John Brogden

The financial services industry must focus on innovation to drive productivity and economic growth, John Brogden, CEO of the Financial Services Council said yesterday. Speaking at the launch of the 14^th annual FSC-DST CEO Survey Mr Brogden said over the past three years the financial services industry has focused nearly one hundred per cent of its time and resources implementing processes to comply with new regulation.

“It is critical that the industry moves on from regulatory reform to focus on what it does best – providing new and innovative solutions and products to clients,” Mr Brogden said.

“As Australia’s largest industry, financial services has the tremendous opportunity to innovate for competitive advantage. Whether it’s developing a product for small investors saving for retirement through superannuation or a major superannuation fund looking to develop globally diversified products, Australia has the skills and resources to be a significant player on a global scale.”

“Growth through innovation will increase productivity and will have a flow on effect to the economy,” he said.

Rhys Octigan, Regional Head of Business Development for DST Global Solutions in Australia and New Zealand said: “The survey makes it clear that as financial service firms move beyond addressing mandatory regulatory requirements, the difference between the leaders and laggards of tomorrow will be their strategic versus tactical view of technology spend today.”

“Leading firms are already identifying new and strategic ways to leverage their investments in compliance to create innovative projects that will provide competitive differentiation in the future,” says Mr Octigan. “The right technology will provide these firms the ability to develop fast, effective ways to service customers and streamline front- and back-office processes.”

Mr Brogden added: “Innovation is important for the industry because financial services is a driver of innovation in the wider economy through the investments it makes.

He said financial services is unique in being almost entirely self-sufficient with little use of government-funded programs. “It is a funder of innovation through its relationships with universities and the investment it makes.”

This year, 50 of the FSC’s 73 member CEOs participated in the survey which captured their views on the issues and challenges their businesses are facing in Australia. The key industry-related message that emerges from the survey is that the sector is aware that it needs to restore trust and improve its long-term sustainability to meet the needs of clients though their working lives and into retirement. However, the sector is still affected by regulation fatigue as the FoFA, MySuper and SuperStream changes continue to be bedded down. The special topic explored in this year’s survey is innovation – both within in the financial services industry and the role the sector plays in supporting innovation.

Key Survey Findings

• 82%  say the use of client data will improve products, increase customer service and contribute to their strategic thinking
• 77% of CEOs think the financial services sector needs to do more to meet the needs of retirees
• 75% say innovation in their firm is mainly focused on finding ways to increase revenue
• 73% think technology is a key enabler to deliver innovative financial services products

Top Three

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And that’s why I maintain that regulation won’t lift our collective reputation and our individual service to our clients unless something inside us all changes.

At the end of my Grow Your Business program on the weekends on Sky Business, I always end the show with “if nothing changes, nothing changes”. Yes, I know it is a cliché but it is the kind of provocative
advice I offer for many of us who are weighed down by complacency. And the change I believe our industry is crying out for is leadership.
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I reckon MLC’s boss, Steve Tucker, showed it when he railed against commissions years ago and put his team on percentage fees. Sure the purists can argue that flat dollar charges are purer but at least he was
prepared to question the prevailing paradigm.
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However, the leadership that is overdue in the financial planning fraternity is the one that should be practised and learnt on a daily basis in every financial planning business in the country.
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It is an irony but many of us think leadership is the preoccupation of the likes of executives of big organizations but the truth is leadership is needed when you lead a small business, a sporting team, a classroom and a family.
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But wait there’s more.
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We need leadership skills when we deal with our clients. In fact, we are in a leadership position when someone comes through the door hoping to put their financial life in order. We clearly have to be great at our product knowledge but we also have to be aware that these people, who are paying us to fix up their financial future, want us to lead them to a better position.
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So, how does someone engage with leadership?
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The first step is to admit that you have a leadership inadequacy but how do you know that? Well, if you have trouble influencing your teenage sons and daughters, your Gen Y staff or family or even your partner in a relationship, you have to be realistic that it could be your leadership that is letting you
down.
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If your conversion rate of customers is not as high as it should be, well, once again it could be your leadership that needs some work. Okay, if you can be honest with yourself that your leadership quality
could be the missing link in your life and your business then don’t delay by changing what you are currently doing.
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If you are not reading books on leadership or listening to DVDs on the subject when you are driving then you are misallocating your precious time.
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In Dubai two years ago, I MC’d a conference where the US leadership guru — John Maxwell — was speaking. He has penned a number of books that have been on the Wall Street Journal’s and New York Times best seller list and he has sold over, wait for it, 20 million books! My favourite is The 21 Irrefutable Laws of Leadership, which the great Stephen Covey, the author of The 7 Habits of Highly Effective People, said of the book: “It will change the way you live and lead.”
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To me Maxwell’s greatest advice was: “Leadership is developed daily, not in a day.” When that happens you change permanently and the influence you wan to have on your customers, your staff and your family becomes more effective. If you want a great business, Maxwell says, everything rises and falls on
leadership — everything! He argues that if you are a 5 out of 10 leader you will probably have a four out of 10 business, but never 6,7 or 8. And forget 10!
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This is my number one business tip — if you get leadership right, you will know what to do, who to recruit, where to go and who you need help from to build a great business.  For more business tips from Peter Switzer, visit www.switzer.com.au

