Leading research house Lonsec has warned investors to stay alert for structural risks in Australian REITs as the sector continues to rebuild and prosper.

Lonsec’s 2014 A-REIT Sector Review, released today, showed Lonsec’s peer group of active A-REIT managers achieved returns of 12.7% over the year to 30 June 2014 and 15.4% annually over five years. Investors also enjoyed an annual distribution rate of more than 5%.

However the report also identified several ongoing risks in the sector including significant concentration risk across all 23 funds surveyed, and ongoing shrinkage in the sector due to corporate activity.

Peter Green, Senior Investment Analyst at Lonsec and principal author of the report, said the sector “continued to perform in a stellar fashion in 2013-14.”

A-REITs’ strong returns are the result of several factors. The sector has benefited from cheap funding and a fall in capitalisation rates due to the decline in government bondyields. Valuations of properties have been boosted by strong demand for institutional grade assets from both listed and unlisted entities.

In terms of ratings of the 23 A-REIT funds assessed in the report, there were five upgrades and four downgrades. Of the five that were upgraded, one – BlackRock Indexed Australian Listed Property Fund – was assigned Lonsec’s premier ‘Highly Recommended’ rating.

Flagging risks

The report found that there was significant concentration risk across all 23 funds surveyed. Because of the structure of the A-REIT sector, each of the funds typically has a substantial exposure to a small number of securities. At the end of July 2014, the ten largest stocks accounted for around 89% of the capitalisation of the S&P/ASX 200 A-REIT Accumulation Index (XPJ). The five largest names accounted for about 62%. These figures have remained broadly unchanged over the last year.

A related challenge has been the shrinkage of the sector over the last year thanks to corporate activity and the potential that Westfield Corporation (WFD) could redomicile to the United States. Lonsec believes that this will place greater emphasis on capacity management as a driver of success for fund managers in the sector. Some managers may find that their relatively large size makes it harder for them to generate alpha.

Lonsec notes that investors, and their advisers, need to remember that A-REITs are listed securities and that returns will be subject to normal equity market risks. Some stapled securities, such as Mirvac (MGR) and Goodman Group (GMG) also have large exposures to cyclical earnings streams from property development and asset management. The sector has, however, had a more defensive nature for some time, thanks to the A-REITs’ ‘back to basics’ approach following a disastrous period during the global financial crisis.

“In short, concentration risk is not the only issue that investors need to consider when investing in the A-REIT sector”, said Mr Green. “Nevertheless, the changes to capital structures that were undertaken by corporate managements following the global financial crisis laid the foundations for the strong absolute returns that have been achieved in recent years.”

Active versus passive

Within the A-REIT sector, the average Lonsec manager has been able to justify their ‘active’ fees charged – having generated alpha of 1.1% annually over five years and 1.6% in the 12 months to the end of June. Active managers have successfully fought back against the low cost index strategies that have proliferated over the period.

Lonsec noted that, in a fee competitive environment, A-REIT funds increased their ‘active share ’(i.e. the percentage of the portfolio that differs from the relevant benchmark) through 2013: in particular, more ‘benchmark aware’ managers (i.e. those that face the greatest competition from low cost index funds and exchange-traded funds) made a concerted effort to lift their level of active share.

Nevertheless, Lonsec is agnostic about the ‘active versus passive’ debate in the A-REITs sector. Lonsec accepts that, for more fee conscious investors, an index approach to A-REITs can make sense if investors are comfortable holding such a large exposure to the retail sector.

Conversely, Lonsec believes that investors who are looking for alpha from their A-REIT exposure should consider an active manager. “There are several aspects that we seek from active managers”, notes Mr Green. “These include experience ‘through the cycle’, as well as proprietary commercial property experience. We also look for a less ‘benchmark aware’ approach, which means that the manager can take meaningful positions away from the ‘top ten’. Finally, we like to see the depth of research coverage, so that the manager can thoroughly investigate smaller, or non-index, opportunities.”

