On 29 June 2011, the Federal Court of Australia ordered that York be wound up and appointed Mr Paul Burness of Worrells as liquidator.

The Court’s orders follow an ASIC investigation into York’s failure to prepare and lodge audited financial reports and director’s reports and hold annual general meetings from 30 June 2008 to date. York also failed to appoint the statutory minimum of three directors and comply with a court order dated 9 June 2009 which required financial accounts be lodged with ASIC within 28 days.

ASIC’s action reflects its commitment to ensuring companies demonstrate openness and transparency and keep investors well informed.

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Australia’s life insurance gap has reduced over the last six years, according to a new report from Rice Warner Actuaries.

As at June 2010, the overall level of underinsurance is $669 bn to meet the subsistence needs of families and dependants after death, which compares with $1,000 bn in 2005 on a like for like basis – a reduction of 33 per cent over the six years.

On an income replacement basis, the level of life underinsurance is $3,073 bn. Meanwhile, for total and permanent disability (TPD), the level of underinsurance sits at $7,182 bn and income protection underinsurance at $437 bn.

Michael Rice, Managing Director and Head of Strategy of Rice Warner Actuaries, attributes this shift to significant demographic, financial and life insurance market changes over the past six years and in particular, an increased focus on personal financial risks post-global financial crisis.

“Increased levels of personal insurance have been driven by an increase of default cover within superannuation, a greater focus on risk insurance by financial advisers and superannuation fund trustees as well as the growing direct life insurance market,” said Mr. Rice.

However, while the report points to a welcome development in the face of Australia’s continuing underinsurance problem, Mr. Rice warns we’re not out of the woods yet.
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“While the market is now providing a substantial proportion of subsistence life insurance cover, this is still only half the amount of cover required to ensure that family members and dependents can maintain their standard of living after the death of a parent or partner,” explained Mr. Rice.
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“Apart from individual detriment, underinsurance also comes at a substantial cost to the government. Currently the total cost to the government of life underinsurance across Australia is calculated to be $140 million per year as publically-funded social security benefits fill the gap. Meanwhile the situation regarding disability underinsurance is even more serious, costing the government nearly 9 times this amount!”
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Mr. Rice believes there are things the government could do in the short term to remove glaring distortions and inequalities in the market in order solve this ever-present problem.
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“The underinsurance issue would benefit from the government considering the removal of stamp duty from all life, total and permanent disability (TPD) and income protection policies; removal of GST on TPD and income protection products sold by General Insurers; equalization of the tax treatment of risk insurance inside and outside superannuation; and implementation of the proposed ‘scaled advice’ model with a particular focus on risk insurance.
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“While the report proves the issue of underinsurance is still a significant one for the financial services industry and the government in Australia, it also reveals a positive step in the right direction.”

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simpleWRAP today launched a full service administration wrap offering a simple and fully transparent pricing model – a flat fee irrespective of account balances – that it believes is the first in Australia for both superannuation funds and investors.

Long established industry leader Krystyna Weston, Director of simpleWRAP, said “simpleWRAP introduces a revolutionary approach to fees where investors pay one flat administration fee irrespective of the size of their investment, offering the potential for significant savings for those with larger account balances both inside and outside super.

