Educating children is becoming an increasingly expensive business, and year on year the costs consistently outstrip inflation. Unfortunately on the education front, families educating their children are falling behind.

“More and more it would appear that grandparents are stepping in to fill the education savings gap,” Mr Walsh says.

“Nearly one quarter (over 23%) of Lifeplan Funds Management’s education policies are commenced by investors age 60 or over.

“The needs of retirees wanting to fund their grandchildren’s education are twofold. Typically, these grandparents are seeking the ability to retain control and, if needed, access the investment for their own use should an unexpected situation arise.  However, they are also concerned with ensuring they are not paying any unnecessary personal tax and protecting their entitlements, such as the Commonwealth Senior Health Card.

“Education funds, such as those on offer from Lifeplan Funds Management, are an attractive option, as it ticks these boxes for the grandparents and provides benefits for the grandchildren,” Mr Walsh says.

The Lifeplan Education Investment Fund is a “scholarship plan” in accordance with the Income Tax Assessment Act 1997.  This entitles Lifeplan to obtain a tax benefit, which is passed on to the investor, worth up to $30 for every $70 of earnings used to pay education expenses.

Other features of this type of investment include the ability to choose to withdraw funds from contributions and investment earnings, and no annual tax obligations for the investor or the nominated student, while the investment remains in the Fund.

Mr Walsh cites the example of John and Jennifer, grandparents to the newly born Max. They want to provide education support of $10,000 each year of secondary education and for up to four years of tertiary – a total of 10 years.

If John and Jennifer invest $40,000 in the Lifeplan Education Investment Fund, and can assume annual investment returns net of fees and taxes of around 5 per cent. The chart below shows the investment outcome at the end of the chosen period.

“The combination of the capital, the tax paid earnings and the education tax benefit provide the desired outcome, and a balance remains at the end of the term,” Mr Walsh says.“Over the period of investment full access is available to the balance and in need, John and Jennifer are able to withdraw funds for non-education purposes.

“Based on their specific circumstances, no personal tax liability will be incurred on annual investment earnings.  In addition, they are not required to include any investment return for ongoing access to entitlements such as the Commonwealth Senior Health Card.

“Provided their grandchild Max is not in receipt of any other investment income, he will not pay any tax on the education withdrawals.”

When Max’s education has ceased, John and Jennifer have a number of choices regarding any remaining investment balance.

They can:

• Leave the investment for any other future education Max may undertake.
• Retain for their own use.
• Cash out the balance (although they will not be eligible to receive the education tax benefit) and in the example, no personal tax would be payable.
• Transfer the ownership of the investment to Max for any ongoing tertiary studies.  There are no tax implications to either John and Jennifer or Max for doing this; however, stamp duty may apply in some states.
• Change the nominated student beneficiary from Max to another grandchild.

“John and Jennifer are also able to nominate a plan guardian to provide greater certainty about who will look after the education fund should they die or become intellectually disabled.

“Additionally, beneficiaries can be nominated who would automatically receive any account balance should Max die after the death of John and Jennifer,” Mr Walsh concludes.

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[1] http://www.abs.gov.au/ausstats/abs@.nsf/mf/6401.0

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Andrea Slattery

The SMSF Professionals’ Association of Australia (SPAA) has told a parliamentary inquiry that the education and training requirements for the financial advisory industry need to be radically overhauled.

In 21-page written submission to the Parliamentary Joint Committee on Corporations and Financial Services, SPAA argues that the current system of a minimum standard of education and competencies for financial advisors via ASIC’s Regulatory Guide 146 (RG 146) has failed the industry.

“We believe this (approach) has not succeeded in ensuring that advisors have the competencies required to provide high-quality advice to consumers,” SPAA’s submission says.

“RG 146 is not a flawed concept by itself as it simply outlines the minimum requirements expected by ASIC as a guide to advisors, licensees and education providers. However, too often the industry (licensees and educators) have interpreted the minimum requirements to be all that is required to be competent.

