ANZ release digital SMSF fund.

ANZ yesterday announced the launch of its new digital solution for Self-Managed Superannuation Funds (SMSF) as a further step in its strategy to create simpler and more convenient ways for customers to better engage with their wealth.

ANZ CEO Global Wealth Joyce Phillips said: “This new SMSF solution will enable ANZ to provide clients with an integrated digital product that helps them manage all their self-managed superannuation needs in one place.

“This is a further step in our ambition to transform the wealth industry in Australia. Digital and mobile technology is increasingly driving how we operate and how we serve our customers, and as their behaviours change, we’re focused on finding new ways to better connect customers with their wealth.

“We see an opportunity for ANZ to become a key player in the SMSF market, which today is the largest superannuation segment in Australia with assets of around $500 billion,” Ms Phillips said.

‘ANZ Self Managed Super’ will be made available to customers from early December 2013. The key benefits for customers will include:

• Convenience – being able to have a full view of all SMSF assets and information in one online dashboard so that decisions can be made in real time; industry leading simple application process;
• Control – 24/7 access through an online portal, which also provides reporting, investment monitoring, document storage and underlying product transacting capability;
• Security and compliance – customised alert systems (via text message, email or post) allowing customers to stay on top of their SMSF compliance and legal obligations;
• Value – integration with a wide range of products and solutions across wealth, retail and commercial banking;
• Efficiency – completion of tax and audit requirements involved with running an SMSF, underpinned by industrial strength accounting software.

In delivering the new digital SMSF solution, ANZ will partner with specialist SMSF service provider Super IQ Pty Ltd.

As part of this agreement with Super IQ, ANZ also announced today that it had agreed to sell its wholly owned SMSF accounting, tax and compliance business, Super Concepts Pty Ltd to Super IQ.

The sale of Super Concepts is not material to ANZ and will be completed by close of business today. The terms of the sale were not disclosed.

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OneVue rolls out SMSF services.

OneVue has extended its suite of self managed superannuation fund (SMSF) services following feedback from advisers and accountants who cater to the sector.

OneVue chief executive of partner solutions Brett Marsh said for advisers who administer a client’s SMSF via OneVue’s online investment platform, there are a number of ways they can now support their client’s accountant.

“Comprehensive reporting is provided both daily and as part of the end of year tax report, which includes substantiation documents that have been received throughout the year and that are required to complete the SMSF audit,” he said.

“An accountant login can now be established so that the accountant, like the adviser, can get secure online access to these reports as well as additional online reporting such as portfolio valuations and BGL Simple Fund download files.

“While this service is not exclusive to SMSF clients, our separate and newly-created ‘Accountant Ready’ solution, which includes data loading into BGL Simple Fund software and electronic workpaper preparation, is.

“The ‘Accountant Ready’ solution allows the accountant who the adviser is working with to view the client’s investment portfolio and more efficiently complete the accounting, compliance, audit and lodgement as required.”

Marsh said, these solutions coupled with OneVue’s mail house services and rigorous review of tax implications across all assets increases efficiencies for the growing number of advisers working with accountants.

“We have also made improvements to our existing ‘End-to-End’ solution for advisers who do not have an accounting partner and want a comprehensive service from a single provider,” Marsh said.

“Our ‘End-to-End’ solution comprises daily member interest reporting, ongoing administration of the SMSF, including minutes, preparation of ATO formatted reports, compliance, audit and tax lodgement.

“We have extended our SMSF establishment services as well, which are not limited to those who use our platform to administer their clients’ SMSFs.

“Our establishment services encompass the online creation of trust deeds, bank and investment account integration, corporate trustee registration as well as fund establishment with the ATO.”

Marsh said OneVue also gives clients the option to have their SMSF materials delivered electronically or printed and bound.

“We are very pleased to extend the range of SMSF services we have available and will continue to look at ways we can further enhance solutions for the growing number of advisers and accountants we work with,” he said.

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“Given recent market volatility that’s not surprising, but you worry about investors trying to time markets rather than staying on course with a long-term asset allocation plan.”

The survey found that the so-called ‘wall of cash’ held by SMSFs had increased markedly as wary investors say they are waiting for the return of more favourable market conditions before reallocating funds to growth assets.

Mark Johnston, Principal of Investment Trends said, “This report shows total cash and cash products held by SMSFs in Australia has grown by $40 billion since May 2009 to $113 billion.”