 Other key findings of the report include:

• There have been limited new entrants in the sector outside of the ETF/index space.
• Many A-REIT fund managers that are focusing on the sector have been creative in attempts to reduce concentration risk. Some have invested in globally listed property securities or listed infrastructure securities. Others have taken larger active positions in A-REITs that lie outside the ‘top ten.’
• The merger of Westfield Retail Trust (WRT) with Westfield Group’s (WDC) Australian and New Zealand businesses to form Scentre Group (SCG) reduced the need for the A-REIT fund managers to spend a disproportionate amount of time analysing one stock. Before the deal, WDC and WRT accounted respectively for 27% and 10% of the benchmark. Afterwards, SCG accounted for 19% of the index; the slimmed down Westfield Corporation, for 16%.

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Valuing your worth: appropriate fees for good service.

FOFA has certainly created a whirlwind of turbulence and many advisors are facing the reality of implementing the changes that this legislation has prescribed.

Charging fees has been one of the main protagonists of this legislation creating an array of emotions from anger, disbelief and frustration to optimism and positive expectancy. The truth is that it’s here to stay and the only factor that we can control is the way we choose to relate to it.

If we search for the silver lining what could it be and if we are to look at it with new eyes what possible benefit can there be that will sponsor positive emotion?

In answering this question we first need to be reminded about the real reason that clients engage with you.

Every sale is based on emotion backed up by logic. One of the key emotional needs that client’s expect their advisors to satisfy is the need for safety and security. It is a fundamental need second only to having a roof over their heads and food to eat. What a tremendous responsibility to carry knowing that the advice you give is a primary and essential factor in fulfilling such a core need.

Now for a brief moment think about all the actions you have taken up until now that has culminated in you being the expert advisor. Think about all the time, money and effort you have invested in providing sound knowledge, quality advice and professionalism.

What price would you put on it?

I’d now like to offer the following scenario. Let’s say you became ill and chose to consult with a particular medical specialist. Do you pay her for the consultation or do you pay her for her expertise in giving you an accurate diagnosis and the appropriate treatment? Furthermore, do you think she should have an issue or feel uneasy about charging her professional rates?

Perhaps only if she feels unqualified or has a low self-worth. As a financial specialist, charging fees opens a wonderful opportunity for you to perhaps, for the first time, talk about your value proposition.

If you met a prospective new client who was making the choice between you and two others advisors, what would be your uniqueness and why should they choose you?  Being very clear and confident about what it is an important factor in your comfort level about charging fees.

How aligned or even proud are you in charging your client fees for what you do for them?” The degree to which you are aligned and proud will have a dramatic affect on your client’s acceptance of your fees. If fees are making you freeze, it’s an indicator of resistance within yourself to it.

Most of the discomfort about fees from a client’s perspective is that it’s something different to what they are accustomed to and that their belief system about needs to change about how you are remunerated.

People pay for quality and emotional fulfilment. Good restaurants are full, expensive brands are still being purchased and overseas holidays booked.

Being comfortable and proud will enable you to be in right mindset to have a conversation with your clients about your remuneration. I’m of the opinion that we should not talk about fees and charges but rather about the way you get paid for your time and expertise.

Talk with your clients about the actions you take in providing the high level of professional advice. The facets of preparing the SOA, the focus and time taken in giving accurate and sound information, the investment you make in your own continuing education and advancement, the research you undertake and the high level of professionalism are a few such actions.

Many client’s are unaware of what goes on behind the scenes and having a discussion of this nature provides them with greater insight into what you do for them and acceptance an appreciation that your fees are well justified. Discussions of this nature build stronger client relationships.

As with many new challenges in life it’s not what happens to you that matters most but rather the way you think about it.

Feel deserving of the fees you charge with the knowing that it’s incomparable to the value you bring. It should be a ‘No brainer” and if it’s not there’s work to be done.

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Meiron Lees has been mentoring advisors for over 15 years after having been a successful advisor himself for many years. He uses his sound knowledge and experience in assisting advisors to gain objectivity and to reach the next level of success. For further information click here or email Meiron at meiron@innercents.com.au

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Regulatory Guide 245 Fee disclosure statements (RG 245) outlines the requirements that will apply to AFS licensees and their representatives who receive ongoing fees from retail clients they have given personal advice to.

