Chris Batchelor

Stock research application house, Skaffold, has said that the long-standing faith in stalwart shares may at last be on the wane with advisers.  According to analysis of the latest user data, financial advisers are no longer focusing mainly on traditional mining and banking stocks and are instead looking at service industries.

The research behavior of more than 100 advisers has been analysed over the past 11 months.  In April 2013, banks and resources formed the top seven out of the top ten researched stocks.  In March 2014, services formed the top four stocks and five of the top ten. Just one financial stock (ANZ) and one energy stock (Titan Energy Services) were included in the top ten most researched shares.

General Manager of Skaffold, Chris Batchelor, said Australian investors have relied upon these industries for growth.  However, this change in behavior with advisers signals that Australian investors are looking further afield, reflecting an increased level of sophistication.

“Banks and miners have been the core of Australians share portfolios for many years.  However, with many analysts now saying the mining boom is over and that banking growth is likely to be flat, it’s pleasing to see that advisers are getting more diversified in their stock research.

Highlights of the research include:

• 46% of stocks evaluated are in the Services sector
• 20% in the Technology sector
• 12% in healthcare
• 10% of views were CBA and ANZ

Mr Batchelor said none of the top 20 researched stocks by advisors were in the Basic Materials (resources) sector, whereas eleven months earlier Resources and Oil and Gas made up 20% of the top 20 most viewed stocks, with BHP the number one viewed stock by a considerable margin.

There were less changes evident among the advisers looking at international shares. In the US market Apple, which was previously the most viewed stock by Australian advisers on the US market dropped one place number two and Microsoft suffered a similar fate dropping one place from second most viewed to third most viewed. Resmed, the seep apnea specialist founded by Australian Peter Farrell was the most viewed US stock but technology stocks remain the largest represented sector in the US top 20.

Mr Batchelor said usage of Skaffold by advisers was also on the rise, with a 20% growth in adviser use.

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The survey of more than 100 advisers also found that almost 70 percent of advisers will increase their clients’ allocation to international equities in the next six to twelve months; and that 75 percent of those will do this via managed funds.  

Patrick Noble, Senior Investment Strategist – Zurich Investments, said the results were significant given the trend towards cash and direct, local shares that has dominated investment behavior in the past several years. 

“With the huge number of Australians facing retirement in the next few years, advisers need to find strategies that do not rely solely upon cash rates or a rise in local markets to provide income for the future.  Importantly, they need to do this at a time when investor confidence remains subdued. 

“We believe it is significant therefore that, advisers are now turning their attention to international markets and that they recognise the value a specialised investment manager can deliver.” 

According to the survey, the majority of advisers are expecting positive returns from international shares over the next 12 months with 54 percent expecting single digit returns.  Just three percent believed international shares would deliver negative returns. The results show a bias towards international over local shares when compared to a Zurich survey from June 2012. 

Mr Noble said the strong Australian dollar is almost certainly a factor in why international markets are more attractive, it could also be about the increased familiarity Australian investors have with international companies and markets. 

“According to the survey, almost 70 percent of advisers believe the Australian dollar will be above or at parity with the US dollarover the next 12 months. A strong dollar is definitely beneficial, but Australians are also more familiar with both offshore markets and companies such as Google and eBay.” 

Mr Noble said the search for income did not mean Australian investors had to rely upon Australian share dividends, as skilled managers could implement strategies for achieving income from internationalshares.  

“We recently launched the Zurich Investments Global Equity Income Fund, which provides investors access to global equity markets, with enhanced levels of income and reduced downside risk.  The Fund is typically comprised of a portfolio of 30 – 50 income-producing, international stocks across a range of sectors and geographies.  The Manager utilises innovative options and currency strategies to help reduce downside risk.” 

“Advisers know that staying in cash over the long run is not going to deliver the returns or income investors need for a comfortable retirement.   And funds such as this, have the potential to deliver income, yet with a decreased level of risk.”

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The June 2012 Investment Trends Planner Risk Report is an in-depth study of Australian financial planners and their usage of insurance. The study is based on a survey of 929 financial planners concluded in June 2012.

“The volatility in the markets is driving a greater proportion of clients’ investments to cash and cash products,” said Investment Trends Senior Analyst Recep Peker.

“To ensure clients continue getting value from using an adviser, planners have continued to increase the role of insurance advice within their business.”

“This also diversifies revenue streams for planners’ businesses which is beneficial for both client and adviser.”