The survey also identified the level of ‘excess cash’ held by SMSFs, defined as funds that would normally have been invested in other investments/assets, but were being held in cash due to recent market volatility.

As overall cash holdings jumped significantly over the last couple of years, excess cash holdings have remained relatively stable in terms of value at $39 billion.Excess cash now represents 35 percent of SMSFs’ total cash holdings, down from 53 percent in May 2009.

“Behavioural finance studies consistently highlight that investors driven by short term emotional influences will often buy when markets are high and sell out when they are low,” said Mr Bowerman.

“A more conservative asset allocation may be absolutely right for an investor’s circumstances, however it is vital for investors to remember that a diversified, low cost approach to investing that maintains market exposure during turbulent trading days and looks past the short term volatility has the greatest opportunity of investment success,” he said.

He referred to long term figures to illustrate the point.

“When you look at 20-year rolling returns since the 1950s using monthly data*, the median annual Australian sharemarket return is 12.9 percent. The worst 20-year return for the sharemarket was 8.4 percent for the 20 years to the end of February 2009.

This means that SMSF trustees turning more to cash and term deposits are consciously or otherwise taking a pessimistic outlook on the future growth of our economy and major Australian companies.

“Obviously we have experienced a lot of short term volatility, and there is uncertainty about where the markets are going next. Recent events, however, should reinforce the view that investors are concerned about many things that simply are not within their control such as geopolitical affairs, markets and economies.

The nationwide Vanguard/Investment Trends survey of more than 3,000 SMSF trustees showed that SMSF investor concern has been tracking more or less to market movements. The sideways movement of the market since 2009 peppered with a number of corrections has caused investor concern levels to remain high. At the same time, SMSF investors’ growth expectations of the Australian All Ordinaries Index has moderated – from a rise of 11 percent over 12 months expected in 2009 to a rise of just 7% over 12 months expected in 2011.

While SMSFs’ total allocation to direct shares grew from 37 to 40 percent year on year, cash and cash products jumped from 21 to 26 percent of total SMSF assets in the same period.

* 20 year data prepared by Andex Charts Pty Ltd

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The survey covers around 1,600 SMSF’s administered by Multiport and the investments they held at 30 June 2011.  Funds are administered on a daily basis, which ensures that data is based on actual investments and is completely up to date.  The assets of the funds surveyed represent approximately $1.3 billion.

Increase to cash, short term deposits and fixed interest
The June quarter saw cash holdings increase by 1% and fixed interest increase by 1.3%.  Exposure to Australian shares fell 2%. The change is a combination of reflection of:

• Current uncertainty in the equity markets leading trustees to move funds to cash
• A fall in the markets over the quarter.

International shares remained fairly stable this quarter as did property.

Cash holdings move up
Cash holdings increased to 22.8% in June 2011, up 1% since the last quarter, and are now at the highest level in 18 months.  Investors have been selling assets and as mentioned previously, this is likely to be a reflection of the current uncertainty prevailing in the sharemarket as investors go for a more secure investment strategy in short and long-term fixed interest.

The average contribution inflow for the quarter was $20,000 which is typical of this time of year as trustees aim to top up their contributions.  The benefit payment outflows were higher at $26,400 per fund. This affirms that the increase in cash is derived not from surplus contributions but rather disposal of investments in other sectors.

The average contribution for FY2011 was $40,700; SMSF members are still contributing strongly although this is down on the FY 2010 figure of $45,800.

Australian equities exposure steady
Again we have seen the preference of SMSF trustees to invest directly rather than through managed funds.  The June quarter saw Origin Energy move into the Top 10 ASX-listed stocks used by our funds.  Other stocks were virtually unchanged from the previous quarter with trustees continuing their preference for blue chip stocks.

The most commonly held ($ invested) shares in SMSFs at 30 June 2011 were:

1 BHP Billiton
2 Commonwealth Bank
3 Westpac
4 ANZ
5 National Australia Bank
6 Woodside Petroleum
7 Woolworths
8 Wesfarmers
9 Rio Tinto
10 Origin

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

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

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

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

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

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

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“Concerns have been raised around the additional financial burden that will be imposed as a result of changes to collectables held within SMSFs,” says The SMSF Academy’s managing director, Aaron Dunn.  “As part of building integrity into the SMSF sector and breaking the shackles of past stigmas, changes to the ability to hold collectables represent a positive step forward for the industry.”

