers cautioned over share churning fund managers. Financial planners looking to switch managed funds should avoid managers who churn through shares because of the tax impacts on clients, according to Zenith Investment Partners national sales manager John Nicoll. He said minimal churn reduces the amount of capital gains tax and other taxes clients pay on their investments. Money Management reports that while managed funds probably are probably not as effective for high tax paying clients compared to direct equities, Nicoll said fund managers were more aware of the importance of managing their tax well on behalf of investors. There is a significant difference between large benchmark-huggers and good fund managers in this space, he said.