“Empirical evidence demonstrates the importance of risk advice in the current climate, especially in driving profit growth,” said Peker.

“Our analysis shows that planners reporting an increase in practice profitability derive a greater proportion of their revenue from risk commissions than those who said their practice profitability declined.”

93% of planners now provide risk advice, up from 73% in 2005 (see chart), and they typically spend a fifth (20%) of their client time discussing insurance needs, up from 17% last year. On average, risk advice accounts for a third of the revenue financial planners are currently generating.

High satisfaction remains key to retention
Planner satisfaction with insurance providers increased and is very high overall. The number of planners rating their insurer as “good” or “very good” increased from 77% to 82% over the last year. Planner ratings of individual features offered by insurers are more mixed, giving rise to significant opportunities at an industry level.

“Insurance providers have done a remarkable job addressing some of planners’ key needs identified in 2011,” said Peker.

“Significant improvements in the areas of IT systems, websites and support have helped drive overall satisfaction up.”

“Satisfaction is critically important to retention as planners are very willing to seek out the best insurer for their clients.”

Nearly half (47%) of financial planners said they reduced usage of or stopped using at least one insurance provider in the last 12 months, and a very strong statistical relationship between satisfaction and switching behaviour continues to be evidenced.

“With planners demanding further enhancements to underwriting and technology, these areas will continue to be key battlegrounds for insurance providers over the next year”, said Peker.

The top three insurance providers by overall planner satisfaction in 2012 were:

1. Asteron Life
2. AIA Australia
3. Macquarie Life

Three quarters of planners remain open to switching in the future, with 42% saying they would change their main insurance provider for lower fees, and 34% for better features/policies.

Competition remains very heated among insurance providers
Although planners use an average of 3.8 insurance providers each for new business, they tend to place an average of 56% of their premiums with a single provider, making it crucial for providers to become a planner’s primary insurer.

Following a few years of industry consolidation, the top 5 insurance providers by number of primary relationships are now:

1. OnePath/ANZ
2. AMP/AXA
3. MLC/NAB
4. Asteron Life
5. TAL

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How does the situation in Europe affect investments?
If you were to try to list reasons why stock markets have risen so much over the past three months, a reduction in worries about the eurozone crisis would be right up there. It is not that the sovereign debt crisis has gone away – far from it – but investors have stopped fearing the worst. To an increasing extent the likely outcomes have been priced into markets. Europe matters a great deal but it is not the only driver of investment markets as, at times, it has been.

What will happen if Greece falls out of the euro?
Despite what I have just said about the eurozone crisis, if Greece does fall out of the euro markets will most likely react badly in the short-term and the event itself will be a significant shock to investor sentiment. Greece is undoubtedly struggling to find the spending cuts that it has signed up to and it has asked for more time to get its books balanced. That might make an exit from the euro sound more likely, but I think the fact that a grown-up conversation is being had about exactly how Greece can get back on an even keel makes it more likely that it will actually stay inside the single currency.

How can I reduce the risk in my portfolio while still achieving my goals?
There’s a simple answer to this one – diversification. None of us can know what lies around the corner and that means that putting all of our eggs in one basket, geographically or between assets classes, is never a good idea. Having a multi-asset portfolio spread between all regions of the world means you may never shoot the lights out performance-wise but you will avoid catastrophe. And that, coupled with a realistic program of regular saving, is the best way of hitting your goals.

Should I stay in cash, and how much money should I keep there?
A little bit of cash in a portfolio is always a good idea because it gives you the opportunity to take advantage of market falls. But, that said, too cautious an approach will doom you to watching the real purchasing power of your money eroded by even quite modest rates of inflation. In the long run, equities and bonds have outperformed cash and I would be amazed if in future they did not continue to do so. 

What is the right mix of growth and defensive assets in this environment?
Just as a decent mix of assets and geographical exposures makes sense, so too does a combination of growth and value investments, cyclical and defensive assets. Markets can change mood very quickly as we have seen in the past three months. Being on the sidelines because you felt nervous about the outlook would have been a very expensive mistake in recent weeks. With so many headwinds for the global economy, an overly aggressive stance would also be risky in my opinion.

Should I stay in shares?
Yes, I would definitely stay in shares for the reasons I’ve already given. But not exclusively so and the proportion you should hold in the various asset classes will depend on a number of factors, not least your age. The longer you have to invest, the greater should be your exposure to shares, which offer greater potential returns but also the greater likelihood of short-term fluctuations. And don’t forget that retirement age is not the end of the line either – with many people these days facing the prospect of a long retirement having some exposure to income producing shares even after you stop work can make sense.

