Financial Planning Magazine - October 2011

VOLUME 23 | ISSUE 9 | OCTOBER 2011 | $10.00

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THIS ISSUEWhen is an income stream an income stream?

Reviewing SMSF investment strategies and underlying assets

CFP myths and misconceptions

Scaled adviceIndustry veterans - Alan Hinde, Bronny

Speed, Vicky Ampoulos and John Ellison - join Debby Blakey in debating the

opportunities and threats of scaled advice

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financial planning | OCTOBER 2011 | 3

7 FoFA First Tranche SU-KING HII examines the draft legislation on the

Future of Financial Advice reforms, and what this means for financial planners and their clients.

18 Income Streams A recent ATO draft tax ruling considers when

a superannuation income stream commences and when it ceases, and consequently when a superannuation income stream is payable.

20 The Game-Changer Ongoing volatility and uncertainty in global

sharemarkets makes reviewing an SMSF client’s investment strategy and underlying assets all the more important, writes JANINE MACE.

26 Scaled or Scoped? Scaled advice presents both opportunities and

threats to financial planners. A panel of practitioners debate the issues in a roundtable discussion.

32 Pro Bono Advice Many planners are actively engaged in providing

pro bono services to clients in need, but few openly discuss it. JAYSON FORREST spoke to Craig Bigelow about his work with the Cancer Council NSW.

39 CFP Myths and Misconceptions Over the years, many misconceptions have

surfaced over the CFP designation, particularly around issues of ‘gifting’ or ‘grandfathering’. Belinda Robinson sets the record straight with CAROLINE MUNRO.

42 Excess Super Contributions Tax The excess superannuation contributions tax issue

remains a problematic one for superannuation fund members, writes TERRY HAYES.

Regulars04 CEO Message

06 News

12 Opinion

42 Technical Update

43 Four Pillars Policy

44 Centrelink

45 Chapter Event Review

46 Event Calendar

47 Directory

EDITOR Freya Purnell Locked Bag 2999, Chatswood NSW 2067 Phone: (02) 9422 2053 Facsimile: (02) 9422 2822 [email protected]

PUBLISHER Jayson Forrest Phone: (02) 9422 2906 Mobile: 0416 039 467Facsimile: (02) 9422 2822 [email protected]

ADVERTISING Jimmy GuptaPhone: (02) 9422 2850 Mobile: 0421 422 [email protected]

ADVERTISING Suma DonnellyPhone: (02) 9422 8796 Mobile: 0416 815 [email protected]

Annual subscription rate: $110 (GST inclusive). To subscribe, call 1800 337 301.© Financial Planning Association of Australia Limited. All material published in Financial Planning is copyright. Reproduction in whole or part is prohibited without the written permission of the FPA Chief Executive Offi cer. Applications to use material should be made in writing and sent to the Chief Executive Offi cer at the above e-mail address. Material published in Financial Planning is of a general nature only and is not intended to be comprehensive nor does it constitute advice. The material should not be relied on without seeking independent professional advice and the Financial Planning Association of Australia Limited is not liable for any loss suffered in connection with the use of such material. Any views expressed in this publication

are those of the individual author, except where they are specifi cally stated to be the views of the FPA. All advertising is sourced by Reed Business Information. The FPA does not endorse any products or services advertised in the magazine. References or web links to products or services do not constitute endorsement. Supplied images © 2011 Shutterstock. ISNN 1033-0046 Financial Planning is published by Reed Business Information Pty Ltd on behalf of the Financial Planning Association of Australia Limited. , CFP® and CERTIFIED FINANCIAL PLANNER®

are certifi cation marks owned outside the U.S. by the Financial Planning Standards Board Ltd. The Financial Planning Association of Australia Limited is the mark’s licensing authority for the CFP marks in Australia, through agreement with the FPSB.

CONTENTS

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Features October 2011

Financial Planning is the offi cial publication of the Financial Planning Association of Australia Limited (ABN 62 054 174 453)Web: www.fpa.asn.au | E-mail [email protected] | Level 4,75 Castlereagh Street, Sydney NSW 200 | Phone (02) 9220 4500 | Facsimile: (02) 9220 4580

Average Net DistributionPeriod ending Mar’1111,134

CEO MESSAGE

4 | financial planning | OCTOBER 2011

Following the launch of our advertising campaign last month, it became clear to the industry at large that the FPA’s focus is on promoting the professionalism of its members only, rather than all financial planners working in the industry.

The FPA is making a stand for our members and we are doing this actively in the media, in advertising and in our advocacy efforts. In doing so, we are speaking on behalf of those financial planners who have made a tangible commitment to their professional status as financial planners by being a member of the FPA.

FPA as a consumer trust markIn other professions, membership of a recognised professional body forms a mark of trust for consumers. This is one of the roles performed by the Australian Medical Association (AMA) for the medical profession and the Institute of Chartered Accountants and CPAs for the accountancy profession.

In financial planning, consumers working with a financial planner who is a member of a professional body - such as the FPA - benefit from double protection: at the first level from the law and ASIC’s powers, and at an additional level, in the case of the FPA, from our world-leading Code of Professional Practice, our independent disciplinary process and our requirement for higher educational standards.

In order to address the trust gap that consumers have with financial planners, we believe that all professional financial planners should make a commitment and sign-up to a professional body. This is important to drive up the professional standing of the industry as a whole, and as a consequence, it would form a significant step in fostering consumer trust and confidence in financial planning.

This is the reason why we are taking a stand in our consumer advertising campaign to exclusively promote FPA members who have made this commitment. The FPA can no longer be the voice or advocate of those financial planners who choose not to subscribe to a professional framework of standards, ethics and conduct.

FPA gains recognitionAs our advertising campaign is now live in the market, the word is spreading and key decision-makers and influencers are recognising our position. In a recent ABC interview, Minister Bill Shorten publicly acknowledged the FPA’s key role in raising professional standards for financial planners (Source: ABC Inside Business, 4 September, 2011).

Noel Whittaker, one of Australia’s pre-eminent financial planners and media commentators, has also written in recent press articles on the FPA’s position as the key body for the industry and FPA members’ credentials (Source: Illawarra Mercury, 12 September, 2011).

Decision time As time progresses, I believe that this much will become clear: as a quality financial planner working in Australia, to build your reputation in a post-GFC world means you must distinguish yourself as a member of your professional body. This won’t be a ‘nice-to-have’; it will be part of your ‘licence to trade’ and pivotal to your business’ growth strategy. This becomes your ‘professional passport’ that you carry with you regardless of where you practice in Australia or throughout the world.

If you are such a quality financial planner and already a member of the FPA, make the most of your FPA membership in your own marketing approach. If you are not a member of the FPA, now is the time to join your professional peers and achieve the respect you deserve.

Mark Rantall CFP®

Chief Executive Officer

IT’S TIME TO DISTINGUISH YOURSELF As a respected practitioner, it’s more important than ever to distinguish yourself as a member of a professional body.

–– As a quality financial planner working in Australia, to build your reputation in a post-GFC

world means you must distinguish yourself as a member of your professional body.

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The FPA has welcomed the release of the Corporations Amendment (Future of Financial Advice) Bill 2011, saying that it provided further clarity on the FoFA reforms, but rejected the Opt-in proposals as a cumbersome and unnecessary impost on financial planners and their clients.

“We have led the way on reforms proposed within the FoFA legislation, including the introduction of a best interest duty and a banning of commissions on investments. These initiatives effectively make Opt-in a redundant policy option,” said FPA chief executive officer Mark Rantall.

The FPA supports the majority of consumer protection reforms announced by the Government, including:

• New clients being the test for the Opt-in trigger;

• A reduction to penalties for future potential breaches of Opt-in; and

•

Flexibility in the way Opt-in may be applied, including via internet, email and phone.

According to Rantall, these concessions may considerably reduce the cost of Opt-in to financial planners.

The FPA also responded favourably to the announcement of a timeline for a consultation paper from Treasury investigating enshrining the term ‘financial planner’ in law.

“This is a vital action that, if passed, will give all Australians the safeguard of knowing the financial planner they deal with is backed by appropriate qualifications and an ethical framework,” Rantall said.

“FPA members already hold some of the highest professional and ethical standards. The Government could make a much more significant contribution to one of FoFA’s aims of increasing consumer trust in the industry and provide clarity for consumers by restricting under law the use of the title ‘financial planner’ to those planners who are members of an approved professional association.”

The FPA will continue to work with the Government and Treasury on the FoFA reforms and the enshrinement of the term ‘financial planner’ in law.

For a rundown on the first tranche of FoFA reforms, see p7-10.

FPA plays key role in FoFA negotiations

NEWS

6 | financial planning | OCTOBER 2011 6 | financial planning | OCTOBER 2011

–– “We have led the way on reforms proposed within the FoFA

legislation.”

Mark Rantall

NEWS IN FOCUS

The long-awaited draft legislation on the Future of Financial Advice (FoFA) reform was released in late August 2011 setting out the Government’s legislative agenda in enacting advisers’ best interest obligations, Opt-in arrangements, and enhancing ASIC’s powers in tightening the licensing regime and banning individuals from the financial services industry.

It represents the first tranche reform, which will be followed by the second tranche dealing with the ban on conflicted remuneration structures, soft dollar benefits and the replacement of accountants’ exemption.

In brief, all financial advisers will be required to act in the best interests of their clients, and to give priority to their interests in the event of a conflict. The Opt-in arrangements require advisers to send a renewal notice every two years to clients, and will be supplemented by an annual fee disclosure to clients. ASIC will be given wide powers to refuse or cancel a licence on the ground that the applicant or licensee is likely to contravene the financial services laws, as well as banning individuals if they are not fit and proper persons or not adequately trained.

The above reforms are expected to take effect from 1 July, 2012.

Best Interests ObligationTo demonstrate compliance under this obligation, the adviser must:

• identify the objectives and financial situations of the clients through client instructions;

• identify the subject matter of the advice requested;

• make reasonable enquiries to obtain complete and accurate information where it is reasonably apparent that the information is incomplete or inaccurate;

• notify the client where it is reasonably apparent that the client’s objectives could be better met or achieved if advice is obtained on another subject matter;

• assess whether the adviser has the expertise to advise on the subject matter and must decline to advise if not;

• assess whether the client’s objectives could be achieved through means other than the acquisition of financial products;

• conduct a reasonable investigation into, and assess the financial products that might achieve the objective;

• where ‘switching’ or other acquisition advice is given, assess the disadvantages against the advantages of not acquiring the product.

The above factors are merely a guide and not exhaustive. It also prescribes that the adviser must base all judgments in advising the client on their objectives.

It is clear that advisers cannot solely rely on the client’s instructions, but must also make further reasonable enquiries where the information is incomplete for the subject matter of advice. It is not necessary to obtain every piece of information from the client, but only information that is necessary for the subject matter of the advice. Advisers will also note that the legislation will impose a certain objective standard in the enquiry and investigation steps. Generally speaking, the more complicated the subject matter of the advice, the higher the standard will apply. For

example, the steps required to obtain further information will be higher for a self-managed super fund and estate planning where complex tax laws are involved, than a subject matter that only relates to, say, debt consolidation.