Under the FOFA reforms, advice providers receiving fees for giving personal advice under an ongoing arrangement with a retail client must provide the client with an annual FDS setting out information about:

• the fees paid by the client
• the services provided to the client, and
• the services that the client was entitled to receive.

This obligation is designed to help clients determine whether the ongoing fees they are paying are proportionate to the services they have received, or they were entitled to receive.

This regulatory guide explains:

• the FDS obligations and when they apply
• who must give an FDS
• the circumstances giving rise to the obligation to give an FDS, and
• the information that must be disclosed in the FDS.

The regulatory guide also sets out three limited no-action positions ASIC is taking to assist industry make a smooth transition to meeting the FDS obligations within the FOFA regime.

ASIC Commissioner Peter Kell said the regulatory guide addresses industry queries and assists with industry preparations to comply with the new obligations.

‘This guidance provides an indication of what ASIC’s approach will be in administering these important provisions, which are designed to provide clients with an opportunity to assess whether they are getting value for money for the advice they receive.

‘Following consultation ASIC has released this regulatory guide to address practical difficulties for industry participants in complying with the fee disclosure statement obligations, without undermining the consumer protection goals of the provisions.

‘ASIC will take a facilitative approach for the first 12 months of the FOFA reforms, until 1 July 2014. We expect industry participants to make a reasonable effort to comply with the new regime, and we will take a measured approach where inadvertent breaches arise, or system changes are underway.

‘However, where we find deliberate and systemic breaches we will take stronger regulatory action.

‘We look forward to continuing to work with industry in the lead up to the compulsory compliance date for FOFA on 1 July 2013,’ Mr Kell said.

For information about ASIC’s FOFA workshops, click here.

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For very many advisers the prospect of speaking about fees with a new or existing client is something they would rather avoid if it were possible.  This is particularly so for advisers who have been paid by a third party for many years and not directly by the client. While ultimately in such situations the client was the payer – either through a deduction from their capital at the point of investment or via a higher Management Expense Ration (MER) to fund a trail commission – it wasn’t as confronting as having to ask the client to pay directly.

In a similar vein to how the GST onset saw many ‘shoe box’ businesses fold because of the perceived complexity of Business Activity Statements and the like, I suspect with the advent of FOFA and the abolition of commissions save for existing investments, many advisers are thinking it’s all too hard to ask the client to pay directly.

However, it really is possible to learn how to discuss fees with clients in such a way that it becomes a very natural part of a client meeting.  It is largely in the mindset that needs to be adopted and the words and tone of discussion used when speaking about fees with clients.

Setting the Scene
Having a successful fees discussion with clients is not just about the verbal conversation.  There is a lot that you can do to ‘set the scene’ for clients so that they automatically expect fees to be the way you do business. It’s about non-verbal messaging – from business logos, signage; from stationery to websites and brochures to your reception area to the way in which you written word is formed in all your correspondence with clients.

Getting such messaging right helps to prepare a potential client that, as professional advice firm, you will charge professional fees.  The key point is that setting the scene makes it so much easier for you when the conversation needs to focus on how the client is going to pay for your services.

The ‘F Bomb’
While Financial Services Guides (FSG) must detail how an adviser is paid, at some point in a new client meeting you have to drop the ‘Fees Bomb’.  For many it remains a stumbling block when they begin to utter the word ‘fees’ however the key point here is that there is no set point in every new client meeting where fees must be discussed.

Real life is never as prescriptive as that and so it’s important for advisers to sense when it is most appropriate to speak about fees during the meeting.  That said, it must happen and you will look far more professional if you do so near the beginning and it certainly not be tacked on to the end of the discussion.

Some suggested wording:

Adviser: “… and so the process usually takes around three weeks from today before we meet again to discuss your written recommendations which will be in a document known as a Statement of Advice.  That said I need to walk you through our fees for each step of the advice process and portfolio management.  You might have noticed that our fees are recorded in the Financial Services Guide but I just want to go over them with you now so you can raise any questions you might have.”

The next client you meet with will be different and the way in which the meeting unfolds will be different to the last.

Client: “Before we go any further can you tell me how much this is going to cost me?”

