The multiple awards won demonstrate the quality and depth of CMC Markets’ stockbroking business after CMC Markets launched Australia’s lowest online brokerage rate of $9.90 or 0.10% in 2010.

“People often view us as the online brokers who are the low cost option.  What we want traders to be aware of, especially active traders, is not only do we have the lowest brokerage but we have the best charting (which is free to all clients), best website functionality, best customer service and most importantly the highest overall client satisfaction levels,” said Louis Cooper, Head of CMC Markets Australia and New Zealand.

“On top of this, we have an unrivalled education offering for new share traders who want to familiarise themselves with the share market, including a unique ‘Trading Insights’ blog that both clients and non-clients can access for trading strategies and information on both local and global markets,” said Mr Cooper.

“What we saw happen in the second half of 2010 was a surge in the competition in online brokers as the low cost brokers have started to challengethe more established providers.  Our research found that newer entrants like CMC Markets have strengthened their market position considerably,” said Pawel Rokicki, Senior Analyst at Investment Trends.

The Investment Trends analysis found that CMC Markets attracted 7% of new clients, significantly higher than their overall 3% market share.

CMC Markets’ clients can access a platform that offers low cost brokerage with free unlimited conditional orders, access to all ASX equity instruments, live pricing, market news and analysis, and free charting which will ensure clients are more equipped than ever to make smart, strategic trading decisions. This is why our clients are the happiest online broking clients in the country,” said Mr Cooper.

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“More than 1,000 advisers have attended our roadshows which launched BT Protection Plans to the independent financial adviser market and there’s still 6 launches remaining,” Mr Hay said.

“At the same time we’ve been talking with advisers about the end-to-end life insurance solution we have built, our customer-centred claims philosophy has proven they continue to break the mould by being announced joint winner of the 2010 Plan for Life/AFA Risk Insurance Innovation Award for its first-to-market ‘tele-claims’ program.”

Mr Hay said the success of the roadshows has reinforced to his team how important it was to launch a life offering that is built in full consultation with advisers and from a clean sheet of paper.

“The most overwhelming feedback we are receiving from advisers across the nation is that BTFG’s arrival as a new entrant to life product manufacturing is a welcome one,” he said.

One prominent dealer group executive said, “The competition that will be created from a new agile and responsive player in the life market will create efficiencies that many dealer groups will look to partner with in providing advice solutions to Australians.”

“In addition to the roadshow’s success, the independent acknowledgement of the team’s outstanding claims processes can be attributed to their unwavering focus on support when their customers need it most. For insurers, the real ‘moment of truth’ is at claim time and we have invested heavily in staff and systems to make processing claims as efficient as possible.” Mr Hay said.

Head of Claims, Paula Taweel, pioneered the ‘tele-claims’ program and can see daily the benefits it provides to advisers and their clients.

“At the time of claim, we are delivering on a promise that financial advisers have made to their clients. Part of the promise is to make the claims assessment process simple and painless,” she said.

“’Tele-claims for Income Protection policies reflects this. We’re the first and only insurer to offer this service and it was borne out of market research that highlighted the importance of making the process as easy as possible – without making a customer feel like they’re jumping through hoops.

“We introduced tele-claims in March 2010 which was based on accepting income protection claims, in some circumstances, over the phone without any claims forms or even a signature.

“Since launching, about 25 per cent of income protection claims have been paid using the tele-claims initiative which has reduced the end-to-end times by up to four weeks. In fact, it takes the BT life claims team just six hours to deposit a payment in a customer’s account following receipt of the medical certificate.

“The recognition our claims team is receiving is a core reflection of how we strive to constantly innovate our business conduct,” she said.

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• All airfares except discount fares rose in January. Domestic airfares generally rose in January with business fares up 2.9 per cent, full economy fares up 1.1 per cent and restricted economy fares up 0.2 per
  cent.
• But the discount airfare index hit record lows. An index of discount airfares hit record (18-year) lows in January.

What does it all mean?

• Just like anything else, when it comes to airfares it pays to shop around. According to the Government’s monitoring group, BITRE, discount airfares have never been lower and have been consistently falling in annual terms for three years. But by contrast, business and full-economy fares are on the increase. Clearly the advice to shop around doesn’t just go for consumers, but also companies.
• No doubt the airlines are testing the waters – lifting some airfares and seeing what the response is. Any smart business operator will clearly be shopping around for the best deal and trying to avoid any slug in travel costs.
• With the cost of jet fuel on the rise and upward pressure on wage costs, the airlines will continue to attempt to lift fares to cover costs. As to how successful they will be remains to be seen. Certainly other businesses are facing a lot of difficulties in trying to raise prices in the current environment.

What do the figures show?