Where it is reasonably apparent that the client’s objectives could be better achieved through the advice on another subject matter, this must be notified to the client and can be included in a Statement of Advice. This should be done at the early stages of the client-adviser relationship, as it may impact on the substance of the advice given to clients. Advisers should always think ‘globally’ on the parameters and impact of their advice, and exercise professional judgement in advising on other subject matters, as clients may not always know what type of advice will meet their objectives. This is why it is vitally important for the adviser to adequately define the parameters of the ‘subject matter’ of advice having regard to the client’s objectives.

The FoFA draft legislation also requires an adviser to reassess their qualifications and competencies in particular areas of their advice. Advisers must decline to advise on particular technical or complex aspects of the product where they have no expertise, even though it is reasonably apparent that the advice on another subject matter is required.

This brings us to product selection. Under these obligations, the adviser must not confine themselves to considering financial products only. Rather, the adviser must also consider whether the client’s objectives can be achieved through other means. For example, the establishment of a self-managed super fund, purchase of investment property,

FOFA FIRST TRANCHE: UNDER THE SPOTLIGHT

Su-King Hii examines the Government’s much anticipated draft legislation on the Future of Financial Advice reforms, and what these mean for financial planners and their clients.

Continued on p8


NEWS IN FOCUS

debt reduction and in some cases, it may be necessary to advise the clients to liquidate their portfolio and keep the cash in a term deposit.

If a financial product is to be recommended, the adviser must undertake reasonable investigation to ensure it might achieve the client’s objective. This obligation does not require the adviser to investigate every single product in the market. Where the adviser’s choice is limited by the approved product list (APL), the obligation can be met if a product on the list meets the client’s objectives. However, there is still an overarching obligation to not recommend the product on the APL if it does not meet the needs and objectives of the client.

The maximum penalty for non-compliance with this obligation is $250,000 for individuals and $1.1 million for corporate entities.

Opt-in arrangementsOpt-in arrangements have been the subject of intense debate. The obligation to require a client to renew or Opt-in every two years only applies to new clients that have not received financial advice before, and who enter into the ongoing fee arrangement with the adviser on or after 1 July, 2012. Importantly, this arrangement is also supplemented by the requirement to provide

an annual fee disclosure statement to the client. Furthermore, the client may terminate the arrangement at any time. In essence, the renewal notice must be sent at least 30 days before the second anniversary of the arrangement. The notice must set out the following statements:

• the client may renew the ongoing fee arrangement by notifying the adviser in writing;

• the fee arrangement will terminate and no further advice will be given if they Opt-out;

• the client will be taken to have Opt-out if they do not take action to Opt-in;

• the renewal period is 30 days.

If the client decides to Opt-out or fail to take positive action to Opt-in, the fee arrangement will terminate at the end of a further 30 days. The adviser’s obligation also ceases at this point, as does their liability for the failure to provide continued advice services. This should give advisers some comfort in cases where clients fail to renew during times of market volatility.

The annual fee disclosure statement should also be given, and it must contain the following details:

• the amount of fee paid in the last 12 months;

• the amount of estimated fees payable in the coming 12 months;

• services that the client was entitled to receive in the last 12 months and services which they actually received during that period;

• services that the client is entitled to receive in the coming 12 months and details of the services which the adviser anticipates the client will receive during the same period.

If an adviser does not comply with the obligation to provide an annual fee disclosure statement and/or the renewal notice, the client will not be liable to pay the ongoing fee, and any fees paid must be refunded upon request.

Advisers will be given the flexibility in choosing when and how they discharge this obligation. An adviser may wish to provide the notices in advance of the prescribed timeframe to satisfy the renewal obligation sooner than is actually required if this is convenient for them. What this means is that the time for subsequent disclosure and renewal will be ‘reset’ to the new date.


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NEWS IN FOCUS

In terms of methods of discharging this obligation, the adviser may do so in a face-to-face meeting with the client and provide such notices and obtain the relevant agreement to renew. Other methods such as internet, emails and SMS can also be used to confirm renewal. The important thing to note is that all communications must be clearly documented and the renewal recorded. As a matter of good practice, advisers should include a warning in the renewal notice setting out the potential consequences of non-renewal.

The penalty for non-compliance is a maximum penalty of $50,000 for individuals and $250,000 for corporate entities.

ASIC’s Enhanced PowersFinally, ASIC will be given very wide powers to regulate the financial services industry and its participants through the tightening of the licensing regime, and to ban individuals. Put simply, ASIC will make it harder to obtain licences, and easier to cancel or suspend licences. At the present time, ASIC can only refuse, cancel or suspend a licence, or ban an individual if it forms the view that the applicant, licensee or individual ‘will not’ comply with a financial services law. Under the new legislation, this threshold will be lowered so that the enforcement power can be exercised where it is ‘likely’ a contravention will occur.

The proposal means that ASIC would be able to look behind the entity, examine the conduct and competency of the persons providing the financial services, and assess

the application based on wider sources of information. It is alarming to note that contravening the criteria of ‘likely’ has not been clearly defined, and could conceivably include subjective judgments and suspicions. Grounds that can be relied on by ASIC in refusing a licence application or banning an individual may include factors such as the failure to comply with internal guidelines, failure to comply with market operating rules, or conduct that may amount to serious conflicts of interest. Other factors that could conceivably be taken into account will be matters like:

a) failure to meet ongoing training requirements;

b) unresolved complaint from client;

c) imminent legal proceeding against the licensee;

d) failure to maintain proper records or lodging documents on time;

e) market intelligence gathered on a particular activity which may lead to further investigation and/or proceedings brought by ASIC; and

f) technical breaches of compliance procedures and the Corporations Act.

ASIC will also be given the power to ban individuals who are not of good fame and character or those who are not adequately trained or not competent to provide financial services to clients.

The enhanced powers of ASIC will change the way the licensing regime works, and how licensees approach compliance framework and appointment processes.

ConclusionAlthough the draft legislation is expected to undergo rigorous scrutiny and finetuning, it is largely expected that the crux of the reform will remain. The imposition of best interests obligation and the Opt-in arrangement will fundamentally shift the way advisers perform their duties. What this means is that advisers and licensees must now review the training programs, compliance framework and appointment processes, and update their compliance and client documentation. Advisers should take the opportunity of enhancing their compliance client relationship structures, as failure to do so will see them risk severe enforcement actions from ASIC for non-compliance.

Su-King Hii is the Principal of Innoinvest Consulting.


–– The imposition of best interests obligation and the

Opt-in arrangement will fundamentally shift the way

advisers perform their duties.

This is general information only and does not take into account any individual objectives, fi nancial situation or needs. Investors should consider the relevant PDS available from us before making an investment decision. *Source: Wealth Insights 2011 Platform Service Level Report and survey of 867 aligned and non-aligned advisers, conducted Mar/Apr 2011. **Investment Trends 2011 Planner Technology Survey. Sample of 490 IFAs (advisers employed by dealer groups with less than 50% institutional ownership) surveyed in June-July 2011. Different fees and costs apply to other investment options. Fees and costs may change. Colonial First State Investment Limited ABN 98 002 348 352 is the issuer of the FirstChoice range of super and pension products from the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557. Colonial First State also issues interests in investment products made available under FirstChoice Investments and FirstChoice Wholesale Investments. Avanteos Investments Limited ABN 20 096 259 979 AFSL 245531 is the issuer of the FirstWrap super and pension products from the Avanteos Superannuation Trust ABN 38 876 896 681. Avanteos also issues interest and operates investments under FirstWrap. CFS2040/FPC/FP

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In the short-term it will be difficult for the Australian economy to reduce its dependence on China given the strong demand for our natural resources. This strong demand from China minimised the impact of the Global Financial Crisis on our economy, and it continues to drive our economy, particularly in Western Australia. As the Chinese economy grows, our dependence is likely to increase, and the downside of this is that our economy then becomes susceptible to Chinese Government policy and attitudes. These policies are in many cases contrary to what we anticipate in Australia, as demonstrated by the recent Stern Hu case.

In my view, to reduce the dependence on China we should use part of the proceeds from the ‘resources boom’ to establish a sovereign wealth fund. A sovereign wealth fund would enable future generations to prosper from what this country offers. As an example, the Norwegian Sovereign Wealth Fund has very strict rules where only 4 per cent of the capital can be withdrawn and used for

budget expenditure each year. The Future Fund illustrates how this could work in Australia, although this fund was established to meet the unfunded pension liabilities of former public servants and defence personnel.

Given the finite nature of resources, a sovereign wealth fund would enable the government to preserve some of the wealth for future generations. The dangers of not being prepared are highlighted by the plight of Nauru, where it went from having the highest GDP per capita in the world in the 1960s due to its rich phosphate deposits, to a position where it now sits of near bankruptcy.

Simple rules such as all budget surpluses are transferred into the fund, and restrictions are placed on how the capital and income can be accessed, would position the sovereign wealth fund as a safety net for the future of the Australian economy.

A sovereign wealth fund over time would reduce Australia’s reliance on China to prop up our two speed economy, which is currently distorting the health of our economy. Given the current political situation, it is unlikely that either party will have the political mandate to implement this in the short-term. The best we can hope for is to maintain control of the assets, reduce the influence of the Chinese within the management of these companies and look towards alternative markets for our natural resources.

Charles Badenach CFP®

Private Client Adviser and Principal, Shadforth Financial GroupLicensee: Shadforth Financial Group

How can the Australian economy reduce its dependence on China?

DIVERSIFICATION KEY TO ONGOING PROSPERITY

Q

OPINION

As financial planners, one of the key bits of advice we give our clients is to diversify their investments to reduce risk. The same principle should apply to our trading relationship with China and the rest of the world. China has become our largest trading partner in the last few years after many decades where Japan was the number one trading destination.

The Chinese trading relationship is based mainly on resource exports and manufacturing imports at the moment, but over time the pattern of trade will become more sophisticated as the Chinese economy matures. The key to our prosperity is to not downgrade our mutually rewarding trade with China but to supplement it by continuing to

develop other markets around the world.

The best growth opportunities for Australia remain in the developing world. Their growth rates over the decades ahead should be faster than the mature economies of Europe and North America. These western economies still remain important and shouldn’t be neglected, but faster growth will come from countries such as India and Indonesia.

Governments and Australian business should be putting in place long-term strategies to develop stronger trade links with countries where the prospects of trade growth are attractive. Australia already has a network of Austrade offices in

key markets and trade delegations comprising business and government representatives visit these regions to foster ties on a regular basis. However, like anything in life, improvements could be made to these activities to increase our share of trade opportunities.

Business is always good at responding to incentives. If there is a serious belief that our trade is too heavily dependent on China, then programs can be launched to encourage business to trade with countries other than China. Government policy can also help, such as the signing of double taxation and free trade agreements with countries other than China.

Ultimately, all Australians will benefit if we can cultivate strong ties with other countries apart from China. This will prevent what happened in the 1970s occurring again. When one of our principal trading partners, the UK, entered the European Union and our exports to the UK fell as a consequence.

Daryl LaBrooy CFP®

Financial Adviser, Hillross Financial ServicesLicensee: Hillross Financial Services


China’s economic growth over the past two decades has been one of the most remarkable events of modern times. Whilst there is little doubt that the Chinese economy will continue to expand, it should be apparent that the current Chinese rates of growth are unsustainable. The flip side of this resources boom has been the high Australian dollar which is continuing to pressure an already anaemic Australian manufacturing industry.