Should I reduce my holdings of growth investments?
The past 30 years or so have been a period in which investors have tended to focus on growth investments where returns have been largely driven by capital appreciation. In the great bull market from 1982 to 2000 investors were pretty indifferent to the income offered by most investments but I think that has changed for the foreseeable future. In the long-run income has actually provided the lion’s share of the total return from most investments and I expect that to continue to be the case. Income-generating investments have many things to commend them over pure growth-oriented investments.

Can shares play a role in providing me with income?
Absolutely. Investors are switching on to the fact that dividend-paying shares can make a big contribution to the total performance of a portfolio of investments if the income is re-invested. But if your principal concern is generating an income then shares can do this as well. The good news is that at today’s market prices many well-known blue-chip shares are offering high and sustainable incomes, well above the income on offer from government bonds and cash deposits in many cases. For investors who are able to handle the unavoidable volatility of equity investment, the income from shares can be very attractive today.

How can I get more income from my investment portfolio?
If you want to generate a bigger income then, all other things being equal, you have to take greater risks with your capital. That is why a corporate bond tends to offer a higher yield than a government bond and why a less financially robust company will offer a higher yield than a rock solid business.

Will the market recover to its 2007 levels?
Depending on the market you are talking about, we are getting back to those levels already. In time, I am sure the answer is yes because companies are in pretty good shape and valuations are relatively cheap compared to history. Recoveries from bear markets can take a long time but the long-term trend of the market throughout all the turmoil of the 20th century was upwards. No-one can predict the future but it would be a very bold call indeed to say that the current century would be any different.

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“Many of the financial advisers who come to us are in their 30s and 40s running practices within one of the big licensees,” Ms Fuchs said. “They are career financial advisers, fast-tracking their businesses, but their revenues are not at the level where they can justify paying for the bells and whistles offered by the big end of town, such as BDM support and hands-on practice management support.”

She says some of these advisers are on older packages that provide open architecture in terms of Approved Product List (APL)s and are paying a premium in licensee fees. “In some cases they are paying $15,000-$20,000 more than they need to,” Ms Fuchs says. “That’s like paying for broadband services and getting dial-up. It’s an absolute fortune for them and it’s money they believe can be better spent.”

Ms Fuchs said some licensees are very dismissive when defending their dealer group fees, arguing it’s the cost of offering an open architecture APL. 

“The problem with this argument is that they instantly jump to examples such as Morrison Carr to prove their point,” Ms Fuchs says. “This is very unfair. We are aware of a number of quite small niche licensees that have a strong corporate governance culture. These dealer groups have a very strict quota on the number of advisers they service and very clear advice process requirements to manage their compliance risk. Importantly, this makes them affordable to younger advisers because they are only getting the absolute essentials.”

Ms Fuchs says she is very disappointed by comments currently being made about smaller licensees in the wake of the cancellation of Morrison Carr’s financial services licence.

“The level of judgement and gossip undermining boutique groups and practices is quite malicious,” she said.  “There are people in the industry tarring all small licensees with one brush; suggesting that because a licensee is small, inexpensive, doesn’t have a cast of thousands and yet still offers an open APL, it can’t have good corporate governance and robust levels of compliance,” she said. “I absolutely reject that argument. In the work we do matching advisers with licensees via My Dealer Group we have found there are some really good quality boutiques out there.”

Ms Fuchs also highlighted that big doesn’t always mean better.  “As we all well know, there are some very large dealer groups that are currently, or have been, in enforceable undertakings. For people to say that operating under a smaller AFSL translates to a risk to the adviser in terms of compliance and corporate governance is extremely unfair.”

No dealer group, regardless of size, can afford to ignore the demands being made by the new breed of adviser, according to Ms Fuchs.

“In fact, these are the advisers dealer groups should be recruiting, because they are very well-educated, they don’t have ingrained bad habits, they’re growing revenue businesses and, generally speaking, they are working with other professionals in centres of influence to build their business,” she said. “This is a huge growth segment. Rather than being dismissive of their needs, dealer groups must develop a much better response to them. My advice is: ignore them at your peril.”

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This year’s Conference includes a firm focus on the impacts of the FoFA reforms on the profession in Major Issues Sessions on ‘Advice as a Profession’, to ‘Intra-Fund or Scale Advice?’, and ‘The Licensee of the Future’.