Adviser: “Yes certainly. For today we do not charge as per the information in our Financial Services Guide.  If you would like us to prepare a Statement of Advice for you, our fee is a minimum $X. This fee is in recognition of our time costs in analysing your situation and your objectives and then developing a strategy to take you forward. We will present our advice to you in writing in the Statement of Advice at the next meeting.”

Client: “But what other charges will I have if I become a client?”

Adviser: “Well – if our advice includes investment recommendations – we will invite you to engage us under our portfolio management services. At this point I can’t say what that will cost however we levy our fees as follows…This means that on a $100,000 portfolio it would cost $X per year for us to manage it.”

Of course, if you operate on hourly fees or flat fees your example fee will need to be relevant.

At first, telling new and existing clients can be daunting for some however, like many things in life, the more often you do it the easier and more natural it becomes. Interestingly, the more often you do it the more relaxed your delivery will be and the more a ‘it’s the way we do business’ air of confidence will permeate every such discussion.

Remember – you will not be the first person your client deals with who charges them a fee and you won’t be the last.  If you are providing professional advice you have every right to charge a fee for services rendered.

Do you charge a fee for the first appointment?

Anecdotally at least, I sense that more advisers are charging for the initial meeting with a client. There will be various reasons for this however they could include:

• Wanting to place a value on the time that is otherwise given away with free first appointments in the hope that a potential client goes on to seek formal advice and perhaps engage the firm or
• Wanting to reduce the propensity for free appointments attracting ‘advice shoppers’ – people who ‘shop around’ for advice with little or no intention of engaging any financial planning firm

In the arena of fee charging, for some advisers, this will be a bridge too far just yet however, for those who are thinking about heading down this path, there are some key steps to have in place before charging for initial appointments.

Firstly, of course, there is the question of how much you will charge and that’s purely a matter for you and your colleagues. However, there is a delicate balance to be achieved here – you might want the fee to achieve, for example, some measure of cost recovery for your time, however equally you would not want to set the fee at such a level that it deterred most potential new clients from making a first appointment.

Secondly, you need to think about how the person wanting to make a first appointment is going to be told that there is a fee to be paid for it.  Naturally, it needs to be in your Financial Services Guide but it could be that the first opportunity for them to find out about the fee is when they telephone to make the appointment.

The question for you here is who will tell them?

• Your receptionist?
• Your assistant?
• Or you?

Regardless of who it is, that person needs to have a, for want of a better word, ‘banter’ which politely, professionally, notifies the caller of the fee. So, consider this type of dialogue:

You: “Thank you for calling Mrs Smith, we have an appointment available on Xth of September at 10am if that would suit you?”

You: “Oh that’s good – it works well then. Mrs Smith I just need to let you know that we do charge a fee for the appointment and it is at $X including/excluding GST.”

Client: “Oh I see – do I pay that on the day or do you send me an account?”

You: “You’re welcome to pay it on the day or we can send you an account, whichever you prefer.”

Or

Client: “I see – gee I wasn’t expecting there to be a fee. What’s that for?”

You: “Well the fee covers the time we will spend with you at that appointment which is typically going to be at least an hour – sometimes an hour and a half or so.”

Client: “OK – so will you advise me what I need to do at that appointment?”

You: “We will be able to have a general discussion about your situation however we are not able to give you specific advice at that meeting.  The reason for this is we need time to develop a very detailed understanding of your current situation and what you are trying to achieve. In addition, it’s likely we will need some additional information about your situation before can decide on the most appropriate way forward for you.”

Client: “So what are the costs for getting the actual advice, then?”

And on the discussion would go.

This is the next fee challenge for financial advisers/planners – reaching a point of being sufficiently, professionally, confident to charge for the time which could otherwise be devoted to people who are already clients and who are already paying fees. Charging for a first appointment might not be for every adviser however, that new client who you didn’t charge for the first appointment will likely handover several hundred dollars for their next consultation with their medical specialist.

Note: The accreditation for this CPD article is no longer current. Please visit our CPD section for current CPD quizzes. 

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Centuria Property Funds has received overwhelming support from industry and financial planning groups following the introduction of a series of initiatives to increase the rights of investors in direct property.