Domestic airfares:

• According to the Bureau of Infrastructure, Transport and Regional Economics, the discount airfare index hit a record low of 59.4 in January 2011 (July 2003=100). While the index is volatile on a monthly basis, it is notable that the index has been in operation for 18 years.
• The smoothed (13-month average) index of discount airfares stood at 73.1 in January, down 5.6 per cent on a year ago. Discount airfares have been consistently falling in annual terms for over three years.
• While discount fares are falling in annual terms, business class fares are rising. The index of business class fares rose by 2.9 per cent in January, the biggest increase in five months. And business class fares are 6.9 per cent higher than a year ago, the biggest increase in over two years (since December 2008).
• The index of full-economy fares rose by 1.1 per cent in January, the biggest lift in five months. Full economy airfares are up 5.5 per cent on a year ago.
• The index of restricted-economy airfares rose by 0.2 per cent in January, the eighth increase in nine months. Restricted economy fares are still 0.7 per cent lower than a year ago and have fallen in annual terms for four months.

What is the importance of the economic data?

• The Bureau of Infrastructure, Transport and Regional Economics (BITRE) release data on airfares on a monthly basis. The figures are useful in getting a gauge on airline profitability. The data is also useful in monitoring consumer spending trends.

What are the implications for interest rates and investors?

• The latest data on airfares shows highlights the pressures that Corporate Australia is facing at present. Businesses will make every effort to push up prices and recoup costs. But they need to be mindful about the backlash on sales and market share. If consumers quickly shift affections when prices go up, businesses must be quick to review or reverse their decisions.
• Investors will be keenly interested in the success or otherwise of attempts by airlines to lift fares. Understandably the economy is in reasonable shape but the question is whether business and consumers are in the mood to accept higher prices. Certainly businesses aren’t keen on borrowing and consumers aren’t keen on spending.
• If the lift in business fares can be sustained without a substantial loss in demand, then Qantas has most to benefit. The continued softness in discount airfares highlights the pressures facing Jetstar, Tiger Airways and Virgin Blue.

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The latest in a series of securitisation deals for asset financier Capital Finance means the company is now Australia’s largest issuer of A$ denominated non-RMBS securitisations  in 2010. The deal brings the total of securitisation funding raised by Capital Finance in the past 13 months to A$1.6 billion.

 According to Capital Finance Managing Director, Bernie Campbell, the deal cements the company’s position as the largest independent financier of motor vehicles and equipment outside the big four banks and provides a firm foundation to pursue plans for further growth in 2011.

 “We have been 100 per cent committed to growing our core motor dealer and equipment finance business and have done so despite the global financial crisis, during which we held on and actually grew the business while others were closing their doors,” said Bernie Campbell.

 “So, for example, we’ve seen around a 15 per cent increase in new motor retail business customers in the two years since 2008, which translates to a growth in the motor retail book in the order of $300 million along with a near doubling of profit in that period.  And, in the business overall, despite a slight dip in customer numbers between 2008 and 2009 as at November 2010 we’re looking at a net steady customer growth and profit increase of over 60 per cent.”

 According to Mr Campbell, the significance of the deal goes beyond the numbers – as pleasing as they are.

 “The real significance to us is the wider implications and benefits of completing deals such as these,” said Mr Campbell.

 “They further boost our capability as a speedy source of funding that offers businesses a real alternative at a time when competition – or lack thereof – in the mainstream banking sector has been flagged as a serious potential inhibitor of economic activity.”

 The deal in question is the third securitisation on Capital Finance’s books in just over a year, and totals $500 million. Known as Bella 2010-2 it will raise some $408 million in funding for Capital Finance. The final book comprised 14 investors, five of which are new, divided equally between banks and fund managers.

 “What’s particularly pleasing about this latest deal is that it was originally an AS367.5 million deal but we were able to upsize it due to keen interest,” said Mr Campbell.

  “This is a strong positive sign for 2011, when we see real opportunity to extend our securitisation capability to also include our equipment finance portfolio.”

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These could be the words of the big players NAB, AXA, AMP or it could be a smaller dealer group, or some boutique financial planners, but they weren’t.

They were the words of Virgin Blue’s CEO John Borghetti, who addressed the Financial Services Council in Sydney earlier this month. The rest of the sentence was – “we have a formidable weapon not available to our competitors – the people and culture of Virgin Blue.” But this can also be true of many other businesses – in many industries including financial services.

Facing similar issues as financial services businesses – Borghetti said that the only thing constant in the industry is that nothing stays the same and challenges are always present – dressed in many different forms – from high fuel prices to SARS and more recently with the GFC. Financial services might swap thee aviation industry’s issues with greater regulation, shaky markets, and government reform. However, the way that smart leaders face these challenges is to recognise the strengths of their business.