Manufacturing is vital to a country’s long-term economic viability and our over-dependence on exporting resources to China is our Achilles heel. Like all other booms, this resources boom too shall pass and this could lead to a deep and prolonged recession, especially since at that time, our manufacturing base could be almost non-existent, due to

continuing job losses - many decades of skills and expertise in these sectors could be lost forever. Furthermore, despite record high commodity prices, Australia continues to have a deficit and a re-visit to a more robust resources tax is worth considering.

So how can we reduce our dependence on China? By focusing on our strengths. We are located in the world’s fastest growing region. Resources aside, what is our competitive advantage? It is our intellectual capital and therefore we should be focused on becoming an Asian hub for high tech manufacturing and an Asian centre for financial markets. This calls for an urgent and concerted team effort by the Federal and all State Governments.

Petty and wedge politics should be put

aside to make way for major long-term structural reform. This calls for visionary leadership that looks past the average short-term election cycle.

We need to focus on a vertical approach to sectors such as engineering, higher education, information technology, bio-tech, renewable energy, food technology, and research and development – i.e. from university and vocational education to providing grants to particular manufacturing sectors and attracting dynamic Asian corporations to set up high-end manufacturing and research bases in Australia.

Ultimately, our economy is related to the rest of the world. However, we need to be able to take a cold hard look at ourselves and rather than rely on China paying high prices for what we have to offer, become rather more calculating.

To some extent our country is the grown-up version of a lemonade stand. The lemon trees are growing in the garden, our parents supply the sugar and friendly neighbours come and pay us for our produce at a sizeable mark up relative to our labour.

We need to see ourselves as a fully fledged business. Just as the British Empire made much of its wealth by repatriating profits on overseas ventures, we are in an excellent position to replicate the same. Without

needing to even make the effort of going abroad, we can send our hard earned money around the globe, sourcing the best opportunities (rather like the sovereign wealth funds of countries like the United Arab Emirates, which has already been doing this for decades, aware that their own resources are finite).

Through a combination of a well run sovereign wealth fund and our superannuation monies, we can punch above our weight globally and still maintain growth in infrastructure at home.

Otherwise, if too much money from our resources windfall and superannuation assets is ploughed back into government funded initiatives in Australia, we face the danger of creating a giant, unproductive pyramid scheme.

What so many people lose sight of is that China desperately needs markets to sell to. By increasing our wealth through diversifying how we earn our monies, we become better placed to buy from them, even when our advantage as resource providers starts to fade. But more importantly, we can choose to buy not just from China, but elsewhere.

Sorab Daver CFP®

Ascension Asia

Anna-Louise Brown CFP®

Corporate Authorised RepresentativeeWealthBuild Pty Ltd Licensee: Madison Financial Group

Would you like to join our panel of FPA members willing to give their opinion on topical issues? Email [email protected] to register your interest.

–– We should be focused on becoming an Asian hub for high

tech manufacturing and an Asian centre for financial markets.

FPA NATIONAL CONFERENCE

So you wish you had a work-life balance?

Most of us have never been taught how to work. A very bold statement to start with.

However, this is one of the most important reasons for lower-than-expected performance and feeling out of control. Most of us are committed to our role and want to do a good job. We are neither lazy nor unwilling. But we are not always working efficiently; we are working hard but not always smart.

Quite often we believe that to increase our performance, our revenue or our profits, we need to do more. We believe we must work longer hours, make more phone calls and attend more meetings. And in our busy working life, doing more is either almost impossible or carries a high price. We spend less time with our loved ones, we neglect our health, we put some of our passions and hobbies on the back-burner, and we end up frustrated, feeling out of control and stressed.

Let me give you a few very simple suggestions to work smarter, to feel more in control at work and at home.

Think quarterlyThe first characteristic of highly successful people is that they are very clear on what they want to achieve both for their professional career and personal life. The key is not only to decide what you want to achieve, but as importantly, you also need to decide what you will not do.

Once a quarter, block one hour and ask yourself a simple question: ‘What are the two or three things that if I did extremely well and nothing else over the next three months will have a significant impact long-term on my performance.’

You also need to ask the same question regarding your personal life.

Then you need to stick with two or three things, no more. And that is hard. We always want to do too much. Be clear on what I call your key area of focus and write them down.

Plan weeklyOnce a week, review your three business key areas of focus and your three personal key areas of focus. Then with this in mind, organise your following week. Your areas of focus have to become a must, a priority, not an ‘If I have the time I will/maybe do it’.

Book many meetings with yourself in your diary to advance these activities. Organise your calendar so that 60 to 80 per cent of your time is spent on this.

Act daily - focusOn a daily basis, be disciplined. If you have booked a meeting with yourself to spend two hours on one of your key areas of focus, for two hours be 100 per cent focused on this topic. No distraction, no interruption, no starting late, having a break, checking a few emails and so on.

Cyril Peupion is the Managing Director and co-founder of Primary Asset Consulting. He has worked behind the scenes with most of Australia’s Financial Planning organisations. He is the author of ‘Work Smarter: Live Better’.

To hear more from Cyril Peupion, you can attend his session: Personal efficiency and building time for change in your business.

When: Thursday 17 NovemberTime: 12:10pm-13:05pm

WORKING SMARTER BUT NOT HARDER

Cyril Peupion will show practitioners how to work smarter, not harder, in their business and regain greater control of their lives.


With just over one month to go before the FPA National Conference in Brisbane – November 16-18, Financial Planning asked two speakers to preview their sessions. For more information, visit www.fpaconference.com.au.

Writing and illustrating books is a somewhat solitary affair, especially when the subject matter is depression. You see, I had spent a good chunk of my adult life working as a creative in the high pace, high stress world of advertising.

I had become extremely stressed then depressed. My depression so profound I decided to combine what I did for a living – communicating simply, effectively and creatively with my ‘then’ life experience – the black dog of depression.

Creating and writing the book I Had a Black Dog (published by Pan Macmillan in 2005) was, I have to say, the easiest bit of creative I’ve ever done. It

was like the images and ideas just fell out of me like stones in an avalanche.

Delivering it to the publisher in itself was a different story altogether. I was fraught with fear, doubt and regret. There I was standing in my publisher’s office about to hand over my book, with my brain screaming to my feet to run away and secret the book in some far off rubbish bin.

Instead, I stated somewhat defiantly that I didn’t want to become the poster boy for depression; this was part of me, not the sum total. These fighting words were basically a bold cover up for the pending fear that was welling up from putting

something so deeply personal into the ether.

My publisher stated they had no control over what ‘fall out’ may happen as a result of this book.

How would this book affect my career, my friendships, and my relationship with my partner? Would people respect me? Would I be able to maintain the same degree of responsibility I’d had in the past? I even had friends warn me that I was taking a huge risk; I was committing professional ‘hara kiri’.

Was this the end of life as I knew it?


WALKING AND TALKING THE BLACK DOGAuthor and illustrator Matthew Johnstone will present a session on coping with mood disorders and depression, based around his own personal experience of depression at the height of his career as a creative director in New York.

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FPA NATIONAL CONFERENCE

Six years on I can honestly say that my life did change irreversibly as a result of this little book but only for the better.

I Had a Black Dog is now published in nearly 30 countries. I have since published four other books. I travel constantly delivering seminars to farmers, corporations, schools, communities and sporting groups on understanding mood disorders, resilience, positive psychology and mindfulness.

I am the creative director of the Black Dog Institute where I develop, create and deliver educational programs on mental health to schools and the workplace.

Apart from marrying my wife and having a family, creating this skinny little book was one of the best things that ever happened to me for the sole reason that it forced me to become authentic. I no longer had to hide in the shadow of a facade.

Above all it gave me permission to heal properly.

I’ve since learned that helping others is one of the

greatest ways to help ourselves, to improve our own happiness and to bolster our own resilience.

I don’t wish to end on a down note but it’s important to understand that the Black Dog is an equal opportunity mongrel - it affects everyone across the board and people invest vast amounts of energy in covering it up.

One in five will experience a significant mental health issue in their life time and tragically, about 40 Australians take their life every week, mostly because of it.

Suicide is the permanent solution to a temporary problem and it doesn’t have to be so.

Which is a big part of the reason why I have dedicated my life to bringing a bit of understanding, insight and hope to this very common and misunderstood human condition. If you’re ever going through difficulty, get help, be helped, have hope.

Life is short, it can be bitter, it is also sweet but most importantly it is a fantastic teacher if we’re prepared to learn from it.

Matthew Johnstone is a best selling author and the creative consultant for the Black Dog Institute, where he develops, creates and delivers educational programs on mental health to schools and the workplace.

To hear more from Matthew Johnstone, you can attend his session: Walking and talking the black dog – coping with mood disorders and depression.

When: Thursday 17 NovemberTime: 2:05pm-3:00pm


TAXATION

By Frank Camilleri

Recently, the Australian Taxation Office (ATO) released draft Tax Ruling 2011/D3. This ruling considers when a superannuation income stream commences and when it ceases, and consequently when a superannuation income stream is payable. Note that the ruling is yet to be finalised and the issues outlined below will need to be reviewed in the context of the final ruling.

In summary, some of the key implications of the draft ruling are listed below:

• Upon the death of the superannuation account holder, the income stream ceases, resulting in the loss of the tax-free status of assets backing the income stream.

• Failing to comply with pension rules and payment standards also results in the income stream ceasing, with the resultant loss of tax-free status.

• The minimum annual payment that must be paid from an income stream can be any payment including a partial commutation or in-specie transfer.

The planned start date for the ruling is 1 July 2007. If this remains the case in the final ruling, some of the issues detailed below may be retrospective in nature.

Death of the superannuation account holderBased on the draft ruling, the death of a superannuation account holder results in the income stream ceasing unless there is an automatic entitlement for a tax dependant1 to continue to receive the income stream. If such an automatic entitlement does not exist, the assets backing the pension would revert back to accumulation phase with the associated tax consequences (i.e. income is

taxed at a maximum rate of 15 per cent with capital gains taxed at 10 per cent where assets are held for more than 12 months).

It should also be noted that the cost base would be based on the date of acquisition (not the date of death). This could result in substantial tax liabilities on the superannuation death benefit for all beneficiaries leading to a reduced net death benefit. For non-dependants, normal lump sum taxes would also apply to the net death benefit received (i.e. 16.5 per cent of the taxable component).

Can the tax implications on death be managed?The main strategic options that would appear to fully negate the tax implications on death are nominating a tax dependant as;

• A reversionary beneficiary; or

• The beneficiary, via a binding death benefit nomination, which specifies that the benefit must be paid in the form of a pension.

These options are not available where the account holder does not have a tax dependant beneficiary.

Where a dependant receives the death benefit as an income stream, via a binding nomination which does not specify that the death benefit is to be paid as an income stream, the income stream will still cease at the date of death. However, the tax consequences may not be as significant in this situation as the assets backing the pension may revert to accumulation phase for a short period only (i.e. the period of time from the date of death until the date when the income stream commences to be paid to the beneficiary).