“There will be no percentage or asset based fees for the administration service and investors will pay an agreed and set fee for the services that they use. We believe that this is a more equitable approach and, although it sounds like simple common sense, we are unaware of any full service wraps applying this principle.”
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Ms Weston added that she believes the current model of charging clients for administration based on a funds under advice model is an outdated model and simpleWRAP is the forerunner of a flat fee approach that is necessary in the current investment and regulatory environment.
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“Given the direction of government reforms and the recent announcements from various industry bodies, we believe it’s timely for the industry to rethink fees at every level, including wraps. We expect that simpleWRAP will be an integral component for those planners joining the move to true fee for service.
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“Unlike mainstream wrap providers, simpleWRAP offers greater alignment to the true cost of delivering the admin service leaving their advisers to focus on the part of the value chain that offers the greatest value from their advice!
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“In conjunction with Equity Trustees, which will provide administration support, we are able to deliver a service to clients that is transparent, ethical, free of conflicts as well as being simply and fairly priced.
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“simpleWRAP provides financial planners and their clients with a vehicle to assist in truly meeting the fiduciary responsibilities that are embedded in the planner/client relationship.
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“Adrian Young, head of Equity Trustees superannuation business, said that the service that will be provided to simpleWRAP is an example of Equity Trustees’ ability to provide outsourced services to other financial services organisations in different industry sectors, and to leverage its existing resources and capabilities.
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“As a business we are committed to acting in the best interest of clients and to helping facilitate high-quality solutions. We already provide an outsourced administration-only service in superannuation and this is an important step in the development and further expansion of our superannuation and investment platform business, supporting the sort of changes investors are expecting from the industry,” he said.

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Zenith’s report states that Greg Matthews, portfolio manager of the All Star IAM Australian Share Fund, “is well supported by a team of senior portfolio managers who also maintain analyst responsibilities. In Zenith’s view, the investment team is highly experienced and their long history of successfully working together gives us further confidence in their abilities.”

The Fund has, according to Zenith, “displayed the ability to consistently outperform the index in all market conditions… consistent with its style agnostic approach and philosophy to navigate through market changes” noting that: “This has resulted in an information ratio well above the target and the median manager, indicating the generation of superior risk adjusted returns. We are confident that the process will continue to generate strong performance in the future.”

All Star Funds was conceived to provide investor access to consistent, high alpha asset management capabilities which would otherwise not be available to the retail investor.

“When we select an investment manager, we look for consistent out-performance, irrespective of market cycle,” said Mulligan,

“Greg (Matthews) and his team have a long-standing track record as a top performing Australian share manager; some of his team have worked together for over 15 years.”

The All Star IAM Australian Share Fund has delivered approximately 3.6% above benchmark after fees on an annualised basis since inception (data to end May 2011) and is ranked number one over 5 and 7 years against peers (1). The rating follows a pleasing, top ten ranking debut in the Plan for Life net inflows survey for All Star for the March quarter(2). Mulligan believes that this reflects the high quality of investment managers in the All Star stable, as well as the support of financial planners who need to be confident in recommending investment products to their clients which will deliver to their investment needs.

The All Star Maple-Brown Abbott Listed Property Fund and All Star Nomura China Fund have also recently been given ratings of “Recommended” by Zenith.

1. Morningstar May 2011 survey, Australian shares sector specialist funds.
2. Plan For Life March 2011 survey table retail net flows – marketer’s & administrator’s view, ex CMTs.
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Last year, the government announced a new tax system for managed investment trusts (MITs) that will reduce complexity, increase certainty and minimise compliance costs for MITs and their investors.  In April, a further announcement was made to defer the start date of the new laws from 1 July 2011 to 1 July 2012.  The government also announced two minor changes to the previously announced measure to facilitate the entry of MITs into the new tax system.

The new tax system will be largely based on recommendations arising from the Board of Taxation review of the taxation arrangements applying to MITs.

Key aspects of the new tax system will be:

• an elective ‘attribution’ system of taxation that will replace the present entitlement system and provide that investors are taxed only on the income that the trustee allocates to them on a fair and reasonable basis, consistent with their entitlements under the trust deed or the trust’s constituent documents
• implementation of rules dealing with ‘under’ and ‘over’ distributions that are within a 5% cap, so that trustees are not required to reissue statements and investors are not required to revisit tax returns removal of double taxation that arises in certain circumstances
• abolition of Division 6B of the Income Tax Assessment Act 1936 which relates to corporate unit trusts.

Click for more information about the taxation of MITs.

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The TOFA reforms were first announced in the 1992 budget and were later taken up by the Review of Business Taxation. The review’s final report – A Tax System Redesigned (the Ralph report) – made various recommendations about the taxation of financial arrangements.