The Advice as a Profession session will consider the changes required of the future financial planner / adviser as a result of key elements of the FoFA reforms including best interest duty, the opt-in exemption / Code of Conduct and new competency requirements created by the Tax Agent Services Reform Act.

One of the government’s objectives for FoFA is to deliver more affordable and accessible advice. In the ‘to Intra-Fund or Scale Advice’ session advisers can hear from the industry participants and the regulator on how advice might be scaled or limited in a post FoFA world.

The program also looks at ‘the Licensee of the Future’ and considers if the FoFA reform package is a paradigm change for Licensees in Australia. This session will consider how the various aspects of FoFA legislation, regulation and ASIC guidance impacts the Licensee of the Future and advice delivery.

And in a Workshop session on the opening day of the Conference, August 1, the subject matter will switch to ‘advising clients on insurance in a post FoFA world’.

In addition to Major Issues Sessions specifically for the advice profession and other key policy areas for the financial services sector, the FSC Annual Conference program features an impressive list of industry experts, politicians, regulators and influential local and international speakers.

The latest high profile addition to the program is Yahoo 7 CEO Rohan Lund who was recently ranked number six on the Power Index’s list of the Top 10 most powerful Australian’s in digital media. Mr Lund will speak on how new technologies are changing the way we do business.

Early Bird bookings for the FSC Annual Conference close on Thursday, May 31, 2012.

To register and secure the $150 early bird discount click here
http://www.fscannualconf.org.au/

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Being diagnosed with cancer is not the time that a person wants to have to come to a complete and clear understanding of their financial position. However, financial issues are a huge concern for cancer patients.

Pioneered and piloted by AMP Financial Planning, the partnership with the Cancer Council has been an enormous success with nearly 500 patients taking pro bono advice from professional planners. The program has been active in NSW since June 2010 and it is now being rolled out nationally.

Louisa Fitzgerald, the Cancer Council’s national pro bono manager, says the program is a wild success.

“One social worker told us that the program is the best thing that the Cancer Council has ever done.  Financial worries really take a patients attention which is better spent elsewhere,” Ms Fitzgerald says.

The value of sound financial advice cannot be underestimated at a time when many dual income households become half income households.

According to AMP’s Rajesh Govindan, financial advisers are in a unique position to offer help to terminally ill patients.

“We advise on cash flow budgeting and how to consolidate several superannuation plans and how to get early access to the funds as well as various insurance policies. Our advisers are trained to discover what is available to patients in terms government pensions and benefits and how to get it,” says Mr Govindan.

In one case a young family, where the husband had terminal cancer, believed they had a single insurance policy worth $77,000. However, investigations by an AMP adviser found the family had policies worth more than $400,000. These unexpected funds literally ended some very serious financial burdens for a young widow and her small child.

“It is not unusual for superfunds to have a life insurance policy attached but most people are not aware of this. Financial advisers are highly trained to get to this information, which is incredibly life changing at such a vulnerable time,” he says.

Another planner spent more than 70 hours chasing the Polish government as well as a stalling insurance company. He successfully forced these institutions to pay up and allowed a person to pass away in peace.

Other advisors have helped children to open bank accounts and even made Christmas hampers for families in financial trouble.

“Cases are referred to AMP by social workers within the hospital systems. We assess the case and aim to help those least able to pay for financial services. Our planners decide how many hours they can give to the case and AMP underwrites all of the para planning. It is a very structured program,” says Mr Govindan.

Financial advisers from AXA and Hillross have now joined AMP Financial Planning/Cancer Council. Advisers swat-up through an e-training module that was tailored for bereavement.

“Having these financial advisers helping patients brings extraordinary value for people since unresolved financial matters are a terrible weight. This program has been much more successful than we ever could have anticipated and the sheer number of professional planners putting up their hands is overwhelming. It’s heroic,” Ms Fitzgerald says.

AMP nominated the Cancer Council for this program because of the organisation’s relationship with the legal profession.  Already many lawyers are recommending the planners to take over the budgeting of estate planning once they have done their legal work with a patient.

“This has been a wonderful pairing of two professions and brings such peace of mind to patients and their families that it is an invaluable service,” says Ms Fitzgerald.

The generosity of the industry does not stop at organised pro bono programs.  Sydney-based adviser Tony Virtue works at a soup kitchen in Manly every Monday night and has a history of philanthropy. In fact, his doctorate was on micro finance.