“This compliance-based approach leads to financial advisors being pushed towards a minimum level in a race to the lowest acceptable level rather than increased and improved skills that is the underlying aim of a professional level.”

SPAA CEO/Managing Director Andrea Slattery says the organisation outlined to the parliamentary committee five key steps to establish a profession for financial advice. They are:

• Adequate and appropriate education and experience requirements;
• A co-regulatory approach to regulating financial advice;
• Requiring professional association membership for market participants;
• Maintaining high ethical and professional conduct standards in the financial advice profession that each individual must be personally accountable for;
• Establishing professional remuneration models.

Slattery says by adopting this approach the industry would be embracing a “cultural shift” that embraces professionalism to encourage higher competencies rather than the current compliance driven approach.

“To achieve this outcome what is required is a co-regulatory approach that is more appropriate to lift standards of financial advice through education and training.

“It would allow professional associations to drive professionalism by setting their members higher levels and stringent competency and training requirements.

“ASIC would approve professional associations that can regulate advisors under this framework, replacing the regulator’s need to dictate and be responsible for minimum education standards.”

She says continuing professional development (CPD), as required under RG 146, is a prime example of why SPAA thinks the current system requires radical change.

“The need to undertake CPD is currently driven by a compliance-based approach where advisors are required to undertake a certain amount of CPD over a set period.

“This results in advisors often undertaking training that maintains their current knowledge to just meet the absolute minimum rather than being extended and challenged through new learning and improved knowledge.”

SPAA believes that professional associations should be given the task of setting the CPD requirements for their members.  This would ensure CPD would become more orientated to improving and challenging advisors’ skills rather than being viewed as a mere compliance requirement.”

SPAA’s submission stresses the importance of improving professional, ethical and educational standards in the financial services industry.

Slattery says: “SPAA is adamant that the professionalism within the financial services industry, especially in financial advice, needs to be lifted in order to create a robust industry that can consumers can trust and engage with confidence.

“This is particularly important as Australia shifts to an older demographic where financial advice will be crucial to ensure Australians can retire with dignity and increased self-sufficiency.”

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• Industry employment: Employment rose by 119,800 over the three months to August – the biggest quarterly increase in over almost a decade (since November 2004).
• Mining jobs fall: Mining employment fell by a record 27,100 jobs in the August quarter.
• More jobs in Education than Manufacturing. The number of people employed in the Education & Training sector now exceeds those employed in Manufacturing for the first time.

What does it all mean?

• The baton continues to be passed from mining to other parts of the economy. In the past three months, a record 27,100 jobs were lost in mining after falls in the previous six months. But more importantly, the jobs lost in mining and parts of the public service are being more than absorbed in other parts of the economy.
• The latest data confirms large scale job creation in the three months to August with more jobs created than at any three month period in a decade. More people in jobs, means more spending and therefore more momentum for the economy.
• Many Australians are still rubbing their eyes about the extent of job creation in the economy. But it is important to note that 97 per cent of businesses in the economy employ less than 20 people (88 per cent have less than four staff). And if small and medium-sized business picks up an extra worker here and an extra worker there, it all adds up.
• The Reserve Bank won’t be in a rush to change monetary policy settings. The RBA wants to ensure that the ‘baton change’ goes seamlessly and will make sure the baton isn’t dropped along the way.
• Australia continues to change from a manufacturing nation to that focussed on services. Thirty years ago manufacturing employed double the number of jobs as the education sector. Even a decade ago there were 30 per cent more people in manufacturing than education. Hopefully this new focus on education and training means a regular supply of productive staff for businesses.

What does the data show?