The peak industry body representing the direct property investment industry – the Property Funds Association of Australia – has welcomed the initiatives, as have some of Australia’s largest financial planning groups.

Geoffrey Gedge, CEO of the Property Funds Association of Australia said the initiatives would help the industry restore faith with investors.

“Centuria is leading the market in demystifying property as an asset class and this benefits not only investors but the sector as a whole,” Mr Gedge said.

“The Investor Rights initiatives address an issue that the industry has long been criticised for and that is not effectively and explicitly aligning the interests of the manager with the underlying interests of investors. The two are inextricably linked.

“There are different components that make up a good property investment – and choosing a manager that is clearly committed to act in their best interests is an important element. These new initiatives will help investors get it right.”

Mr Gedge said, “we’ve also had discussion with The Financial Planning Association who have  backed the initiatives, welcoming the increased transparency and investor protection.”

The Centuria initiatives, announced last week, are to be incorporated into all Centuria’s property funds, including its latest unlisted single-asset fund, 8 Australian Avenue, include:

Investor control over the Responsible Entity: Under the Corporations Act, the support of 50 per cent of all units held is required to remove the Responsible Entity. Centuria has reduced the voting level to 35 per cent of all units, and 50 per cent of units who actually voted – a far more realistic and achievable benchmark should investors wish to remove a manager.

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CEO of Century Property Funds, Jason Huljich, also noted that there has been an overwhelmingly positive response from financial planning groups.
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“Financial planning groups are increasingly recognising the benefits of commercial property as an asset class – steady returns, low volatility and genuine diversification – and are looking to boost allocation to property in client portfolios,” Mr Huljich said.
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“We completed the capital raising for 8 Australian Ave last week and received overwhelming interest from a number of large financial planning groups.
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“These initiatives are aimed at increasing transparency in this sector so planners and their clients are able to invest with confidence in the commercial property market.”

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Until some of the poor management behaviour endemic among unlisted property funds is addressed at the individual fund level, the sector will continue to encounter perception problems, according to Jason Huljich, CEO of Centuria Property Funds.

And as a consequence, Mr Huljich warned that both advisers and investors may miss out on the very real benefits that a well managed unlisted property fund has to offer: benefits such as steady returns, low volatility and genuine diversification. This is especially the case in the current environment, when there are strong pockets of genuine opportunity in commercial property, at the same time as limited growth in the equity market to date this year which is causing many investors to look for alternatives.

“It’s quite clear to us, and has been for some time, that as an industry we need listen to investors and put their rights first,” Mr Huljich said.

“There’s a pressing need for solutions to some of the fundamental flaws in the management of unlisted property investments, such as excessive and unfair fees, lack of investor control over even the most blatantly incompetent managers, ‘poison-pill’ provisions and poor governance that has led to a very concerning lack of manager transparency, to name a few.”

To address these issues, Centuria announces the launch of an industry first: a major investor rights initiative that includes four core amendments to management practice for its new funds – and it has called on other fund managers to do the same.

“Our investor rights initiative covers those areas that our own investors told us were the chief causes of concern,” said Mr Huljich.

The Centuria Investor Rights Initiative

1. Investor control over the Responsible Entity

In most funds, under the Corporations Act, the support of 50 per cent of all units held is required to remove the Responsible Entity. This is an onerously high bar that in practice can lead to situations where a patently incompetent incumbent remains. For example, even where 80 per cent or more unit holders who do vote, want to vote the manager out – if this still does not represent 50 per cent of the total unit register, the vote will be unsuccessful. Centuria has reduced the voting level required to remove Centuria Property Funds to 35 per cent of all units, and 50 per cent of units who actually voted.

2. Responsible Entity performance fee structures

Centuria believes that performance or success fees should be designed to align the interests of investors and the Responsible Entity. However, in practice this is a historically grey area in which funds have been able to charge the fee even with very low performance, because the specifications surrounding when such fees will be triggered are less than clear. In Centuria’s case, a performance fee will be charged only after investment costs are recovered AND there is a minimum 10 per cent Internal Rate of Return (IRR) per annum to the investor.