While some of the recommendations made in the Ralph report were rejected, several of the concepts proposed have been implemented progressively over the years. Stages one and two of these reforms were introduced in 2001 and 2003 respectively.

The recently introduced Division 230 implements stages three and four of the TOFA reforms.

TOFA is intended to reduce the influence of tax considerations on how financial arrangements are structured, emphasising other factors, such as risk, when making financing decisions.

Although TOFA provides a comprehensive and overarching framework to address the economic substance of arrangements, it is not an exclusive code for the taxation of gains and losses from financial arrangements.

Unless otherwise specified, other provisions of the Income Tax Assessment Act 1936 (ITAA 1936) or the Income Tax Assessment Act 1997 (ITAA 1997) still deal with gains or losses from financial arrangements where TOFA does not.

(All legislative references in this guide are to provisions of the ITAA 1997 unless otherwise specified.)

Problems with how tax law applied to financial arrangements before TOFA

Before the TOFA reforms, the income tax law placed too much emphasis on legal form rather than the economic substance in the context of financial arrangements. This resulted in inconsistencies between the tax treatments of different types of transactions that have similar economic substance.
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Also, the inflexible, form-based rules did not keep pace with financial innovation, creating opportunities for tax deferral and tax arbitrage.
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Income and deductions from financial arrangements were often dealt with on a realisation basis, although some income and deductions from financial arrangements were dealt with on an accruals basis. This meant that the income tax law did not adequately take into account the time value of money or provide for an appropriate allocation of income over time.
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Previously, the way tax law applied to financial arrangements resulted in tax-timing and tax-status mismatches between revenue and capital items. Also, the law did not address the tax-timing treatment of emerging hybrid instruments or new structured products, including those with fixed and contingent returns.
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The piecemeal approach to amending the law to address a new product or fix a problem resulted in complex law that was a combination of both general and specific provisions.

Click to view more details about the tax treatment of gains and losses, hedging and general information about the TOFA reforms visit the ATO website

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Commonwealth Bank Vantage+ provides enhanced or leveraged exposure to the price returns performance of the S&P/ASX 200 index over a five-year period. Investors have 5.3 times leveraged exposure to the index capped at an 80% index gain (equating to a maximum return of 323% over the five-year term).

S&P Fund Services analyst Rodney Lay said: “Based on our back-tested and Monte Carlo analysis, we believe the expected return profile adequately compensates investors. Historical back-testing generated average returns of 15.5% p.a. A loss was recorded on 24% of occasions. The Monte Carlo analysis we undertook generated similar results, albeit with a very slightly higher probability of loss.”

“In terms of suitability, we believe investors should have a solid outlook for domestic equities as well as be prepared to incur a significant loss on invested capital. Due to the product’s very high risk-return profile, an investor’s investment amount is totally at risk, so it is suitable for only a small percentage of an overall portfolio. This is a product where a very small part of an overall portfolio can provide five times the exposure to the equities market,” added Mr. Lay.

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Some of the key issues highlighted in the BIS paper relate to the quality and liquidity of physical assets underlying synthetic ETFs and motivations that may arise when the ETF issuer is a related party to the investment bank that is the swap counterparty.
BetaShares is the issuer of both physical replication and synthetic replication ETFs in Australia.

Drew Corbett, Head of Investment Strategy & Distribution at BetaShares said the paper has highlighted some important issues relating to overseas synthetic ETFs that were addressed by the Australian regulators prior to synthetic ETFs being introduced in Australia.“In the process of launching our synthetic ETFs in December 2010, we worked collaboratively with ASIC and ASX who set the standard in synthetic ETF regulation. ASIC and the ASX have been one step ahead in relation to the key issues raised in the BIS paper and should be complimented for adopting world’s best practice on ETF regulation. The rest of the world should be following Australia’s lead,” Mr Corbett said.