Industry employment:

• Economy-wide employment rose by 119,800 in the three months to August 2014 – the fastest growth in almost a decade (since the three months to November 2004). Over the year jobs rose by 252,500 – the most in three years.
• Employment rose in 13 of the 19 industry sectors. Employment rose most in Education & Training (up 31,800), followed by Health Care & Social Assistance (up 30,400) and Retail Trade (up 26,200).
• In the quarter, jobs fell the most in Mining (down by a record 27,100) followed by Administrative and Support Services (down by 23,400) and Public Administration and Safety (down by 14,900)
• Healthcare remains the biggest employer with 1.42 million employees (12.2 per cent of the total) followed by Retail Trade (1.26 million jobs or 10.8 per cent) and Construction (1.05 million or 9.0 per cent).
• Education & Training sector has passed Manufacturing for the first time in terms of people employed. Education & Training is the fifth largest employer with 937,600 jobs with Manufacturing at 917,900 jobs.

What is the importance of the report?

• The Australian Bureau of Statistics (ABS) provides detailed labour market figures one week after releasing ‘top level’ statistics of employment & unemployment levels across states and territories. The detailed data is useful in identifying broader underlying trends and instructive about the health of the economy.
• In the broader (macro) economy, the job market trends are positive. More in jobs, and more businesses looking for staff. The lift in productivity and weak wage growth are further positives for the hiring of staff. And more people in work, means more spending. Jobs lost in some sectors are being picked up in others.
• But at a regional level, the changes in the job market mean a degree of pain is being felt. Mining regions are shedding jobs, causing workers to travel farther afield to get jobs or to shift into other industries such as construction.
• The Reserve Bank will continue to monitor the ‘baton change’ but it must be happy with what it sees. Rates clearly won’t be cut in coming months, but it is still too early to talk about rate hikes, especially with inflation well contained.

What are the implications for interest rates and investors?

• In the broader (macro) economy, the job market trends are positive. More in jobs, and more businesses looking for staff. The lift in productivity and weak wage growth are further positives for the hiring of staff. And more people in work, means more spending. Jobs lost in some sectors are being picked up in others.
• But at a regional level, the changes in the job market mean a degree of pain is being felt. Mining regions are shedding jobs, causing workers to travel farther afield to get jobs or to shift into other industries such as construction.
• The Reserve Bank will continue to monitor the ‘baton change’ but it must be happy with what it sees. Rates clearly won’t be cut in coming months, but it is still too early to talk about rate hikes, especially with inflation well contained.

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Weaker Australian dollar creating opportunity in many sectors.

The weaker $A will benefit tourism, education, agricultural and even the mining industry, a leading fund manager says.

Pengana Capital’s Australian equities fund manager Rhett Kessler says ‘a lower $A represents lower global purchasing power for us as consumers. However, we expect several important domestic industries to benefit materially from the currency shift’.

‘These include the tourism, education, agricultural and even, dare we say it, mining industry. Many companies have been forced to streamline their operations to cope with the high $A.’

Although we have been biased towards a weakening $A for some time, the speed of its decline has been surprising.

Kessler is pessimistic about the short- to medium-term outlook for discretionary spending and employment levels, despite the falling $A possibly translating into very high profits for some companies.

‘Having said this, we expect most domestically orientated companies to report muted trading activities (at best) while also being cautious in their outlook statements.

‘The recent unusual political activity continues to impact negatively on consumers and corporates alike while the unseasonably warm winter has severely dented discretionary fashion retail sales.’

Commenting on the US Fed ‘frightening’ investors during May and June with several ‘tapering’ of fiscal stimulus statements, Kessler says the Fed highlighted its flexible approach to ensure a sustained US economic recovery.

This saw a widespread relief rally with most equity markets – S&P500 (+4.9 per cent), FTSE 100 (+6.5 per cent) and the Euro Stoxx 50 (+6.4 per cent), closing significantly higher.

The Australian market followed with resources (+10 per cent), materials (+9 per cent) and energy (+6 per cent) leading the charge.

Conversely the weaker sectors were REITS (-1 per cent), information technology (0 per cent) and consumer staples (+1 per cent).

The Australian dollar continued its slide against the US dollar falling another 2 per cent (to print) to below 90c for the first time since August 2010.