3. ‘Poison pill’ provisions

Many funds have ‘poison pill’ provisions which require the relevant fund to pay the Responsible Entity, even if the Responsible Entity is removed by a vote of investors prior to the end of a fund. Centuria’s funds do not include poison pill provisions, and in its view, no reputable fund should.

“We’ve seen big shifts in the unlisted property sector, with continuing consolidation to the point where there are only three or four large active unlisted fund managers that have survived and are doing well,” Mr Huljich said.

“As a consequence, investors can begin to approach the unlisted property landscape with a higher level of confidence than ever before. Credit providers will not support over-geared acquisitions, nor will they entertain allocation of scarce credit allocations for dubious managers.

“We believe that making changes to address these problems is the next step in the major shake-out the sector is now experiencing. Once practices have been changed to ensure that investor rights are at the centre of the management model, we believe that the sector will be able to deliver investors the full degree of its considerable potential,” said Mr Huljich.

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“The $82,000 is a number the industry fund movement calculated for a forty year period,” AFA National President Brad Fox said. “That’s less than the cost of a cup of coffee and a biscuit a day. And yet the difference that strategic financial advice can make to a client’s financial situation over the same period of time can translate to much higher superannuation balances and significantly better protection against the financial impact of early death, disablement and serious illness.”

Mr Fox said the industry funds rhetoric purposely ignores the impact and value of strategic financial advice – advice which takes into account a client’s overall financial situation and unique needs – in order to further its own agenda.

“It is quite evident from our Back to Basics consumer research that there is no consumer crisis in confidence in financial advice,” Mr Fox said. “The industry funds are, yet again, crying wolf.  We believe that Australians are much too smart to fall for it.”

Back to Basics, issued last year, revealed that consumers who receive advice not only highly value that advice, but are better off.

“The industry funds movement’s continued attack on financial adviser remuneration is an attempt to deflect attention away from its own member administrative fees,” Mr Fox said. “It is hypocritical on their part to argue for transparency around adviser remuneration when they do not themselves disclose how they are spending the admin fees they charge their members. As they are not-for-profit, they must be using admin fees to fund their multi-million dollar advertising campaigns in print and on TV. It’s hard to see how this use of money ‘profits members’.”

Mr Fox also argued that members’ fees must also be being used to pay for the provision of intra-fund advice. “The wages of call centre advisers providing intra-fund advice to members must be paid somehow. If not from members fees, then how?”

Mr Fox said it is time for all parts of the industry to work together. “While the industry spends a lot of time and money naval-gazing and polling consumers, the people of Australia continue to face much bigger issues – they are still grossly under-insured and have very little set aside for retirement. It’s time we all pulled together to help address these issues.”

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However, parties who’s sole interest is in seeing the destruction of the financial advice industry to improve their own competitive advantage such as directly marketed industry superannuation funds and other directly marketed funds management business seem to be the main players driving the reforms.

The overwhelming majority of advisers are concerned the proposed reforms will not achieve a positive outcome for the industry and feel that the major participants in the industry, “the Financial Planner Practitioners”, have been mostly ignored in the consultative process.

Financial planners feel that any reform needs to be implemented in a positive way that adds value and makes the Australian Financial Planning Industry a world leader. They don’t feel this is the likely outcome of current discussions.  Imposing reforms – such as some of those currently in play – that are designed to give a competitive advantage to one sector of the financial services industry over another will not only damage the entire financial services industry but will also be detrimental to the future wellbeing of our economy and the retirement incomes of many Australians.

Financial planners feel they are the minority opinion in how their industry should be reformed. Financial planners also feel that many of the major industry bodies who lobby Government on behalf of the financial planning industry are dominated by funds management companies – some of which are possibly conflicted in regard to the desired outcome of the reforms and may not represent a balanced view of the entire financial advice industry.

I have put together a reform wish list on behalf of – and based on feedback from – my industry colleagues.