Three/Six Month RuleIt is also important to note that the operation of the ‘three/six month rule’ may interact with

the draft ruling. This rule determines whether a commutation is taxed as a death benefit or as a withdrawal by the beneficiary, where a death benefit had been the source of the income stream. Where a beneficiary commutes the income stream within six months of the date of death or three months of the granting of probate or letters of administration (which occurs later), the commutation is treated as a death benefit. In these circumstances, the fact that the death benefit had initially been received as an income stream may no longer be relevant. This may have the effect that the income stream would cease at the date of death, with the assets backing the pension reverting back to accumulation phase at this point with the associated tax consequences.

Implications for public superannuation fundsThe ruling applies equally to all superannuation accounts and not just Self-Managed Superannuation Funds (SMSF). While retail superannuation accounts may be able to negate some or all of the taxation impact of these rules by using cash reserves to fund death benefits, the exact impact on wrap accounts is yet to be determined. However, where the managed investments in the deceased’s wrap account need to be sold down as a result of their death, there may be tax implications (as noted above).

What other strategies are available?Given the adverse consequences, particularly for non-dependants, this may be a significant issue which will need to be dealt with as part of the planning process. As noted above, a reversionary or binding death benefit nomination are strategic options available for tax dependant beneficiaries, however what about non-dependant beneficiaries?

The strategic options available may include:

• Retaining carried forwarded losses in accumulation phase;

WHEN IS AN INCOME STREAM AN INCOME STREAM?


• Redeeming/transferring assets pre-death for distribution to beneficiaries;

• Transferring assets outside the superannuation system for distribution via a will and/or via a direct nomination (say in the case of an insurance bond);

• Periodically re-setting the cost base of assets;

• Claiming the future service benefit deductions to offset income and capital gains;

• Claiming the anti-detriment deductions to offset income and capital gains;

• Reserving in SMSFs to fund death benefit payments or the anti-detriment payment; and

• Establishing financial dependency.

Some of these may be of limited application while others can have ‘side effects’. For example:

• There may be an inherent limitation on how much of an SMSF’s assets can be reserved;

• Claiming the anti-detriment deduction may result in contribution tax issues; or

• Re-setting the cost base may breach the requirements set out in Tax Ruling 2008/1 which deals with the concept of wash sales (i.e. disposing of an asset with the intent of re-acquiring it).

Failing to comply with pension rules and payment standardsThe draft ruling is quite clear in that if pension rules and/or payment standards are not met, the income stream will cease from the beginning of that financial year in which the breach occurs. If the rules and standards are satisfied in the following financial year, the income stream will be deemed to have re-commenced.

In addition to the taxation consequences to the superannuation fund reverting back to accumulation phase, the recommencement of an income stream may result in adverse tax and/or social security consequences to the individual (i.e. recalculation of the deductible amount).

At present, the progressive return to the standard minimum income stream payments results in an increased risk that the minimum payment for a given year will not be made. While this may not be a significant risk for public superannuation funds, it may be for SMSFs.

Minimum income requirementsThe ability to meet the minimum annual income required of a superannuation income stream, via a lump sum withdrawal, has been raised as a possible strategy to optimise the net cash flow received2 by a client. This strategy has appeared to be effective due to the way the Income Tax Assessment Act 1997 and Superannuation Industry (Supervision) Act 1993 interacted.

The draft ruling appears to confirm that the minimum income requirement may be met from any payment made from the superannuation income stream, including a payment made as a result of a partial commutation (unless it is rolled over to another superannuation fund). This would be the case regardless of whether the partial commutation payment is made in cash or in-specie.

SummaryThere are still a number of issues which need to be clarified regarding the implications of the draft ruling and therefore, caution must be exercised in advising clients at this stage. There will be a number of submissions regarding the possible implications noted above and the final ruling is likely to be modified as a result. Whatever the outcome, it appears that the provision of advice to clients will be impacted regardless of any changes made to the final ruling.

Frank Camilleri is National Technical Manager at Shadforth Financial Group.

Footnotes:1. A dependant for tax purposes is a spouse, including a de facto, a former spouse, or a same sex spouse, a child under the age of 18, a financial dependant or a person in an interdependency relationship.

2. For example, a client who has aged between preservation age and 59, who has adequate room in the low rate cap, could effectively make the income they receive from an income stream tax-free by making a lump sum withdrawal to meet the minimum income requirement.


The ongoing sharemarket volatility may have financial planners reaching for the aspirin, but the headaches it creates may also contain some valuable opportunities for them to reassess their clients’ SMSF investment strategies, writes Janine Mace.

SMSF


THE GAMECHANGER

You can be forgiven for thinking it was a case of déjà-vu in August, when global stock markets recorded their single biggest losses since the dark days of the GFC. But rather than being a pain, the wild market swings can be used to advantage by both planners and their self-managed superannuation fund (SMSF) clients.

According to a range of SMSF experts, difficult times represent an important chance to take a fresh look at ideas for improving the current and long-term position of these funds.

For Philip La Greca, technical services director at Multiport, the market events represent a real game-changer and make a detailed review a sensible exercise.

“There was a traditional paradigm, but all that seems to have gone out the window. What was risk-free is no longer risk-free. SMSF trustees need to go back to basics and ask what they are trying to achieve with the fund,” he explains.

Strategy Steps director Assyat David agrees a review is timely. “When major changes happen it is definitely the time to reconsider and reset the client’s objectives, including their risk tolerance and what type of return they need to achieve the income they require in retirement,” she says.

“A lot of planners are only using one lever to manage risk in this environment – which is cashing up the portfolio – but this is a fairly limited approach. They need to think more broadly about the levers they use.”

Peter Hogan, principal at Plaza Financial and senior technical manager for MLC Technical, agrees during periods of market uncertainty it is important to review an SMSF’s investment strategy and the underlying assets.

“Given what has happened, now is definitely the right time to sit down and look at the fund’s long-term strategy,” he notes.

“Everyone has different views on how to deal with it and this could be a good time to go through the risk profiling process again and check it is still correct. This includes talking about whether the timing of retirement and level of income in retirement is realistic with the current investment and strategies.”

Checking on riskWhile David is seeing many SMSFs cashing up their portfolios or moving heavily into term deposits, she believes these decisions need to be strategic rather than a knee-jerk reaction.

“Planners and trustees need to go back to

basics if they take this course. Planners need to do projections as the risk is that they will fall short of the objectives for the fund,” she says.

La Greca agrees risk management is now a far more important issue. “Funds have always tried to benchmark their return, but now they have to look at the risk aspect as well. Trustees need to ask how comfortable they are with risk to achieve their objective.”

He believes planners must guide SMSF clients through this strategic conversation or risk them “making a tactical decision and treating it as a strategic decision”.

Decisions such as cashing up the fund need to have a review mechanism so they are regularly reassessed.


Continued on p22

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Philip La Greca, Multiport

“You need to go back and add some discipline, so in the future you have got the structure and process to do continual reviews within a framework,” La Greca recommends. This is similar to the detailed process fund managers use to remove emotion from the investment equation. “This is a very good discipline for SMSF trustees.”

David agrees market downturns can be a good time to reconsider how the fund operates.

“For SMSF trustees, many have a preference for direct investing. That is okay while investment markets are going well and rising, but in choppy markets which are up 3 per cent one day and down 3 per cent the next, trustees need to figure out how they are going to manage the risks in the portfolio,” she says.

It also helps when it comes to deciding when to re-enter the equity market.

“The emphasis now is on protecting the portfolio, but it is very difficult to be nimble enough to take advantage of market upturns when they occur. With a lot of SMSFs, the risk is they will miss out on the upturn which

usually happens quite quickly,” David says.

Restructuring assetsMarket downturns are also a good time to reassess current asset holdings.

“It is an opportunity to have a hard look at all the assets in the SMSF and review the underperforming stocks or fund managers,” Hogan says.

He believes it can even be timely to analyse individual sectors such as cyclical stocks or the level of income an asset provides. “We are finding older clients are more interested in dividends and therefore want to reweight their stocks to those with fully franked dividends.”

The SMSF Academy managing director, Aaron Dunn, is a strong advocate of using market downturns to create future benefits for an SMSF.

“Think about whether it is an opportune time to get assets into the fund such as equities or commercial real property. It can be an opportunity to maximise what can go into a fund,” he suggests.

This is particularly the case given off-market share transfers could be banned from 1 July 2012.

“This year is potentially the last year to do that and with the market low, it is worthwhile asking if it is opportune to restructure where assets sit on the family balance sheet,” Dunn says.

“Lower asset values may mean they could now be under the contributions cap, but previously they may not have been. It is about trying to get assets into the fund where the CGT impact is lower.”

Another issue to consider is cash flow within the SMSF, La Greca says.

According to SMSF Academy managing director Aaron Dunn, a useful strategy to consider during a market downturn is for an SMSF member receiving a pension to capitalise on the market reversal by re-wiring their super components to create greater tax efficiency.

The strategy involves fully commuting a member’s pension and moving back to the accumulation phase and recommencing the income stream with new taxable and tax-free proportions. (For more information see TR2011/D3 Income tax: when a superannuation income stream commences and ceases)

An example of this strategy is as follows:

Arthur has a $1,000,000 member balance as at 30 June, with a tax-free proportion of 50 per cent. Being heavily exposed to the share market, Arthur’s portfolio feels like it is in ‘free fall’, having dropped 20 per cent since 1 July. His account balance is now $800,000. With a 50 per cent tax-free proportion, this means Arthur’s tax-free component now represents $400,000.

However, in trying to take a positive out of the market turmoil, if Arthur was to fully commute his pension as at 1 July and look to recommence at (or around) the low point in the market (August), the decrease in his member account balance will be attributed to the taxable component,

rather than in proportion to tax-free and taxable components (as originally stated at the commencement of his pension).

As a result of this commutation, Arthur’s components would now show as:

• $500,000 tax-free component; and

• $300,000 taxable component.

Arthur can now decide to commence a new income stream, where the tax-free proportion has now grown to 62.5 per cent. This represents a 12.5 per cent improvement in both the tax-efficiency of any pension amount taken should he be under the age of 60, but also represents further estate tax savings (on the taxable component) when eventually paid to non-dependant beneficiaries.

It is important to note any rollback to the accumulation phase would mean the fund moves back to accumulation and will be subject to tax, however, the small loss of tax exemption for this period of time could pale into insignificance against the potential tax benefits of commuting and repurchasing the income stream.

Source: www.thedunnthing.com

Case Study: Turning turmoil to advantage

SMSF


Assyat David,Strategy Steps

Continued on p24

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“Cash flow is so important, especially in the pension phase. Trustees need to ask how they will make it happen. Is it from contributions or investment returns?”

He believes planners need to think this through carefully.

“It is like in a business. What is the match between expenses and cash flow? In a mixed fund you can look at using contributions to pay a pension. That way you may not have to sell assets in a down market to pay pensions and incur costs and losses,” La Greca says.

Looking for tax efficiencyMarket reversals also offer opportunities to improve the tax position of the SMSF.

“If you are about to move into the pension phase, it can be useful to realise any capital gains and losses before you move into that phase as they are less useful then,” Hogan notes.

La Greca agrees this can be beneficial – even if it means making a loss. “Don’t be afraid to crystallise losses, as sometimes things don’t come back and there is an opportunity cost if you hold them,” he explains.

“When you think about selling an asset, inevitably there is a cost but the question is how quickly can you recover it? This is using a business decision-making approach when it comes to investment.”

Dunn is another who believes market movements can be used to improve the tax position of an SMSF.