‘It appears that the combination of political uncertainty, a deteriorating fiscal position, weakening mining sector and persistent concerns regarding the outlook for the Chinese Economy continues to weigh on the domestic economy (read lower interest rates) and consumer confidence,’ he says.

The long list of companies issuing profit warnings during the lead-up to the 2013 financial year reporting season has highlighted the impact these issues are having on trading conditions.

Mining services companies have been hit particularly hard due to the triple whammy of:
a) a difficult comparison with a robust prior period
b) the sharp slowdown in mining activity generally
c) the effect of the larger mining houses laser-like focus on cost-cutting

While this may provide some relief for financial and industrial companies due to less competition for scarce resources (labour and capital in particular), the transition is expected to take some time and be the source of some pain, says Kessler.

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ASIC has decided to delay work on the implementation of the exam to allow appropriate time for other reforms to be implemented in the financial advice sector, notably the Future of Financial Advice (FOFA) package.

ASIC views the exam as a very important initiative to ensure consistent national standards for advisers. ASIC will continue to explore options to implement this proposal at the appropriate time once the FOFA reforms have been bedded down.

In the coming months, ASIC will also consult on enhancements to the training standards for financial product advisers. ASIC’s proposed enhancements to the training standards for advisers underline the importance of strengthening the framework for adviser competency and thereby improving the overall quality of financial advice.

‘We want consumers to have greater access to quality financial advice and greater confidence in advisers. Having this framework in place, including the enhanced training standards, is an important element in achieving this objective,’ ASIC Chairman Greg Medcraft said.

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ASX became the first exchange outside of North America to establish a listed equity options market in 1976. Today, ASX lists equity options over the most liquid and highly capitalised Australian companies. In the year ended 30 June 2011, the volume traded for all ASX exchange-traded options (ETOs), including equity options, increased 6.9% compared to the previous year.

In March and May 2011 ASX made two significant changes to the equity options market – reducing the contract size from 1,000 to 100 shares per contract and increasing the quoting requirements for market makers.

David Stocken, ASX Senior Manager Institutional Sales, said: “ASX introduced the changes to improve the quality of the ETO market. Reducing the contract size brings ASX into line with global standards, delivers more liquidity and attracts new market entrants. Increasing the quoting requirements for market makers enhances price discovery.”

The recent period of dramatic market volatility provided a timely reminder of the potential benefits equity options can provide as risk management tools in a flat or downward trending market.

ASX Options Ready will be delivered in two different streams:

• ASX Options Ready for super funds focuses on the portfolio optimisation benefits that options can
  deliver via mechanisms such as the buy-write and the collar strategies. It also includes an overview
  on how the ASX equity options market functions
• ASX Options Ready for managed funds reviews popular trading strategies and provides detail on
  the mechanics of dealing into the ASX equity options market. It also includes worked portfolio
  margining examples and explains how Tailor Made Combinations work.

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To mark the opening of nominations for the 2011 AFA Adviser of the Year award, Zurich Life & Investments Australia (Zurich) has launched its Zurich Life TV channel on YouTube. The channel is designed to make it easier for advisers to access video content across more devices.

To celebrate the launch, Zurich has released a series of short videos featuring the finalists from the 2010 AFA Adviser of the Year award.

Across the ‘Tips from the Top” series, last year’s finalists share insights into the key drivers of their success, with individual videos covering marketing, networking, technology and client care.

“Whilst the fundamental drivers of adviser success have remained the same for decades, the nature of those drivers is clearly evolving” said Mr Colin Morgan, Chief Executive of award sponsor Zurich Life & Investments.

“Technology and marketing are just two areas where advisers are increasingly able to differentiate themselves and the evolving social media landscape really brings these two areas together.
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“That’s why we thought YouTube was the perfect medium to share the wisdom and insights of our industry’s most elite advisers,” said Mr Morgan.
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A Zurich survey of 700 advisers earlier this year found that 10 per cent of advisers owned iPads with a further 40 per cent planning to buy an iPad or other tablet device during 2011.
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“Online content is increasingly being accessed through apps rather than traditional browsers and the launch of our YouTube channel will make our content easier to view across more mobile devices” said Mr Morgan.
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Click to view The Tips from the Top series on YouTube
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Nominations for the 2011 Adviser of the Year Award open June 1st.