So, in the interests of getting out a point of view which represents the thoughts of a good portion of financial planners, here is a good start to The Financial Planners’ Reform Wish List:

1. A level playing field for all participants in the financial services industry. Financial planners feel that some sectors of the superannuation industry are favoured over others. This creates oligopolies within the superannuation industry and is not ultimately good for competition or the end consumer.
2. A fair approach to transitioning from commissions to fee for service. Financial planning practices need to be given time to implement this change as it is no small task to transition clients to a new fee structure. At the end of the day when many long term financial planners built their practices, commission payments were a legitimate method for being paid for services – as it still is for most other industries in Australia in one form or another.  Look at how these people are paid: the legal profession, real estate agents, advertising companies, general insurance brokers, funds management and so on.  And don’t get me started on how the entire tax system is based not on a flat fee but on a percentage basis.
3. A level playing field for financial planner remuneration. If financial planners can no longer receive commissions paid from client’s fees in superannuation and other investment products, why is it okay for industry fund financial planners to be paid salaries that are funded by client’s fees? Isn’t this the same as – or worse than – a commission? Won’t this lead to the bulk of financial advice being provided by product manufacturers and take us back to the bad old days of 100% biased advice?
4. A consistent legal framework and consumer protection. Financial planners feel that the result of the reforms could see financial advice predominately being provided by product manufacturers especially where product manufacturers can run advice practices that provide 100% biased advice, pay commission-like salaries funded from clients’ fees and in many cases be exempt from the consumer protection rules under the intra fund advice provisions. How can this be good for the end consumer? Exempting some sections of the advice industry from complying with the consumer protections for advice will result in a race to the bottom.
5. A balanced approach to reporting from some sections of the media. The proposed reforms, when announced by the Minister, coincided with another bout of negativity aimed squarely at the financial planning industry by many commentators. Some of the negativity has been justified in small pockets of the industry where there has been some disappointment, however I have never heard of any financial advice industry in the world that has had to endure such a sustained barrage of criticism and negativity. Financial planners feel they are being unfairly targeted to the benefit of other sectors of the industry.
6. Make advice more accessible, affordable and independent.  Financial planners feel that the Financial Services Reform Act already provides adequate consumer safeguards and that much of the proposed reforms to improve consumer protection only drive up costs. The reforms need to help in driving down costs while at the same time improving the quality of the advice.
7. Positive support for the industry from Government. The Government is openly supportive of most of Australia’s industries, and it would be nice to see  the Government also supporting the financial planning industry.  Clearly the lobby groups need to do more work in this area to win the support of the Government, possibly by explaining how much clients can benefit – financially and emotionally – from having a financial planner who develops a solid strategic plan for the client and then ensures the client sticks to that plan.
8. Less paternalistic approach. Financial planners feel we are seeing more prescriptive  approaches that treat advisers and their clients like children.  Examples are the proposed annual opt-in for financial advice fees and the My Super concept. The implementation of the opt in arrangements will only result in increased costs and complexity for clients. At the end of the day every client receives an annual statement and it is glaringly obvious on these statements what fees are being paid to the financial adviser.  If the client wishes to discontinue the service all they have to do is pick up the phone.

The financial planning industry plays a major role in building the retirement savings of Australians and in properly structuring people’s financial affairs to help them become financially independent and make them less reliant on the social security system in retirement.  As one of Australia’s most important industries in delivering economic wellbeing for ordinary Australians, financial planners feel they should have the opportunity to provide feedback on any proposed reforms.

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BetaShares Capital Limited (BetaShares) today announced its newly listed US dollar exchange traded fund (ASX: USD) was one of the top 10 most traded ETFs on the Australian Securities Exchange in its first two weeks of trading with assets under management doubling in the second week of trading.

Listed on 1 February 2011, BetaShares US Dollar ETF tracks the performance of the US dollar (US$) relative to the Australian dollar (A$) using a simple, transparent and highly cost-effective structure backed by US dollars held in a bank account with JP Morgan Chase Bank.

Drew Corbett, Head of Investment Strategy & Distribution at BetaShares said the average trade size of $15,000 indicates strong retail appetite for foreign exchange investment opportunities that were previously unavailable to them.

“Exorbitant fees and poor exchange rates in foreign currency bank accounts mean retail investors have been effectively shut out of the foreign exchange markets up until now. Heavy trading by retail investors in the USD ETF suggests a high level of pent up demand for cost effective and simple foreign exchange investment opportunities,” Mr Corbett said.