“In a recovering market, crystallising gains are important. You need to take profits off the table as you go along due to the CGT aspect. But you must do it the right way so it is not seen as being a ‘wash sale’ by the Australian Taxation Office,” he says.

Tax efficiency can also be improved through restructuring income streams.

“Planners need to look at the fund’s strategies and ask what you are trying to achieve in the long-term and how structuring of income streams can achieve those objectives. This can be an opportunity to get an even better result for the client,” Dunn says.

A good strategy to achieve this is stopping and restarting the income streams to reduce the taxable component within the SMSF (see case study). “This is a critical one to go back and talk to clients about if they are taking a pension,” he explains.

“It gives you the ability to go back and say the long-term strategy has not changed, but we can achieve a better tax position now for those members under 60, or the long-term position for broader estate planning is better.”

Dunn believes the strategy can be used repeatedly to benefit the SMSF’s tax position and the relationship with the client. “These are simple things that can eat into the taxable component of the fund. There is nothing to stop you refreshing and resetting the pension whenever the market declines,” he says.

“It is one in the toolkit to have for every market downturn. It shows you are still looking for opportunities even when things are not going well in the investment markets. It gives you something positive to talk about.”

Dunn also suggests considering segregating assets within the SMSF.

“When markets recover, you may want to segregate assets into different pension streams. Those that are likely to improve first could be placed into 100 per cent tax-free pension streams,” he says.

“It is about how you can maximise and lock in the proportions to benefit in the long-term. You can look to segregate income producing assets to maximise the account balance of the member.”

Valuable business benefitsWhile market declines can be difficult, they also create chances to regularly demonstrate the value of a professional planner.

“You need to see it as an opportunity for the financial planner to talk to the client and control the things they can control,” Dunn says.

This is particularly important given the proposed implementation of Opt-in, which means planners will need to demonstrate to clients the value they are adding to ensure they recommit.

“Have strategies that allow you to talk about ideas with clients, not just negative investment performance. If you keep putting things in front of them, then getting them to re-sign for Opt-in shouldn’t be as much of an issue,” Dunn says.

“You can better control the strategies and position to clients by being in control.”

La Greca agrees there can be business benefits.

“In this environment, the value the financial planner is adding is not a clear dollar value. A large chunk of it is the emotional and educational value they can bring. Those hard conversations about assets can be had face-to-face and this can demonstrate what the financial planner can do for the client,” he says.

Another opportunity is to turn a discussion about investments into an audit record.

“The ATO wants to see a regular review of the investment strategy of an SMSF and financial planners can minute the review meeting and get the client to sign off. This can then be handed over to the auditor as documentation that the review process has taken place,” Hogan explains.

“This is a value added service for the client which can be provided by the planner.” •

SMSF


Peter Hogan,Plaza Financial

–– “When you think about selling an asset, inevitably

there is a cost but the question is how quickly can you recover

it? This is using a business decision-making approach

when it comes to investment.”

Philip La Greca

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ROUNDTABLE


Jayson Forrest: The terms Scaled, Limited and Scoped Advice are seemingly used interchangeably. What do these terms actually mean to you?

Alan Hinde: I have a problem with the term ‘scaled’. For instance, a scaled model of the Harbour Bridge is an exact replica of the original thing but in a different scale. Scaled implies a change in the ratio of the advice, not a truncation of it. I think the term ‘scoping’ is probably a better word. If you think of ‘scoping’ as being a telescope, if you were to look at the northern pylon of the Harbour Bridge you would be excluding everything else but that northern

pylon. So to call it ‘scale’ sort of implies that you are treating full advice like a bonsai tree – you’ve still got all the advice there but it’s smaller, and I think that could possibly mislead the client into believing they are getting comprehensive advice at a cheaper fee. Whereas what they’re actually getting is incomplete advice or truncated advice or advice that amputates a lot of the relevant information that a planner would normally deliver. So I’m really confused about the word ‘scaled’. It doesn’t carry meaning for me. I think the word ‘limited’ is better, but I much prefer the word ‘scoped’.

Debby Blakey: They’re interesting comments but

SCALED ADVICE: OPPORTUNITY OR THREAT?

(L to R): Alan Hinde, Bronny Speed, Vicky Ampoulos, John Ellison

The topic of ‘Scaled Advice’ has caused much debate within the financial services industry. Financial Planning asked practitioners their views on this contentious subject.

Alan Hinde CFP®, Head of Financial Planning, Fiducian Financial Services

Bronny Speed CFP®, Principal, AdviceIQ Partners

Debby Blakey CFP®, Executive Manager – Member Advice, HESTA Super Fund

John Ellison CFP®, Principal, Ellison Financial

Vicky Ampoulos, National Business Development Manager, Commonwealth Financial Planning Pathways

Jayson Forrest, Acting Editor and Publisher, Financial Planning magazine

Participants


I’m not mad over the word ‘limited’ because I think it can in some way imply it’s ‘sub-standard’. I think there was a lot of push back in the industry saying that, and that’s possibly why the Government has looked for other terms. But I agree that ‘scaled’ is certainly an interesting term. I don’t think it’s one that any of us in the industry naturally use, so it’s almost been put on us by ASIC, to some extent.

I don’t have a strong preference for what word we finally end up with. I just hope there is one word and we all come to understand exactly what that word means.

I agree with Alan’s views on ‘scoped’ advice. I think in the industry we all understand what ‘scoped’ means. It’s a word that has been used. So let’s keep it, rather than introducing a new term that we all have to adapt to. As Alan said, it’s an unusual word. It’s interesting to see that the term itself is very new. When you actually look back for ‘scaled’ advice, a few years ago it didn’t feature at all.

Bronny Speed: I also think ‘scoped’ is probably the preferable word to use because I think ‘scoped’ means you are looking at something quite specific. I think in the language that planners use, ‘scoped’ can be ‘limited by’ or ‘limited to’ the amount of information a client wants to give or receive. I think we have roundtable agreement that ‘scaled’ is a new word, and as such, we should stick with what we’ve got and make that term (scoped) more specific.

Vicky Ampoulos: I think our profession has made everything much more complex than it actually has to be for the average consumer, hence why only 20 per cent of people get advice. I think we just need two terms: comprehensive advice or limited advice. That would be a lot easier for consumers to understand.

BS: I don’t mind that either.

John Ellison: Nearly every planner now, at the start of a plan, would almost always scope their advice.

AH: I’ve been in this profession for almost 25 years and in that time we’ve been giving ‘limited’ or ‘scoped’ advice in that time. But I’ve only been giving that ‘limited’ or ‘scoped’ advice after I’ve known the client’s circumstances. It’s the old ‘Know Your Client’ rule. Once you ‘know your client’ then you can drive your client to what is perhaps a ‘limited’ set of advice. But if you start at the wrong

end and say ‘I’ll just respond to a limited question or query’, well that’s wrong.

Why do we need ‘scaled’ advice? We already have it in the sense that planners can and do provide it and have been providing it for decades. It seems to me the word ‘scaled’ has been driven by the need to put a price tag on the advice we give. Therefore, if the price is going to be lower, we somehow have got to shrink down the amount of work and time and therefore advice given to the client. To me, that has fearful implications.

JE: I agree with that. I give ‘scoped’ advice everyday. When an existing client comes in, who I’ve known for a number of years, they might want some specific advice. It’s part of what I do to offer that advice. Whether we call it ‘scaled’, ‘scoped’ or ‘limited’, planners are already providing this type of advice.

BE: The whole industry is pushing towards being recognised as a profession and therefore we need to respect the fact that other professionals will be involved with that client. For example, lawyers will be involved doing estate planning work, so if the client does have some other professional dealing in that capacity you would ‘scope’ your advice to say, ‘I respect the fact you have that professional working in that area, so this piece of advice will not cover that’.

It’s really important that we act in the best interests of our clients with others, like accountants and lawyers.

VA: But not all professions will work together. For example, my mother’s cardiologist is not talking to the neurologist – it’s ridiculous that they’re dealing

with the same patient but not talking to each other. A cardiologist will just look at the heart and that’s it. They won’t look at the whole patient in their entirety. Is that what we mean by ‘scaled’ advice?

AH: Debby said there was a fear that when people used the word ‘limited’ advice they were somehow selling, or could be seen to be selling, a sub-standard product. But that’s exactly what Vicky is saying. She wants more involvement from the medical professionals about inter-related implications for her mother’s health.

JE: I’d like to know how the professional indemnity (PI) insurers will take this. If I’m a PI insurer and planners come to me saying they’re going to provide ‘scaled’ advice, I’m going to be feeling pretty nervous because this could be opening up a can of worms.

Today’s licensees have the luxury of ‘scoping’. They’ve got the luxury of putting different restrictions and setting different levels on their authorised representatives, so as a licensee, you can put whatever qualification you want on your representative.

BS: But is that product driven or is it advice driven? I’d like it to be knowledge driven. Planners should be able to advise on anything, as long as they know their client and they know their product, and they’re skilled and competent in giving advice in that area.

JF: Should any planner be able to provide ‘scaled’ advice?

AH: I believe the people who should give some kind of ‘limited’ or ‘scoped’ advice should only be the most experienced. Like a good doctor, they’re the only ones who can, by a conversation and process of elimination, quickly focus on what’s important. But a less experienced person doesn’t have the capacity, the knowledge or the experience to have comfort that the point they are trying to focus on is, in fact, valid and is not dangerous for the client.

So people think ‘scaled’ advice can be provided by ‘scaled’ advisers – that the less experienced advisers are now well suited to give ‘scaled’ advice. That is terrifyingly wrong. ‘Scaled’ advice should be provided by your most experienced personnel, not your least experienced personnel.

Continued on p28

–– “I think our profession has made everything much more

complex than it actually has to be for the average consumer.”

Vicky Ampoulos

ROUNDTABLE


DB: I’ve got a slightly different view. I think in terms of the medical comparison, I think your GP is your less experienced in terms of specialisation. I think it’s a good comparison to how advice works. We were talking earlier about cardiologists and obviously that’s a specialist area. That’s probably equivalent to providing holistic advice. When I go to my GP with ‘red eyes’, he doesn’t give me 20 blood tests and a full x-ray before he treats my eyes. He is quite happy to be quite specific. I totally agree that people need to be qualified to give advice, but I think in a comparison, the GP would be equivalent to somebody in our industry giving ‘limited’ advice.

JF: What is your opinion on Best Interests Obligations and ‘scaled’ advice?

DB: I think what is really critical is that any legislated definition of ‘scaled’ advice needs to come in at the same time as the ‘Best Interests Obligations’. I think in some areas of financial services this has always been an issue because of a lack of ‘best interests’ requirements in terms of the client. I think it’s very significant this is all coming in at the same time. And if you think of the overall Best Interests requirement, I then think the ‘Know your client’ obligation has a context, because if you have to act in the best interests of the client, the ‘Know your client’ obligations are easier to meet because of the conflict that has been removed.

BS: I think the Best Interests issue is a little bit overdone in that, if you’re a professional, surely you put your client first – don’t you? I do as an accountant, I did as an ex-teacher, and I do as a CFP®.

DB: But do you think all financial planners do or have in the past? I think that’s the issue.

BS: That’s a good point. I think it’s a sad day when we’ve got to go back and put into some form of writing that you should look after your client first.