The changes will prevent SMSF trustees from enjoying benefits from their investments in collectables and are designed to ensure the investments are made to derive a retirement benefit. The new rules will apply to a range of lifestyle assets including artwork, jewellery, antiques, wine, cars and recreational boats.

“While concerns about additional compliance costs are valid, they are the reality of the future of SMSFs when it comes to improving the integrity of the system,” Mr Dunn argued, “And trustees and their advisers must be mindful of the fact that it is a better outcome than that proposed by the Cooper Review, which sought a blanket ban on the acquisition of all collectables and personal use assets within SMSFs.”

Mr Dunn said changes to the sector are necessary in order to uphold strength in retirement policy.

“The Cooper Review Panel developed Ten Guiding Principles for SMSFs for a reason: specifically, to underpin the regulation of SMSFs and, more broadly, to provide guidelines for future policy-making in the SMSF sector,” he says. “Principle 7, The recognition of special risks in a SMSF environment and new levels of intervention mean that trustees, their accountants and their advisers will need to change how they operate in a new SMSF landscape.”

Mr Dunn says that the hype around collectables and personal use assets is disproportionate to the amount of money the SMSF sector currently has invested in them. “These assets represent only 0.1% of a $430 billion industry,” he says. “An area of change that will impose greater costs on a greater number of SMSFs is the proposed future prohibition of acquiring shares from related parties – and yet, to date, there has been very little public debate on the topic.

“While the industry has a right to have input in the future direction of superannuation policy within Australia, arguing the toss on collectables is really making a mountain out of a mole hill. Trustees and their advisers should be happy that they are here to stay  – albeit with tighter regulation.”

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The objective of this paper is to demonstrate that politicians of all persuasions over the past 30 years have failed to make critical structural changes to protect consumers from investment product failure. Most have preferred to make cosmetic changes that have suited political objectives at the time without materially adjusting the industry’s fundamentals. The adage of ‘The future is the past returning through another door’ will continually haunt consumers and the industry well after the politician’s have moved on. As history has continually demonstrated, this outcome we can be guaranteed of.

A footnote to this paper is the AIOFP is not being critical of the regulator. ASIC are merely an organ of Government and totally reliant upon the parameters set by politicians. In fact, the recent budgetary cuts and resultant departure of 150 mostly investigatory staff is a major blow to consumer and adviser security.

Ironically, ASIC and advisers interests are aligned, we both rely upon third parties to perform their duties diligently to avoid product failure and the resultant carnage. A significant portion of the blame for the $29 billion of either frozen or failed products since 2006 can be attributed to the performance of  Research Houses, Auditors, Trustees and Directors of the entities. But, at the end of the day it has been the poor decisions by politicians who have the ultimate responsibility of framing market supervision and structure that needs to change.

We are recommending two fundamental changes that will significantly enhance protection for consumers and advisers when making product decisions.