To highlight the people and culture is something not often heard in financial services. It is important for a strong culture to have a strong leader. When Virgin took flight in Australia for the first time – just over 10 years ago – its larger than life leader Richard Branson stamped his personal brand over their airline. It was attractive young hip staff. The airline was a low-cost carrier – unique in the market.  Today the market has changed. There is greater competition, cheaper fares and expanded markets.

Borghetti took the reins of the company just four months ago and already looks different  from the jeans-wearing management of old– he wears Zegna ties and suits. But he says that it’s not a contrast to the culture of the staff  – instead he says it’s an evolution. “The staff knows they have to evolve to keep the culture and be ready for something new,” Borghetti said. “You have to bring people with you and they have to be willing to come with you.”

Looking at the challenges ahead – Borghetti says, in the past 10 years the size of the domestic market has doubled. Meanwhile, general consumer prices are up 36 per cent, but commonly available domestic fares have dropped 15 per cent and in nominal terms 23 per cent (excluding GST). It’s an environment not unlike financial planning.

Borghetti said Virgin Blue would use its strengths to meet the challenges of the 21st century – its timing, hunger and people and “we don’t know what was impossible “. Who will be the financial services’ Virgin Blue?

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Shoprite operates one of the most profitable supermarkets in the world because in the past 15 years it has built 71 stores exporting its high-volume, low-cost business model to 16 of Africa’s 53 countries, where organised, large-scale retailing is mostly a new concept.1

The example showcases the 21st century investment potential of the world’s second-largest continent by landmass and population. The gains made in Africa over the past decade hint of the rewards that could await investors.

The quadrupling in oil prices over the past 10 years, for instance, has enriched the region’s oil exporters such as Nigeria and Angola. Foreign oil companies have boosted investment, while taxes on oil have swelled government coffers and allowed for public spending on infrastructure and basic services. At a macro level, oil-producing countries have reduced public and external debts and bolstered foreign-exchange balances.

Not all African countries have oil, but many boast other resources, from aluminium and bauxite to phosphate rock, coal and uranium, not to mention gold in South Africa or the 10 diamond-producing nations behind Africa’s US$8 billion (A$8.9 billion) a year diamond industry.

The Chinese have noted this mineral wealth. To improve its energy security, China has invested in the oil producers, in Niger for its uranium and Tanzania for its copper, among other places.

China, in total, provided about US$33 billion in aid and investment to Africa between 2002 and 2007.2 Given China’s energy needs, it seems likely that Chinese money will propel African trade, investment and economic growth for a while yet.

Strong consumption

One reason why Africa is overlooked by investors is a perception that domestic demand is constrained, a view reinforced by frequent images from the continent of poverty, famine and conflict.

The consumption potential of a region or country is determined by demographics, income levels and economic growth rates, and Africa’s scores on these measures are improving.

The continent has over a billion people and the UN forecasts that number could soar to two billion by 2050.3 Because this population is relatively young, the continent has an estimated working-age population of more than 500 million people that is predicted to more than double by 2040. Other favourable demographics include a shift towards urbanisation (city folk generally earn and spend more) and a low dependency ratio (the number of dependants to the working-age population).

Income levels are rising thanks to strong economic growth that, as the graph below shows, has seen Africa outperform the global and advanced economies in the past seven years.4 GDP per capita for Africa more than doubled from about US$680 in 2002 to more than US$1,545 in 2008, according to the UN.5 If this growth rate is sustained, regional per capita GDP would double again by 2013.

More interesting from an investor’s perspective is the jump in the number of higher-income earners. According to McKinsey,6 Africa already outscores India on the number of middle-class households (defined as those earning more than US$20,000). Moreover, those with annual earnings of at least US$5,000 (a level above which consumers spend roughly half their incomes on non-food items) could jump to 106 million by 2014, from 59 million in 2000.

As Africa’s middle class expands, opportunities will arise for consumer companies, rather than just material companies – resources accounted for nearly a quarter of Africa’s GDP growth between 2002 and 2007. McKinsey projects that consumer goods and services will generate sales of US$1.4 trillion on the continent in the next decade, compared with US$540 billion from resources over the same period.

Investors can benefit from Africa’s consumption growth because a lack of competition, solid economic growth and cheap labour allows consumer companies to enjoy high margins, notwithstanding the region’s challenging business environment. Stocks that give investors exposure to African consumers include Guinness Nigeria and the South Africa-based media conglomerate Naspers.

Guinness Nigeria benefits from that country’s robust economy and having industry-leading profit margins for its core product beer. Naspers is a more diversified operator that has significant exposure to the fast-growing satellite and cable TV markets of some of sub-Saharan Africa’s 47 countries. In June, Naspers said it had gained 634,000 additional subscribers in sub-Saharan Africa in just 12 months.