JE: We’re talking about the Corporations Act. What other profession would have this written into the Corporations Act? And the other thing is, if you look at the legislation in the Corporations Act, the financial planning industry is the most heavily regulated in the Act by a country mile. And now we’re going to put more regulations in place.

AH: Will this change people’s behaviour? There’s a small minority of bad professionals, whether they’re medicos, from the legal profession, or accountants.

If you tell them to act a certain way, it won’t change their behaviour.

BS: I think it’s a better thing to get the legislation in place to talk about how you’re allowed to use the term ‘financial planner’. Once that’s in place, you have to belong to an Association to use that term, and then you’re regulated by the profession.

JE: My view on Best Interests is, aren’t we already doing it? All planners today have to do a product comparison with their clients. This comparison looks at the costs and benefits of, say, Product A, and then the costs and benefits of Product B. I think the Best Interests issue is already catered for.

JF: Will ASIC’s Consultation Paper 164 deliver greater access to affordable advice to Australians?

VA: I don’t think it does. I’m astounding at just how many professional people still don’t understand their own super fund or what they’re actually insured for. I don’t think the introduction of ‘scaled’ advice is going to make the general population more aware of what they have and haven’t got. I know ‘financial literacy’ is a dead term now, but financial literacy is where it has to start at.

BS: I do think if you are competent to advise in a certain area and a client only wants specific topics covered, I think we should be able to do that too. We should be able to do it competently and professionally, and charge a lot less for it compared to a comprehensive plan, which I do believe put a

lot of people off getting financial advice.

If ASIC’s paper was slightly redone to matching a planner’s skills to ‘scoping’ to know your client, with the pricing reflecting that, then that would be a very positive thing.

DB: I agree with that, and we all agree that qualifications are imperative. I think when people start talking about ‘scaled’ or ‘scoped’ advice they get nervous that you’re going to have somebody who is ill qualified actually dealing with that.

If you examine the people looking for advice, the median HESTA member is a woman aged 43 earning $35,000 per annum, with $9,000 in her superannuation. When you look at it in that context, I do think we need to segment advice needs. I don’t think you’re necessarily segmenting clients but you are segmenting advice needs and saying we need to have advice that’s appropriate to that member. We need to have advice that’s appropriate for every person, but agreeing all the time though that obviously it has to be delivered by somebody who is qualified to deliver that particular advice.

JE: And part of that may be looking at RG146. Maybe that has to be revisited. With having different areas of advice, people have to have different skill sets which matches with the training requirements.

JF: But hasn’t that been one of the biggest concerns within the industry, that some superannuation funds have got people who are not properly qualified providing ‘intra-fund’ or ‘limited’ advice to clients?

DB: I can’t speak for other industry funds but at HESTA, anybody giving advice has a minimum requirement of holding an Advanced Diploma of Financial Planning. On our advice team we have quite a few CFPs. There is nobody giving advice with anything less than an Advanced Diploma. There is no way I would take somebody with RG146 and let them give advice.

As a licensee, we have to manage risk in this area of providing advice. So, I totally agree that qualifications do need to be looked at as well.

BS: I think that’s another roundtable agreement.

JF: Does ASIC’s Consultation Paper 164 adequately guide you on how you can provide ‘scaled’ advice and still meet you obligations under Section 945A of the Corporations Act 2001?

Alan Hinde


JE: No, it creates more confusion. The examples are poor. I’m quite strongly against having a Transition to Retirement (TTR) strategy in ‘scaled’ advice. You’ve got to look at things like an individual’s rate of tax, how long they will work for, salary sacrifice agreements, recasting, fluctuations in income, then you have to look at contribution levels, and still there’s more to consider. TTR is a terrible example to have in this paper.

I think there was another example on Nomination of Beneficiaries, which I think can be provided but we have to be very careful about what we include and what we don’t include.

BS: I think Nomination of Beneficiaries is a complex area, with regards to split families, step families and many other things. It opens up a legal net.

AH: That leads you into the whole estate planning area, which we know is complex. It’s akin to stepping on a landmine if you don’t get proper advice.

DB: I think you can do TTR as ‘scaled’ advice and, in fact, we actually do that at HESTA. But what alarmed me was that ASIC had simplified it too much. The disclaimer they used in the example said that it didn’t take into account your other personal circumstances, including any income sources or assets outside the fund. It also didn’t take into account any tax consequences or the affect on any Centrelink payments. If you really haven’t taken into account all these things, I don’t think you should be providing TTR advice.

So, while I do think you can do TTR as ‘scaled’ advice, the example provided by ASIC is way too simple.

BS: I thought some of ASIC’s examples, being TTR,

Nomination of Beneficiaries, and superannuation and Centrelink payments, are three of the hardest and most complex advice strategies that you could pick.

VA: And in my opinion, requires more comprehensive advice requirements rather than limited.

AH: It’s really, really easy: Know your client, know your product, and give appropriate advice. If you do these three things, you’ll never get into trouble with anybody. Full stop, end of story. Yet, we’ve got thousands of pages of regulations which try and encourage people to do exactly those three things.

JE: Doesn’t the real issue around ‘scaled’ advice revolve around new clients or clients we as planners don’t know? Isn’t that where the problem is? For example, HESTA has 720,000 members, and there is no way in the world that HESTA’s planners would know all those members. So, the issue is somebody comes in and wants ‘limited’ advice but the planner doesn’t know the person.

BS: Which is where ‘Know your client’ gets more difficult. You need competency in the advice you are providing and ensuring that it is matched to the client’s needs. This is critical. I don’t know how you change S945A to say that, but that’s what needs to happen.

DB: Something that is also interesting is that the document talks about ‘you’ or ‘the client’ can suggest limiting the advice. I therefore think it’s interesting that the obligation is on the adviser to ‘know the client’ and to make sure it’s the appropriate advice. So, a client might only want ‘scoped’ advice on Centrelink, but when you start going through the fact-finding process, you might realise you can’t actually limit the advice to Centrelink. I think that’s a really important aspect, that the adviser has to actually be able to, in a sense, walk away from giving this limited advice. If you can’t deliver the ‘scoped’ advice but the client wants ‘scoped’ advice, you don’t meet their needs by delivering it. You’ve actually got to say that’s not appropriate for your needs, so I can’t do that.

VA: Debby, are you saying that’s the adviser’s call, not the client’s call?

DB: I think it’s fine for the person seeking the advice to suggest it, but I definitely think it’s the

adviser’s call of whether it’s appropriate for their circumstances.

AH: What about the situation where a client didn’t listen to the adviser about getting, for example, insurance quotes. And it came to light later that the person didn’t go and get their insurance, but was severely disadvantaged by an insurance shortfall. It comes back to the question: ‘Well, that person only wanted limited advice, Your Honour. I gave them limited advice, they took it, they didn’t want advice on any other areas. I suggested to them that they needed to look at their insurance.’

At what point does the law come back to the adviser and say: ‘You’re a professional, you should have teased out more of the information before you gave your ‘limited’ advice.’

If that’s the case, where does it end? How much do you have to tease out? You end up being back at the scale of a comprehensive plan. Or, how do you make sure the client goes away and implements what they verbally said they would do?

JE: But Alan, the law is quite clear at the moment. In S945A we’ve got an obligation to warn the client about consequences of the advice – for example, ‘Hey listen, this could happen’. And if we don’t, we’re still liable.

There’s a section, ‘Obligation 945B’, to warn

Continued on p30

Debby Blakey

–– “Know your client, know your product, and give appropriate

advice. If you do these three things, you’ll never get into

trouble with anybody. Full stop, end of story.”

Alan Hinde

ROUNDTABLE


clients if the advice is based on incomplete or inaccurate information. Failure to comply with that is an offence.

DB: That’s where the ‘Best Interests Obligations’ become quite interesting. I have a concern sometimes that we might see a lot of Statements of Advice with all sorts of disclaimers, so in a sense the adviser can’t be held responsible but you have to say, was he acting in the best interests of the client? If I know the client has this need that I should be addressing, to just put in a disclaimer in and say that I’m not going to address that, so I’ve covered myself, is not a good outcome for the client. I think that’s what we’re grappling with.

JE: So, instead of all the legal implications being on the adviser, could you throw the onus back onto the client?

DB: If we use the GP analogy, we all know that doctors do a reasonable enquiry when you visit them, like taking your blood pressure, but they don’t do a full head to toe check. I think for us it’s the same. And I think what’s sometimes uncomfortable for us is that it’s quite a grey area. We’re saying we’ve got to do a reasonable enquiry but we kind of don’t know where the line is.

VA: And the ‘Know your client’ rules will have to change, with a bit more onus on the client.

JE: If we’re throwing the obligation back onto the

client, is it really going to work? We’re professionals and we want to be viewed as being professional, so the buck should stop with us. So if we say that the client should take some responsibility, they’re actually not qualified to take responsibility.

VA: That’s why I’ve already made the point that we’re looking at the solution rather than the cause. And one of the causes is, that as a population, Australians are generally financially illiterate.

JF: Is ‘scaled’ advice a threat or an opportunity to the advice industry?

JE: I think in its current form it’s a bit like Swiss cheese; it’s got too many holes in it. I do understand that 1 in 5 Australians get advice and there’s a survey that said 33 per cent of Australians want more affordable advice. I just think ‘scaled’ advice needs to be done very carefully, and needs to be very tailored and specific.

But to your question, I think ‘scaled’ advice is more a threat. I think there’ll be more PI claims and more legal issues. Planners don’t know some of the complexity that’s involved in financial planning and the associated ramifications.

So whilst it sounds good and there is a need for some limited advice in the public domain, ultimately I think it’s a threat and there will be a lot of disappointed people when things go pear-shaped.

DB: The area I’m involved in is a little bit different but we certainly see it as a huge opportunity. We’ve been giving intra-fund advice. It’s given us the capacity, for example, on an issue like insurance, to advise so many more members and we know that these members now are in a better financial situation because they have decent income protection and death cover. I think it’s a huge opportunity, especially for people who weren’t getting advice. I think holistic advice will continue and I think for the clients who planners already have on their books, it probably won’t have much impact. But for the Australians who desperately need advice and who today haven’t got advice, I think ‘scaled’ advice is a huge opportunity.

BS: I agree with you Debby. I think ‘scaled’ advice is a huge opportunity by enabling more Australians to access better advice, even though it’s on a limited capacity to start with. I think once these consumers get a taste for advice, it will lead to more comprehensive advice down the track. My only

proviso is that ASIC’s paper completely matches what we all want it to do.

AH: There is a fear though that this whole model can bring us back to selling product, and the big institutions will offer the minimum level of service to effectively compartmentalise the advice, which is transactional-based and fundamentally product driven, so we’re back to where we were 20 years ago. I support the idea of making advice more accessible to those people who otherwise couldn’t afford it. My fear is that this will be seen as another way for the big institutions to simply drive their product and give their rubber stamp of approval that this is the way of doing financial planning. That this way is quite adequate and sufficient, with no need for holistic advice.