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

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

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

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

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

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

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Last year, the government announced a new tax system for managed investment trusts (MITs) that will reduce complexity, increase certainty and minimise compliance costs for MITs and their investors.  In April, a further announcement was made to defer the start date of the new laws from 1 July 2011 to 1 July 2012.  The government also announced two minor changes to the previously announced measure to facilitate the entry of MITs into the new tax system.

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

Key aspects of the new tax system will be:

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

Click for more information about the taxation of MITs.

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

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

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

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

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The facts of the case are very straightforward.

A couple, at the urging of their son, established a self managed superannuation fund to which they subsequently rolled over their various super accounts.  All three were members and trustees of the fund.  Approximately $40,000 was rolled into the fund.

The son, who had addiction issues, subsequently rolled out the previously rolled in monies.  The rollouts were unauthorised by the trustees and were contrary to the SIS benefit payments standards.

The other trustees, once the rollouts were discovered and on the advice of a registered tax agent, treated the unlawful benefit payments as if they were loans to an unrelated entity.  Financial statements and regulatory returns were prepared and lodged on this basis.

Eventually, as the loans constituted over 90% of the value of the fund, the ATO took an interest in the fund.  The true situation quickly emerged upon an ATO investigation into the fund.

The ATO issued a notice of non-compliance in respect of the fund.  All three trustees referred the decision to issue the non-compliance notice to the AAT.

The AAT in a short judgment upheld the actions of the ATO and confirmed the non-compliance status of the fund.

A number of interesting comments can be made on the case.

1. The son was able to rollout monies from the fund because the bank account of the fund only required one signatory.  A basic control mechanism is that at least 2 signatories should be required.
2. Given that only about $40,000 was ever rolled into the fund and no material contributions were made to the fund, it seems the decision to set up a SMSF in this situation could not be justified on any reasonable basis.
3. Once an unlawful benefit payment has been detected, it is better not to cover up the unlawful payment.  The cover up of an issue will usually involve more reprehensible conduct than the disclosure of the issue.
4. The unlawful payments were able to be covered up as the Trustees’ adviser acted as adviser, tax agent and auditor of the fund.  Without the multiple roles, the cover up would not have been attempted, or, if attempted, would not have lasted as long as it did.
5. Be wary of being involved in any SMSF of which a member has addiction issues.

The AAT case related purely to the issuing of the notice of non-compliance.  The AAT case did not address the liability of the registered tax agent (the registered tax agent was not a party to the proceedings) or the liability of the trustees in their knowing adoption of false financial statements and the signing of false tax and regulatory returns.
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It is highly likely that the registered tax agent will be the subject of other ATO enforcement actions as will the trustees.

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After meeting with key independent politicians in Canberra this week, the Association of Financial Advisers (AFA) can confirm that the concerns of financial advisers in relation to the Future of Financial Advice (FOFA) reforms are being heard.

An AFA delegation returned from the national capital this week, after visiting independent Members of Parliament, Tony Crook, Rob Oakeshott, Tony Windsor, and Andrew Wilkie, as well as the Greens, the Minister for Financial Services and Superannuation, Bill Shorten’s key adviser and Treasury.