Risks

Naturally high risks surround such potential. Political risk is often elevated, if not a deal stopper, as many African countries are susceptible to conflict or sudden changes of government.

Many countries are under one-party or military rule so there is no rule of law to protect businesses or investments. Corruption can be endemic. Foreign companies tend to confront vested interests, weak regulations and poor corporate governance.

These risks, however, vary among countries. South Africa in many ways resembles western markets. At the other extreme are chaotic examples such Zimbabwe, whose economy has collapsed since President Robert Mugabe came to power in 1987, and Zaire, which was plundered by its President Mobutu during his reign from 1965 to 1997. The task for investors is to find those countries that may offer high returns for the risk.

Even when viable markets are identified, there is often a lack of investable instruments for investors as Africa’s financial markets are underdeveloped. Equity and bond markets suffer from liquidity constraints and sometimes regulations discriminate against foreigners. However, once again, these flaws vary across the continent.

At the same time, the case for investing in Africa is bolstered by low correlations with developed markets owing to the region’s aloofness from the global economy.

But while the risks are higher than elsewhere, so too are the potential rewards. Just ask Shoprite. It intends to have 50 stores in Nigeria within the next three years.

Regional versus global growth comparison

IMF Africa Regional Economic Outlook, April 2010

1 http://www.shoprite.co.za/pages/127416071/About.asp
2 McKinsey Quarterly, June 2010 edition
3 UN Department of Economic and Social Affairs, http://esa.un.org/unpp/p2k0data.asp
4 IMF Africa Regional Economic Outlook, April 2010
5 UN Statistics Division, http://unstats.un.org/unsd/snaama/downloads/Download-GDPPC-USD-regions.xls
6 McKinsey Quarterly, June 2010 edition

Important information

Investments in small and emerging markets can be more volatile than other more developed markets

References to specific securities should not be taken as recommendations.

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“Our super system needs to come of age and address the fact that while compulsory super has worked hard to meet the minimum needs of Australians, it‟s time to tackle the task of helping people take ownership and grow their retirement savings,” said BTFG Chief Executive Brad Cooper.

“We welcome the Government‟s recent commitment to increase the super guarantee to 12 per cent, and especially given the resulting growth in super to $3trillion by 2020, we believe competition and choice must prevail to ensure the future system doesn‟t structurally embed two clear groups of members: the engaged and the disengaged,” he said.

Competition and Choice

“Even when it comes to default funds for super members, competition and choice should be at the heart of the new system because at the end of the day these are good for members,” said Brad Cooper.

“We believe industry should compete for members‟ super on the basis of great product features, on price and on return. There is less value in a system that‟s based on a disengaged member being placed into a predetermined fund because of an industrial relations instrument.

“We look forward to consulting with Government on these key issues,” he said.

Engagement remains critical

Brad Cooper said BTFG was acutely aware of the industry‟s role in lifting engagement levels beyond what can be achieved by the reform process alone.

“The Government has embarked on a process which should deliver the most large-scale improvements to Australians‟ retirement savings since the Superannuation Guarantee was introduced.

“The super industry also has a huge role to play in ensuring people‟s interests are best served by not only being closely involved in the reform process but also by constantly innovating to meet customer needs.

“We believe that BT Super for Life has cracked the code on helping people get involved with their super and demonstrating that engagement can be lifted when you make super simple, make it relevant to people‟s lifestages with meaningful investment choices and make it accessible by putting it online next to their everyday banking,” Brad Cooper said.

BT Super for Life is tracking towards $1bn in funds under management by the end of this year. June was a record month for applications, with funds under management growing over 10 per cent in June alone.

Industry overhaul to ‘make super easy’

BTFG welcomed the Cooper Review panel‟s recognition of the opportunity to significantly overhaul the super system.

“The panel clearly believes it‟s time to take super out of the administrative dark ages,” Brad Cooper said, “which will result in efficiency benefits for the industry, lower costs for members and increased member engagement.

“If implemented, one key outcome of these recommendations would be that the whole astonishing concept of billions of dollars in „lost super‟ could be a thing of the past, and we think this absolutely has to happen,” Brad Cooper said.

BTFG‟s submission to the Cooper Review highlighted the industry‟s opportunity to use tax file numbers to make lost super transparent, cut operational costs, reduce cheques and paperwork delays by using electronic systems and mandating one set of data standards. BT also recommended a simpler rollover process – that would take the member a matter of minutes rather than months – which allows the trustee to consolidate super accounts upon a member‟s request.

Mr Cooper said he hoped for speedy implementation of these recommendations so the industry can sharpen its focus on increasing the retirement savings of working Australians.

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