VA: We saw the writing on the wall at Colonial First State a couple of years ago. We set up Advice Essentials for the C and D-type clients and people who were unallocated to a financial planner at Colonial First State. We’ve got CFPs, similar to what HESTA does, providing advice over the telephone to these clients. We do a ‘needs analysis’ with them and provide cheap, affordable advice based on the conversation that we have with them. If there is need for more comprehensive advice, then the client is referred to a financial planner for more in-depth, face-to-face advice. The take-up has been outstanding. A lot of these people would ordinarily never go and see an adviser because they don’t think they can afford it, or they don’t think they have a need for it.

DB: I think that’s such a good point that the main barrier to advice is that people think they haven’t got enough to justify getting advice. But those are the very people who actually need some element of advice. And I agree you will end up with clients who

Bronny Speed

–– “We’re professionals and we want to be viewed as being

professional, so the buck should stop with us.”

John Ellison


come through the system and end up being one of those holistic clients where you do develop the relationship and get to know the client.

JF: Is ‘scaled’ advice a threat to mid-tier planning groups?

BS: Define mid-tier.

JF: Fiducian Financial Services, for example.

VA: Commonwealth Financial Planning has been doing roadshows and this question always crops up. A lot of advisers are seeing this as a great opportunity to actually qualify the types of clients they’re seeing; to qualify the types of clients who can afford their services.

Dealer groups are going to have to start reinventing themselves as well, and really looking at what their value proposition is and what their planners are delivering, particularly now we’ve got Opt-in.

AH: The flip side of that is the whole fear of having to sell your value proposition. Justifying why I am worth $5,000 for a plan, could force

a lot of advisers to take up a model that gives chunky, ‘scaled’ advice. They may revert back to a product and transactional-based focus. That way, they don’t have to justify their fees. They just churn and burn, and there’s no need to worry about Opt-in.

JE: I think a lot of mid-tier groups will suffer. I think all the fat is with the product providers and product manufacturers. I think what’s happening with this ‘scaled’ advice is that the margins are coming down as a general rule in the planning area. Dealerships that don’t have product and are dealing with the average punter, they’re the ones that are going to suffer. They’re not at the high-end or the low-end of the advice spectrum. I think they’re going to struggle.

DB: Does that mean we’re going to see new products from dealer groups that don’t have products?

JE: Debby, I think you’re right and that’s what worries me. I think we’re going to see more, smaller dealerships that aren’t properly qualified, going into product to help subsidise the advice.

VA: I think we’re going backwards. Back towards tied-agents, like they have in South Africa and the UK.

BS: It’s the small boutiques that don’t want to take product kick-backs and don’t have their own products, who are in trouble. A little boutique like mine will have to go and speak to a product provider and say: ‘I can’t be unbiased, I have to have some floor in my alpha, otherwise I can’t cope. So, I’ll be charging a fee on my APL, and I’ll be charging you to come to my conferences.’ But isn’t this what we’re trying to get rid off in the industry?

VA: From a CBA perspective, we love the changes. We’re well positioned, we’ve got enough dealer groups for different segments of the market.

BS: The big end of town, like CBA and HESTA, are in the best possible position with these changes. That’s what all these changes are about. It’s about affordable advice, which through scale and volume, only big institutions can provide.

JF: Thank you for your time. •

The roundtable agreed the term ‘scoped’ was preferred over ‘scaled’ advice. (L to R): Alan Hinde, Vicky Ampoulos, Bronny Speed, John Ellison and Jayson Forrest.

PRO BONO


Craig Bigelow typifies the new breed of planner. At 28, he has eight years of planning experience, is educated, enthusiastic and genuinely motivated by a higher ideal to help those who are in need of financial planning advice.

His story is not unusual and is replicated across many planner practices around the country. What is unusual is the discreetness that planners like Bigelow approach the issue of pro bono. It’s an issue not widely publicised or even discussed, and certainly something that doesn’t generate much ‘air time’ in the media. Sadly, bad news stories sell better, while inspiring stories of community involvement go unnoticed and unrecognised.

But it’s a reality that doesn’t faze Bigelow.

“I’m not doing pro bono for any recognition,” he says. “I’m doing it to assist people who desperately need help. I’m doing it because I can, and that’s what being a financial planner is all about.”

It’s for this reason that Bigelow – an

AFP at Navwealth, an authorised representative of AMP Financial Planning – became interested in the AMP Pro Bono Advice Program, which is a joint initiative with the Cancer Council NSW.

“From a personal perspective, I didn’t have a huge exposure to people with cancer. So I thought by becoming involved in this program, it would give me the opportunity to not only help people but also get a better understanding of what people go through at claims time. It’s about getting in front of people at their lowest point and using what I know to help them to a better place financially.”

The AMP Pro Bono Advice Program with the Cancer Council NSW was first introduced in June 2010, and since then Bigelow has been involved in two pro bono cases as part of the program.

He openly admits that it’s hard not to get very involved in the cases he takes on, and with both cases taking over 70 hours each to complete, he has limited himself to no more than one case every six months.

“I was somewhat naïve taking on my first pro bono client and underestimated the time it would take to complete the case,” he says. “It was a time consuming process that required working with a difficult and demanding client, which also involved facilitating a whole range of meetings with doctors, solicitors, accountants, Centrelink, and bank representatives.”

Baptism of fireBigelow’s first pro bono case was very much a baptism of fire. The Cancer Council NSW had sent him to a married couple in their mid-fifties who were in an incredibly difficult financial situation. The

THE HIGHER IDEAL

With all the discussion around the Future of Financial Advice, it’s easy to overlook the good that financial planners do every day within their local communities. Many planners are engaged in providing pro bono services to clients in need, but few openly discuss it. Craig Bigelow spoke to Jayson Forrest about his work with the Cancer Council NSW.

–– “I was somewhat naïve taking on my first pro bono client and underestimated

the time it would take to complete the case.”

clients didn’t even want to hear the truth about their own dire financial position and promptly asked Bigelow to leave their house after the initial meeting. It was the type of discussion that many other planners would simply have just walked away from.

“Thankfully, they realised I had their best interests at heart and after accepting what I had told them, they invited me back to help them out,” he says.

The husband of the couple was diagnosed with prostate cancer. They had two young children, over $30,000 in credit card debt, were unemployed and totally reliant on Centrelink income. The family was living in private rental accommodation, having been evicted from their previous home, but had been on the Department of Housing waiting list for 16 years. With a negative net cashflow position of -$625 per fortnight, the family was in desperate need of sound financial planning advice (see Case Study p34).

“The family was regularly in the red by a significant amount,” Bigelow says. “I started the planning process by going through all their outstanding bills, so we knew where we were at. I then began calling the invoicers. The banks were my first point of call. I managed to have all but $7,000 in credit card debt waived, with this amount made interest free for life and repayments fixed at $50 per month.”

It was a good result.

“I also helped them sell some shares they didn’t know they had, and arranged for a free tax return to be done on their behalf to close off their business accounts. I managed to work with the Department of Housing and get them into new accommodation.

“I also did a fair bit of coaching with them. I encouraged them to call those


Continued on p34

–– “Be realistic about the amount of time involved in providing this type of advice and understand there is an emotional

element to it.”

Craig Bigelow

other individuals who they had personal dealings with, like the music teacher for their kids, and just explain to them the difficult financial situation they were in. I got them to look at their budgeting and cashflow, and encouraged them to take some ownership and responsibility of their own financial affairs.”

While pleased with the end result of returning the client to a cashflow positive position, Bigelow concedes that working with this couple was a challenge and at times, emotionally draining, but they were

treated as he would treat any client.

But that’s not to say he wasn’t empathetic to their needs or circumstances.

“I deal with clients who have cancer all the time. I have multiple risk claims a year. I don’t think I’m any more or less empathetic just because these particular clients were in the situation they were in. I don’t see them as a ‘freebie’ and then just allocate 45 minutes of my time to their case purely because the Cancer Council asked me to do it,” he says.

“No, I wouldn’t do anything different for a pro bono client as I would for anybody else. The empathy is there, regardless of whether the client has cancer or not.”

Bankruptcy to solvencyBigelow has just wrapped up his second pro bono case, assisting a bankrupt couple with the wife diagnosed with breast cancer. The couple – in their early forties - have three children, with the eldest doing her Higher School Certificate examinations. The couple had lost their home, the husband was also ill and

PRO BONO


Prior to initial meetingAssets: $9,672.99

Liabilities: $38,300 (three credit cards) plus $1,940 (other debts including school fees, music tuition etc)

Net Worth = -$30,567.01

Income: $1,659.76 per fortnight (disability pension, carer payment, family tax benefit, and carer allowance)

Expenses: $2,285.38 per fortnight (including credit card repayments and $400 per week rent)

Net Cashflow position = -$625.62 per fortnight

After working with the clients for four months:• Lost superannuation was found: $2,543.81

• Credit card debt was waived completely:

• Westpac $15,000

• American Express $13,500

• St George $2,700

Total = $33,743.81

In addition, Craig was able to negotiate the following:

• The remaining $7,000 debt with St George now interest free for life, with repayments fixed at $50 per month for the

duration of the debt;

• Miscellaneous debt negotiated to regular repayments that can be afforded with the clients’ budget;

• Informed and assisted the client with a Centrelink application for Poland pension;

• Reduced rent with agreement from real estate agent to $200 per week;

• Helped to have priority housing approved for clients;

• Updated assets/income with Centrelink and acted as an authorised third party to maximise Centrelink entitlements;

• Implemented a budget, with clients diarising when bills are due;

• Client can fly to Poland to visit her sick mother with the lost superannuation money found.

Current Financial PositionAssets: $13,048

Liabilities: $7,200 (interest free for life, and monthly repayments of $50 until repaid)

Net Worth Position = $5,848

Income: $1,659.76 per fortnight

Expenses: $1,570 per fortnight

Net Cashflow Position = $89.76 per fortnight surplus

Case Study: Clients in need

couldn’t work, so the only income coming in was some Centrelink entitlements.

Bigelow was not only battling a client with a grim financial outlook but also their inherent distrust of financial planners due to a bad past experience (see Breakout p36).

“This family was really in a dire situation but when I met them, there wasn’t a lot I could do,” Bigelow recalls. “She was working casually for Australia Post before she became ill. I found $19 in the employer fund which she had not yet been de-linked from. I contacted the employer at the Australia Post outlet, and he agreed not to exit her from the employer fund, which he was entitled to do. This meant she only required $1 to retain her insurance cover. Had he moved her into a personal account, she would have lost her cover.”

Bigelow proceeded to contact Australia Post and explained his client’s predicament and asked them to keep her on as an employee, which they did. He then transferred money into her account to protect her insurance component, and then put in a terminal illness benefit claim on her $220,000 life insurance policy.

The policy was knocked back the first time, so Bigelow contacted the doctors again. They agreed the client had probably less than 12 months and admitted they had filled out the form incorrectly. The form was resubmitted and approved. Bigelow was able to deliver to the client a cheque for $220,000, which the creditors were unable to touch.

It was another excellent result for his clients, and in a surprise turnaround, the husband of the couple has the potential to become a paying client of Bigelow – “potentially my biggest,” he says with a grin.

“Jenny* has since brought out her mum to help look after her, allowing David* to get

back into the smash repair business. He is now bringing in a stable income for the family.”

Despite the initial prognosis, Bigelow is pleased to say that Jenny is making a recovery.

“I received a card from the couple after I managed to get the insurance payout for them. Jenny said she couldn’t call me because ‘I’d just cry over the telephone’.