“In addition, we are finding that there are a significant number of investors who are investing in this product as a simple way to get exposure to the potential recovery of the U.S. economy”, he continued.

The launch of the USD ETF comes at a time of historic strength for the Aussie dollar, which is currently trading at about 40% above its long run average value. The ETF enables investors to capitalise on any potential weakening in the A$ relative to the US$. For example, if the US$ appreciates 10% against the A$ (i.e. if the A$ falls in value), the price of the ETF should go up 10% too.

This exposure comes at a fraction of the cost of current mechanisms available to most investors. Investing A$10,000 in a US dollar bank account can cost an individual up to $700 over a six month period due to fees, costs and poor exchange rates. The superior rates provided by BetaShares mean the same investment in its ETF would cost around A$70.

BetaShares has also reported strong interest from small to medium business owners which have large US dollar capital expenditures planned in the future and are looking to hedge against a fall in the Australian dollar.

The US Dollar ETF is the third ETF listed by BetaShares after the Resources Sector ETF (ASX: QRE) and Financial Sector ETF (ASX: QFN) listed on the ASX in mid December. The product launch is further evidence of BetaShares’ commitment to provide Australian investors with ETFs tailored to the Australian market.

Further information can be found at www.betashares.com.au and www.asx.com.au.

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Century Funds Management (Century) has announced that it will waive the first year of its management fees if it is successful in being voted in as manager of Opus 21.

 Century will use the net savings to immediately reduce debt with Opus 21’s bank lender. Based on 2010 accounts, waiving the fund management fee will immediately reduce the debt by close to $1.3 million.

 In a motion requested by a number of major financial planning firms, which represent some 25 per cent of unit holders, Century is currently seeking to replace the beleaguered Opus as manager for the unlisted property trust – Opus 21. Over 90% of the proxies received to date are in favour of removing Opus as the manager of Opus 21.

 Opus 21 is an open-ended, unlisted diversified property trust with assets valued at over $242 million. Subject to unitholder approval, Century will convert it to a terminating fund with the aim of providing an exit point in the medium term in an improved property market.  Over 400 financial planners Australia-wide have clients invested in Opus 21. 

 Investors will have the opportunity to vote for Century to take over management of Opus 21 at a special unit holder meeting to be held in Brisbane on 28 February 2011.

 “This undertaking further aligns Century’s interest with those of investors in restoring value to this poorly managed fund,” said John McBain, CEO of Century’s parent company, Over Fifty Group. “Unit holders in this fund have seen a long and continuing reduction in the value of their holding, we’re offering an opportunity for change, far greater transparency and better management.”

 “This undertaking is in addition to our ongoing commitment to Opus investors to provide financial support for a modest equity raising to be approved by investors as well as the proposed fee reductions – including halving of property sales fees,” Mr McBain said.

 In discussions with financial planners and unit holders Century has raised a range of concerns with Opus’s management of the Fund, including:

• Loss of 74% of the value of original investment in Opus 21. Their $1.00 per unit investment is now worth only $0.26 and distributions are a miniscule 0.003% pa of the original investment. 
•  $17.3 million related party loan from Opus 21 made without unit holder permission to another Opus fund, G1, that was subsequently written down by 90 per cent to $1.7 million
• A highly geared structure – 76.7% as at 30 June 2010; and a significant debt burden across all funds managed by Opus which threatens Opus 21’s ability to refinance outstanding debt on reasonable terms
• An outstanding legal appeal by ASIC  against the AAT’s decision to reinstate Opus’s Australian Financial Services Licence (AFSL)
• A number of related party transactions, such as a lease agreement with Tretecnic, a company in liquidation which shared two Opus related directors
• Lack of available information regarding the track record of the newly installed board at Opus
• Excessive exit fees charged by Opus for the sale of properties

“We have been speaking widely with financial planners in recent days, showing the sad but unarguable story that the balance sheet tells and putting our clear plan for improving the fund’s future,” Mr McBain said.

 “Our discussions have been an eye-opener for planners, who once the surprise abates, are angered by the truth, having not earlier appreciated the level of mismanagement, and subsequent cost to unit holders.”

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