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To achieve economies of scale dealer groups are rapidly expanding via acquisition

ASIC is targeting aggregator licensees to ensure they maintain advice quality

Strategy Steps is meeting growing demand for scalable solutions such as outsourcing

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A regulator focus on rapidly growing financial planning aggregators and on new training and assessment standards for financial advisers has led to a call for financial planning groups to consider quality outsourced technical and financial planning strategy solutions.
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Assyat David, Director of Strategy Steps, said that financial planning aggregators are looking to grow via rapid acquisition of advisory businesses, a trend that has attracted the attention of regulator, the Australian Securities and Investments Commission (ASIC), which has said it will target these groups to ensure advice quality is maintained.
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“There’s a justifiable fear that rapid acquisition activity may distract financial planning groups from their core business of servicing clients due to the difficulties of ensuring that support services keep up with the size of the group and in turn compliance obligations may be breached, putting licence conditions at risk,” Ms David said.
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“The increasing compliance burden is a challenge for advisory groups but also means individual advisers may need assistance to offer clients the most up-to-date information on legislative changes and relevant financial planning and technical strategies,” she said.
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The regulator has also announced proposals for a new training and assessment framework for financial advisers which, if implemented, would mean all advisers may have to pass a financial services competency certification exam and undertake a Knowledge Update Review every three years on changes to laws, market issues, new products and professional development requirements.
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“New training and assessment standards will raise the bar for financial advice, but will also place added pressure on advisory groups,” Ms David said.
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Ms David says regulatory and compliance pressures and a move to fee for service are prompting advisory groups to consider an external outsourcing solution to ensure support services keep up with the needs of the group and to offer timely, client-focused financial planning strategies.
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Strategy Steps’ own Desk Caddie package offers timely legislative and technical updates; as well as practical step-by-step financial planning strategies. Importantly, the package also contains ideas on how financial planners can use current strategies to generate new business and marketing opportunities.
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“Top quality outsourcing solutions empower financial planning groups to grow, while assisting advisers to remain productive and client focused in the face of constant market and legislative changes,” Ms David said.

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CMC Markets has continued to expand its team within education and market analysis with the appointment of Michael McCarthy as Chief Market Strategist.

Mr McCarthy joins CMC Markets from City Index where he held the position of Head of Dealing Asia Pacific, overseeing global market risk while leading research and education strategies. Based in Sydney, Mr McCarthy will be responsible for global and local market analysis, the formulation of trading strategies and playing a key role in education.

Mr McCarthy comes to CMC Markets with over 27 years of experience in financial markets, specialising in equity trading, derivative trading and trader education. Previously a Director of Derivative Trading at ABN Amro Australia and Vice President of Equity Derivatives at Citi Group, Mr McCarthy has also held positions such as option market maker, money market dealer and foreign exchange arbitrager. He holds a Masters Degree in Applied Finance from Macquarie University.

Louis Cooper, co-Head of CMC Markets Australia and New Zealand, said: “Education continues to be a big focus for us. Michael brings a vast wealth of experience which will be invaluable to support the growth of CMC Markets and in particular its stockbroking and CFD education efforts.”

CMC Markets is already rated the number one CFD provider for education in Australia according to the latest Investment Trends report¹ and offers a range of educational tools across both its stockbroking and CFD businesses including tutorials, webcasts, user guides, webinars, seminars, education blog and online articles.

Mr McCarthy said: “This new role gives me scope to further develop some of the areas of trading I am most passionate about – employing a strategic approach to trading, looking at all asset classes and markets, conducting in-depth analysis and using a full arsenal of trading tools to highlight key market opportunities for CMC’s clients.”

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