ASIC’s role with Product Disclosure Statements [PDS] – ASIC have been telling consumers and the industry for many years that they do not scrutinise new product PDS’s entering the market. Arguably the message should have been clearer but consumers and the industry have not been listening. Everyone has assumed that a PDS is checked for commercial viability including the role and character of Directors/Promoters by ASIC before market release. Most have treated it as a first ‘filter’ in the due diligence process. Wrong, all PDS’s are released to the market with minimal if no ASIC scrutiny with an accompanying ‘buyer beware’ tag. This will come as a major shock to most in the industry and all consumers.
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ASIC only have the resources and ‘politician driven’ power to be reactive to product failure not proactive. In analogous terms, they are ‘policemen/women’ enforcing the laws and ‘ambulances’ attending accidents trying to look after the injured but they do not act as Protectors. Thanks to the politicians, ASIC do not have the power or resources to be proactively looking to stop the accidents happening. We are absolutely positive that all consumers and the industry would want ASIC to be proactively protecting consumers from dodgy operators and fundamentally flawed products by being more active in the front end of the industry. This can only be achieved by politicians giving the resources to stop the accidents happening and being more creative with legislative strategy.
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Suggestion 1 – Politicians legislate to give ASIC more resources to become not only the Policeman and Ambulance of the industry but the front end consumer Protector.
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The role of Research Houses in the advice process – Research Houses play an absolutely critical role in the industry for consumers, ASIC and advisers. They are unofficially empowered with the decision making role on which manufacturer’s products are good, bad or exceptional and whether they commercially survive. They have unfortunately become the unofficial ‘gate keepers’ of the industry with far too much power in our view.
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Advisers need positive research ratings to satisfy their Insurers and due diligence process, hence they rely heavily upon research houses. Product manufacturers need a positive research report to get inflows from advisers; hence they rely heavily upon a positive research rating. You can see where this is heading. The massive problem facing this intertwined relationship is that research houses are getting paid by the product manufacturers to rate their products. This profoundly conflicted relationship has proven to be extremely costly for consumers, advisers, ASIC and society generally. Of the $29 billion of failed or frozen products they all had a positive research rating. This culture has fostered complacency, sloppiness, ‘special favours’ and down right incompetent decisions that leaves consumers, advisers and ASIC wounded while the research houses run for cover behind their disclaimers. This all care and no responsibility attitude has to be stopped by the politicians.
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ASIC should be the ‘gate keeper’ to the industry, it is a far too potentially conflicted role to allow commercial operators to have this much power. Remember Joh B’s classic comment? ‘if there is no conflict there is no interest’. Advisers should be the only source of income for research houses. US Congress recently addressed the ‘shop around for a rating’ scandal that ignited the GFC, our politicians need to be brave enough do the same. There needs to be a levy placed on all advisers to fund an ASIC supervised panel of research houses. They should be generously paid to ensure that high quality staff is employed and their business model is commercially viable. All PDS’s must then be scrutinised by this panel before the ASIC process and adviser/client consumption commences. Yes a back log on PDS approval would probably happen but it is better than the alternative.
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Suggestion 2 – Politicians follow their US counterparts by legislating to give ASIC control of the research process to protect consumers and advisers.
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FOFA has been largely driven by the spate of product failures and bad advice events like Storm. With the exception of Storm [which incidentally was influenced by a large Institution] bad advice issues are on the lower scale and normally resolved by FOS or COSL anyway. The big ticket items are products failing, hence the $29 billion figure already mentioned. The reason why these products failed are varied but it is commercially inconceivable to link it to product commissions. Commissions are a fraction of the capital involved, the cold hard facts are many of these products should not have been on the market in the first place and directly linked to politicians not making hard decisions and preferring to gorge on low lying political fruit.
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Some brief views on the current FOFA proposal to demonstrate it is a superficial cosmetic approach.

1. Banning of product commissions – totally agree, it is an inducement that leads to conflicts of interests. Will make a huge difference but most have already done it anyway.
2. Opt in – totally unnecessary, with a no commission environment advisers will be charging clients directly. Each and every year advisers will be judged on their performance and clients will be making a ‘cheque book’ judgement on whether to pay or not. Considered to be a political concession to the Industry Fund lobby.
3. Bests Interests – nice cosmetic touch but we are subject to a fiduciary duty in the courts anyway. Quickly changed from the original proposal of Fiduciary Duty when the full ramifications were considered.
4. Platform rebates/profit share – Industry Funds subsidise their advice practices with their internal platform profits, why can’t independents negotiate a share of a platform profit to subsidise advice? Platforms are administration services not investment products. A clear case of favouritism for Industry Funds.
5. Banning risk commissions in Super – Australia has a $1.3 billion underinsurance problem already in a commission environment, it will only exacerbate the problem. Widely considered to be a poorly thought through ‘red herring’ to leverage publicity.

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We trust you can now see that these 5 FOFA items, when put into context with our two suggestions, will make little difference to whether products will fail or not. As previously stated, these failed products should not have been on the market in the first place. Until the supply and scrutiny process is addressed the adage of ‘the worst thing about history is that every time it repeats itself the price goes up’ will continue to haunt us.
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Finally, It should also be noted that an advisers entire commercial and family life depends upon clients avoiding product failure, it can and does destroy every aspect of their life. It is inconceivable to even suggest an adviser would select a product purely based on receiving a very short term benefit knowing that it would fail.
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FOFA has received unprecedented publicity and has conditioned every one for change. The AIOFP hopes politicians will embrace the occasion with sound, commercially driven decisions that will make a real difference to the industry going forward.
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We welcome your comments and feedback.

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Managing Director of The SMSF Academy, Aaron Dunn, said the topic was decided in response to continuing Australian Taxation Office (ATO) concerns about whether trustees and/or the professionals advising them, are correctly calculating and applying tax exemption on income generated by the fund, as members move from the accumulation fund to retirement.

“With an aging population and a focus on maximising tax exemption within SMSFs, it is critical that advisers have a better understanding of actuarial requirements and strategies to obtain fantastic outcomes for their clients,” Mr Dunn said.