“The idea of giving advice for free is not new to our profession. We have a long tradition of generosity within the community and I would be hard pressed to think of any adviser that does not have a pro bono project. It could be with a surf club or helping a client through the maze of Centrelink,” says Dr Virtue.

Financial advisers are often the first port of call for help when circumstances take a turn for the worst.  “It is not a huge leap from giving advice to a client to helping someone out for free. It is great that the big guys are creating large structured pro bono programs. Meanwhile, there are hundreds of advisers out there looking after locals within their own communities,” he says.

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AFA CEO Richard Klipin said the AFA is delighted to welcome Securitor on board. “We have great pleasure in welcoming a licensee of the calibre of Securitor to the AFA and look forward to working with them.”

BT Financial Group Head of Dealer Groups, Matt Englund said the decision to join the AFA was based on the group’s ongoing commitment to supporting the financial planning industry and its professionalism. 

“All of our authorised representatives must be members of a professional association,” Mr Englund said. “We want to provide Securitor practices with access to professional industry associations that can represent their interests. We have been impressed by the quality of the AFA’s membership program, their commitment to the industry and their passion for representing advisers.”

Mr Klipin said, “It is part of our ongoing strategy to welcome more licensees to the AFA so that the voice of advisers is heard more distinctly and more strongly in our communities and in Canberra.” 

Mr Klipin said the AFA has experienced 26 per cent membership growth over the calendar year, a fact he attributes to the AFA’s strong ethos and adviser focus.

“Given all that is happening around the Future of Financial Advice reforms, recruiting more licensees to the AFA is part of the ongoing mission. It has never been more important to ensure that the voice of advisers is heard in our communities and in Canberra. The more voices we have, the louder our concerns will be heard.”

The AFA now represents more 7000 advisers through its relationships with licensees across Australia and individual members.

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AFA CEO Richard Klipin said, “We congratulate Minister Shorten on his expanded portfolio and look forward to continuing discussions with him on how to make the world of financial advice more competitive and robust for all Australians.”

Mr Klipin said the AFA will continue to work constructively with Minister Shorten around the proposed Future of Financial Advice (FOFA) reforms, which have the potential to fundamentally change the way consumers access financial advice.

“At the end of the day, the AFA shares the Government’s concerns,” Mr Klipin said. “Like the Government, we want to ensure that Australians continue to have choice when it comes to financial advice, so that they are ultimately well-advised and therefore better funded, comprehensively insured and have financial choices in life. Minister Shorten’s promotion means financial services has been elevated to the inner Cabinet, which is appropriate, given how important the issue is to the financial future of all Australians.”

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According to BT Insurance, more than half the applications have been underwritten, and submitted online and over 25% of income protection claims have been paid via the ‘tele-claims’ initiative – approved in a quarter of the time and without forms or signature required

In addition, more than half of the applications have been underwritten and submitted online using LifeCENTRAL+, a fast quote and electronic underwriting tool that can provide an on-the-spot decision in around 15 minutes with no signature required. This is a five-fold increase when compared with online submissions in the same period in 2010.

The first-to-market ‘tele-claims’ initiative that allows claims assessments to be conducted over the phone continues to see more than 25% of all income protection claims paid without the requirement of claims forms or a signature.

The early success demonstrates that BT Insurance’s focus on the advisers’ end-to-end process is being favourably received by the market.

BT Financial Group’s Head of Life Insurance Phil Hay said he was delighted with the results just three months after the launch.

“We are making it easier for our advisers and customers where it matters most.

“The very positive adviser response reflects the quality of BT Protection Plans and the close way in which the solution has been developed in conjunction with advisers.

“BT Protection Plans combines product, service, technology and business support and enables advisers to provide a better solution with flexibility, choice and value. We will continue to bring innovation to the market.”
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Mr Hay said the flexible solutions which allow insurance inside and outside of superannuation have been particularly popular.
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Since launch, more than one-quarter (29%) of lump sum policies within superannuation have an attached option through Flexible Linking Plus. Likewise, 50% of Income Protection policies within superannuation have an attached option through Income Linking Plus.
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BT Protection Plans was developed in partnership with advisers with features including on-the-spot decisions about client application with no signatures required; real time 24/7 access to client information; an in-house chief medical officer; flexibility for insurance inside and outside superannuation; and a ‘tele-claims’ service that facilitates assessment over the phone without forms and signatures as well as fee for service flexibility including an option for unbundled commission.

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