“We had great access to politicians and are very pleased to report that they have met with many of their local constituent advisers often,” Mr Klipin said. “This tells us that our grass roots campaign to move the policy debate to political engagement is working.”x

Mr Klipin said it is very encouraging that the politicians the AFA visited had heard and understood the very real concerns advisers have about the profound and potentially damaging effect some aspects of the FOFA reform will, if carried forward into legislation, have on advisers, their businesses and the clients they serve.
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“The message we took to Canberra was that the AFA is actually really supportive of the intent of FOFA – everybody, including financial advisers, would like to see legislation that results in better outcomes for consumers and better access to advice,” he said. “We would love to publicly support the legislation when it comes out in draft form, but we can’t support components which we believe are clearly not in the national interest.”
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The AFA has consistently argued that some aspects of the FOFA reform package announced by the Government in April will impose higher costs on consumers, impede their access to advice, tie them up in red tape and create even greater confusion.
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Mr Klipin reiterated that while the AFA believes the original intent of FOFA was commendable, the execution is not. “As they currently stand, the FOFA reforms mean even fewer people will have access to affordable advice which could ultimately mean fewer will have adequate levels of insurance and fewer will have enough in retirement savings. The impact of that is crystal clear – more people lining up for Centrelink benefits.”
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Mr Klipin quoted from the AFA’s Back to Basics research which identified that while only two in 10 Australians currently get advice, good advice gives people choices and leads to higher levels of savings, more appropriate levels of insurance and greater control of their future.
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Mr Klipin also said that while the AFA’s grass roots campaign is gaining traction, now is not the time for complacency.
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“In fact, advisers should be upping the ante,” he said. “Our endeavours to have some of the FOFA proposals amended so that we actually see an improvement in outcomes for advisers and their clients have only just begun. We encourage all advisers who have not yet visited their Member of Parliament to make an appointment today.”
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The Minister for Financial Services and Superannuation, Bill Shorten will address 400 AFA members at the AFA lunch on Monday 27 June.
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“If you have questions you want to put to the Minister, Monday is your opportunity,” Mr Klipin said.

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As an AFA partner, Guardian has the opportunity to create and maintain quality relationships with the AFA’s influential members and enjoy the following benefits:

– Representation before the Government and regulator on policy issues
– Opportunity to work with Australia’s leading advisers.
– Reduced membership fees for Guardian advisers.

AFA CEO Richard Klipin said: “The AFA is delighted to welcome Guardian Financial Planning on board as a licensee partner. Guardian is home to around 150 authorised representatives operating across Australia who look after the needs of more than 130,000 clients in Australia.

”Guardian Financial Planning Executive Manager, Simon Harris, said it was Guardian’s ongoing responsibility and commitment to advisers that compelled the group to join the association.

“Our  partnership  with the AFA  gives our advisers a stronger voice in the current dynamic and changing regulatory environment,” Mr Harris said.

The  partnership will also ensure that Guardian works collaboratively with the AFA’s  Licensee Working Group to allow advisers’ interests to be represented fairly and adequately before the Government and regulators.

“Over the last three years, the AFA has reinvigorated itself as an association that truly understands and cares about advisers  – and one that  has  championed their needs in the face of significant regulatory change,” Mr Harris said. Mr Klipin  said.

Guardian’s membership  complements the growing number of quality advisers and planning groups the AFA engages with.

“The AFA’s strategy is to welcome more advisers to the association so that their voice is heard more distinctly and strongly within our industry and in Canberra.

“The AFA is and always will be an association which represents the concerns of advisers, adviser businesses and the clients they serve.

”The AFA represents 7,000 advisers through its relationships with licensees across Australia and individual adviser members.

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The charges were brought by ASIC.

Mr Tang faced Melbourne Magistrates Court on Thursday, 9 June 2011 on four counts of market manipulation relating to his involvement in the trading of Wintech Group Limited securities on the Australian Securities Exchange (ASX) between 28 April 2009 and 24 July 2009.

ASIC alleges that Mr Tang used an online share trading account in his own name, and an alias, to engage in transactions in Wintech Group Limited securities during this period that created a false or misleading appearance of active trading in these securities.

ASIC also alleges that he made or authorised the making of false or misleading statements in documents submitted to ASIC in August 2008 and April 2009.

Mr Tang was bailed to appear before the Melbourne Magistrates Court on 1 September 2011 for committal mention upon a number of conditions including that:

• surety of $100,000 be provided;
• he will not leave Australia;
• he will surrender all passports; and
• he will not attend international points of departure.

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ASIC’s investigation arose from a referral from the ASX.
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The Commonwealth Director of Public Prosecutions is prosecuting this matter.

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