The guidelines developed by the Australian regulators included local swap-enhanced ETFs being allowed a maximum counterparty exposure of 10% and a requirement for the underlying assets held by the ETF to be consistent with the investment objective of the fund. As such, the basket of assets which make up BetaShares ETFs can only be ASX300 stocks related to the index being tracked or cash as outlined in the product disclosure statement. In addition, since inception, any counterparty exposure in BetaShares synthetic ETFs has been less than 0.5% of the NAV as part of its stricter self-imposed standards. BetaShares as the responsible entity enters into arms-length agreements with swap counterparties that are not related entities, ensuring that BetaShares always acts in the best interests of the ETF investors. Similarly, the choice of physical assets that are owned byBetaShares ETFs is only influenced by BetaShares’ fiduciary duties to its unit holders.

“BetaShares looked at synthetic ETFs overseas and wanted to provide the benefits of moreaccurate tracking, lower costs and ultimately improved liquidity to reduce costs for investors, but without some of the less desirable structural elements that are present in foreign markets. We firmly believe that investors should expect uncompromised transparency in ETFs. As a firm, we are committed to upholding this principle, both in respect of our physical replication ETFs as well as our synthetic ETFs,” he said.
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For example, by visiting the BetaShares website, investors can see the exact basket of shares which are held by BetaShares synthetic ETFs.“Although there may be some undesirable practices occurring in overseas ETF markets, we believe BetaShares and Australian regulators are lifting the standards by which all synthetic ETF issuers should be assessed. We believe the evolution of ETFs to a synthetic structure can provide advantages which are unavailable from physical replication alone and will continue to work with regulators to ensure they remain the robust structures that ETF investors expect,” Mr Corbett concluded.
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Further information can be found at www.betashares.com.au and www.asx.com.au.

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At the end of May 2011, the global ETF industry had 2,747 ETFs with 6,079 listings and assets of US$1,446.6 Bn, from 142 providers on 49 exchanges around the world.

This compares to 2,218 ETFs with 4,478 listings and assets of US$1,044.1 Bn from 131 providers on 42 exchanges at the end of May 2010.

We expect global AUM in ETFs and ETPs1to increase by 20–30% annually over the next few years, taking the global ETF/ETP industry to approximately US$2 trillion in AUM by early 2012.

Considering ETFs separately, AUM should reach US$2 trillion globally by the end of 2012, US$1 trillion in the United States in 2011 and US$500 billion in Europe in 2013.

Taking ETFs and ETPs together, United States AUM should reach US$2 trillion in 2013, with European AUM reaching US$500 billion in 2012.

Click to view top performing ETF and ETP funds in ETF Landscape Industry Highlights

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“The superannuation industry has worked hard for many years and has made huge strides towards better engaging members with their super. In fact, the industry has been focused on the ‘engagement conundrum’ for so long, we think it is appropriate to pause and ask the question: ‘When does the engagement finish and the real marriage begin?’ said Decimal Managing Director Jan Kolbusz.

A online study* of over 1000 Australians commissioned earlier this year by the Australian Institute of Superannuation Trustees (AIST) and Russell Investments showed us that many Australians still have large gaps in their retirement savings, and that “over half (of people aged over 46) say they are running out of time to build a retirement nest egg”.

“This is a worrying statistic,” Mr Kolbusz said. “And while the study also showed some overall improvement in engagement by Australians with their super, we believe that committing resources to building appropriate online tools and personalized, self-start financial modeling guidance will fast-track member engagement to sophisticated and measurable levels.”

Mr Kolbusz said the industry also has the opportunity to take technology-enabled engagement to new levels:  “Funds must avoid the trap of equating online engagement with simply popping an intra fund statement of advice into the hand of every member. The spectrum of engagement runs much deeper and should account for multiple member needs and life stages.

“End-to-end tools’ like the Decimal SmartCalculator, developed over years of research and development, provide a simple and scalable building block as funds gear up for unprecedented member engagement – let’s call it marriage – moving forward,” Mr Kolbusz said.

Click to download a copy of the online study  Tuning into Super by Russell Investments and the Australian Institute of Superannuation Trustees (AIST).

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