The one-hour interactive webinar, which will run on Wednesday 22 June, 2011 from 12:30pm, will be co-hosted by Mr Dunn and Senior Actuary at Bendzulla Actuarial, Geoff Morley, who will discuss and provide examples on:

• Understanding the unsegregated method for SMSFs
• Common mistakes and tips when using the unsegregated method
• How segregation works within a SMSF

Time will also be made available at the end of the session for questions from the webinar audience, including discussing current ATO issues.
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Mr Dunn said he is delighted to be joined by someone of Mr Morley’s calibre.
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“Bendzulla Actuarial specialises in providing practical solutions for SMSF trustees and their professional advisers and has won every BRW Client Choice Award for Best Actuarial Firm since 2007,” he said. “Geoff is an acknowledged expert in his field and has over 19 years experience in actuarial consulting in Australia and the UK.”

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New Russell research released today shows

• 30% of institutions will consider using ETFs in future in a significant way
• Education and innovation will be key to evolution of institutional ETF market

Global financial services firm Russell Investments is urging Australian institutional investors to properly understand how they can use ETFs in portfolio management, and is rallying the ETF industry to focus on meeting the growing needs of the institutional market.  This follows Russell’s launch of a major new research report today: Digging Deeper: Institutional ETF investing in Australia which looks at how Australian institutions are using ETFs and plan to use them in the future.

While retail use of ETFs has boomed in Australia, institutional usage has lagged, which is exactly the opposite of how ETF markets have developed in Europe and the US. A recent Greenwich report showed institutional ETF usage in the US has increased dramatically over the past year and will continue to grow. To date there has been limited evidence around institutions’ attitudes to ETFs in Australia so Russell engaged Deloitte Actuaries & Consultants to undertake in-depth interviews with 20 institutions that directly manage or advise on over 40% of Australian funds under management.  The respondents ranged from large investment managers, superannuation funds and insurance companies to smaller investment advisers and endowments & foundations.

“While some institutions initially perceived ETFs as a retail solution; the research found that the majority of institutions use ETFs in a small way with 30% considering using ETFs in a significant way,” saidAmanda Skelly, director ETFs, Russell Investments.

“This is a positive sign for the industry although there is still a lot more we co do to help drive growth through product inovation and education.

Getting under the skin of institutional ETF usage

While large institutions often view futures, direct mandates or low cost managed funds as superior to ETFs for purposes such as dynamic asset allocation, cash equitisation and transition management, many were able to pinpoint specific instances where they had used or considered using ETFs over these investment vehicles.
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“If you’re looking to hold a future for longer than three months,roll costs, loss of franking credits and basis risk may mean ETFs are more cost and tax effective. Likewise if you’re looking for more precise sector exposure or exposure to hard to access markets, ETFs might also be a more effective tool,” Skelly said.

Large institutions also indentified other uses for ETFs; as a way to implement a temporary strategic or tactical allocation for smaller pools of capital or sub portfolios; as a tool to manage temporary investment positions; and as an option for investment platforms offered to retail investors.
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Many larger institutions had also considered more innovative uses of ETFs in non-core parts of their business or for portfolios constructed for specific clients.
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“As institutions continue to evolve to address specific customer needs, be it managing pension assets differently, expanding the types of exposures they are seeking to access or taking a more macro approach to investing, ETFs can play a role. They should be considered alongside all other types of investment vehicles,” Ms Skelly said.
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For smaller institutions it is clear ETFs could play a role as a long or short term investment solution and often have both tax and cost benefits.  For them, comfort with existing investment structures and processes and limited knowledge of ETFs have been the main barriers to acceptance.
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Overcoming barriers and future innovation
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The cost of ETFs verses other instruments was a reoccurring concern throughout the research.  Yet many respondents highlighted there are certain times when ETFs can be a cost effective alternative and should be assessed on a case by case basis.
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For Australian listed ETFs, lack of secondary market liquidity and market depth were concerns, with many institutions turning to overseas exchanges for ETF usage.
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“While ETFs are gathering momentum, the local market is still in its infancy. It is clear we need to continually educate the market on ETFs to ensure investment decision makers are properly evaluating the role they could play in their businesses,” Ms Skelly said.
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Looking ahead, while the research shows it’s still early days, many Australian institutions are realising ETFs can enhance the portfolio management process and will have a role in the future.
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“There is a growing institutional acceptance of ETFs but how fast the market develops here will hinge on education and innovation,” Ms Skelly concluded.

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