They were incredibly appreciative of the help I was able to provide them with,” he says. “Isn’t that what financial planning is all about?”

Fee payingSo, at what point does a pro bono client go to fee paying?

“It’s a bit of a grey area,” Bigelow says. He admits working with a client like David, who is trying to get out of bankruptcy, is a tricky situation, which is time consuming and has involved numerous dealings with solicitors and accountants.

“I think you need to be open and honest with your client,” he says. “I’ve explained that we need to move to a payment arrangement at some stage. If I decide to charge him a fee, I’ve told him I’ll be


The AMP Pro Bono Advice Program is a joint initiative with the Cancer Council NSW that assists cancer patients and those close to them in dealing with the financial impact of diagnosis and treatment. The program, sponsored by AMP Financial Planning, Advice and Services, started in June 2010.

Through the program, cancer patients unable to afford financial advice are matched with a qualified AMP Financial Planner or Hillross Adviser, who donate their time and financial expertise at no cost. People diagnosed with cancer often face complex financial issues while battling their illness. This is not surprising given the average lifetime cost of cancer can amount to 3.9 times the annual household income.

Since the program first began in 2010 there has been 325 cases referred across NSW and South Australia, with more than 200 planners across the AMP Financial Planning and Hillross network registered to participate. The program sees financial planners provide advice to cancer patients on important issues such as:

• accessing Centrelink benefits; • applying for early access to superannuation and insurance benefits; • developing a budget and ensuring a regular cash flow; • planning for the financial future of their family.

Patients referred through the program are assessed against an assets and income test to ensure their suitability. Those who satisfy the test are matched with a financial planner in their area on a pro bono basis, while those who can afford the cost of advice are referred to a planner on a paying basis.

The AMP Pro Bono Advice Program

Continued on p36

–– “My reward is not from the fact that I do pro bono, but

it’s from the success I get for the people I do it for.”

upfront about it so he knows beforehand and not afterwards. I don’t think he expects to remain pro bono, but perhaps just until he gets back on his feet.

“At the end of the day, I’m in business. I can’t afford to be doing everybody for free, otherwise I’ll go broke. That’s why this AMP Pro Bono Advice Program is good. It’s done in a controlled way. I’ve been quite upfront with how many cases I want to take on.”

Realistic expectationsSo, is pro bono something Bigelow would recommend to other planners?

His response is pragmatic: “Yes, but don’t bite off more than you can chew. Be realistic about the amount of time involved in providing this type of advice and understand there is an emotional element to it, which can be incredibly draining at times.”

He also believes it’s important to set your boundaries early with your clients regarding the advice and services you’ll be offering.

“I really did have to set my boundaries around my times with these clients in the office and emphasise the importance of calling ahead to see me, rather than turning up unannounced. It’s just respectful courtesy. Whether or not I’m providing my services for free of charging a fee, I expect this professional courtesy to go both ways.”

Bigelow believes pro bono offers opportunities both ways. The client receives sound financial planning advice to mitigate their financial circumstances, while the practitioner is often exposed to other areas of skills learning.

“It’s amazing what I’ve actually got out of this experience for myself,” he says. “I’ve learnt things about the Department of Housing, medical conditions, cancer treatments and dealing with doctors that I wouldn’t have

learnt otherwise. The respect and the trust I have received from my pro bono clients is huge, and has resulted in them referring me to people they know.”

For Bigelow, despite the difficulties and

demands, providing pro bono has been a personally rewarding experience: “My reward is not from the fact that I do pro bono, but it’s from the success I get for the people I do it for.” • * Name changed to protect the client’s identity.

PRO BONO


David* cannot conceal his praise for the work Bigelow did for his family. Bankrupt and with his wife diagnosed with breast cancer, Bigelow was able to help the couple claim on a $220,000 insurance policy they didn’t know about it.

Speaking to Financial Planning, David admits working with Bigelow was the first time he had used a financial planner, due to a deep distrust he had for advisers. “I had a bad experience with financial advice in the past where I lost a lot of money in super,” he says. “To be honest, I didn’t trust the thought of using a financial planner. I thought they were in it for themselves and had an agenda to make money off their clients.”

But the Cancer Council NSW changed that perception entirely by appointing Craig Bigelow to David’s case. “Craig has entirely restored my faith and respect for financial planners. He was very easy to work with and took the time to listen to our problems,” David says. “Craig would come to our home and work with us. It was never a hassle. He was incredibly diligent.”

Such an endorsement has resulted in David referring his friends to Bigelow and even offer to set up a community meeting with parishioners from his local church.

“Trust and respect are huge issues that can never be underestimated,” David says. “Craig has shown his worth and ability as both a person and a planner. Now that he has helped us get back on our feet, we’ll be using him for ongoing advice – and this time I’ll pay for it.”

* Name changed to protect the client’s identity.

Restoring trust

Never Stand Still

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Master of Financial Planning

From its humble beginnings in 1973, when 42 planners in the US received the first CFP certification, 40 years later the CFP mark remains the standard of excellence for financial planning professionals worldwide.

Over 5,600 FPA members in Australia are now accredited with the CFP designation, joining an estimated 138,000 financial planning professionals globally who all adhere to higher standards of competency, education and ethics.

FPA General Manager, Professional Education, Belinda Robinson looks back passionately at the history of the CFP mark and the high standards it continues to set for the profession today.

“The CFP mark has always stood apart from other industry qualifications as representing the highest bar of professionalism for financial planners,” Robinson says. “At all times, whether that’s now or 10 years ago, CFP professionals have had to meet requirements well in excess of the regulatory standard.”

Robinson is dismissive of claims that the CFP mark had been ‘gifted’ or ‘grandfathered’ to practitioners in the past. It’s a claim she adamantly refutes.

“No planner has ever been ‘gifted’ the CFP mark,” she says. “What is important to note is that like any educational program, the CFP certification program has evolved and developed over time. That means the standards required 10 years ago are different from those required today, as they will no doubt be different in another 10 years time.”

CFP evolutionIn the late 1980s, it was a requirement that members complete a six-subject diploma, “which was considerably more than the legal requirements

to be a planner at the time”, says Robinson. She adds that development of a formal qualification specific to the new field of financial planning commenced in 1986, and in 1988 a six-subject Diploma of Financial Planning (DFP) was introduced by the International Association for Financial Planning (Australia) along with Deakin University.

However, any person who had been granted a diploma also needed to demonstrate experience, ethics and continuing professional development to become a CFP professional, and many members had to offer an actual piece of advice for peer review.

“The peer review was an important process to go through and was no less of an assessment than having to do a case study, which is the equivalent of today’s assessment module,” Robinson says.

This requirement morphed into the addition of DFP7 and DFP8 from 1993.

From 1 July, 1999, new candidates for the CFP Mark were required to study the postgraduate CFP Education program of CFP1-4, in addition to the DFP program. In 2003, the criteria of ‘Examination’ was added to the three ‘Es’ around which the CFP program was formed – ‘Ethics, Education and Experience’.

“In the past, if you had done DFP1-8 and met the

experience and ethics requirements, you could become a CFP. But once the postgraduate program was added in, it was four more subjects to do on top of the old diploma,” Robinson explains.

However, regardless of the evolution of the program to date, it remains true that all CFPs have met the regulatory and professional requirements of the time.

“Obviously, to obtain the CFP mark today, you have higher professional and educational standards to fulfil,” Robinson says. “In fact, just to become a financial planner requires any new entrant to do more than their predecessors did. It’s like any new qualification or certification – the requirements do change over time. And like other market sectors, our profession is continuing to develop and evolve. As such, so too must our professional and educational standards evolve to keep pace with this change.”

Grandfathering mythRobinson agrees that perhaps some misconception around so-called ‘grandfathering’ of the CFP designation stems from the introduction of the degree requirement for entry to the CFP program.

A degree requirement was introduced in 2007, whereby CFP professionals had to have a relevant


CFP MARK

CFP®: THE MARK OF PROFESSIONALISMThe CERTIFIED FINANCIAL PLANNER® mark represents the highest bar for financial planning excellence, whether that be now or when the mark was first introduced in 1973. Caroline Munro reports.

Continued on p40

Belinda Robinson,FPA –– “At all times, whether that’s

now or 10 years ago, CFP professionals have had to meet

requirements well in excess of the regulatory standard.”

Belinda Robinson

CFP MARK

degree. Members could actually enter the program if they were working towards a degree, although they had to complete their degree to gain their certification.

In fact, currently 60 per cent of CFP professionals have a degree or postgraduate qualification.

“However, if you had an Advanced Diploma or had done the old DFP, and were now considering doing CFP, you suddenly had this additional hurdle of getting a degree,” she says.

Understandably, many new entrants to the CFP program wanted to know why older members were not required to catch-up with the higher requirements now expected in the CFP program, but these entrants failed to recognise the experience these older members had. Others were also unaware that those with an Advanced Diploma did not need to complete an undergraduate degree.

“Planners also have the option of doing a Masters degree,” Robinson says. “And at the same time as you are doing your Masters degree, you can count some of the CFP units towards the Masters, or get exemptions in the CFP program. It’s definitely not a case of you having to do a Masters and the whole of the CFP program.”

Alternate PathwaysRobinson highlights that there is also some confusion around the FPA’s Alternate Pathways towards CFP certification.

“There have always been options or pathways for people entering the CFP program who have completed other aligned qualifications, and that’s true now as it always has been,” she says. “Some people mistakenly think that these members have only had to do a couple of subjects, but that’s because they have met the other required standards through their existing qualifications.”

For example, Robinson explains that accountants already have a lot of background in financial planning, but in the early days of the CFP program they still had to do a case study and a practice knowledge exam to satisfy the requirements of certification.

“By the time you added in their accounting qualifications, they actually had more professional knowledge than other financial planners. Nowadays, accountants still require

RG146 before they can enter the CFP program, and they only get exemptions into the CFP program if they actually have the accounting specialisation.”

Alternate Pathways have been available since the early days of the program’s introduction to Australia, and Robinson says that every Alternate Pathway has an assessment component included, whether that is through assessment of actual advice by peers or through case studies.

Previously, when the DFP was the accepted standard, many courses were granted exemptions and by the year 2000, there were 88 different courses listed as granting exemptions. Where alternate education programs were recognised, DFP8 plus the Practice Knowledge Exam provided a common element of assessment.

Exemptions for the technical units of the education program have also been available since the introduction of the postgraduate CFP education program, when relevant postgraduate courses were given recognition, Robinson adds.

Too easy for someAdmittedly, some planners studying for their CFP certification today could be excused for feeling that their older CFP peers had it too easy obtaining their certification.

It’s a point that exasperates Robinson.

“Educational standards and regulatory requirements are changing all the time. What were appropriate standards in 2001, were the right standards then. What are appropriate standards in 2011, are the right standards now,” says Robinson. “Standards across all professional disciplines, whether legal, medical or accountancy, are always changing and improving. That’s not to say a planner who obtained their CFP in 1998, is any less a planner or qualified to give advice than somebody receiving their CFP now. It’s a nonsense argument.”

However, the FPA has been pro-active in responding to calls about the degree of difficulty surrounding CFP5. As such, the CFP5 exam has been shortened from six-hours to three-hours, and is also now open book.

Robinson says while it would be pointless to make the exam and course too easy, the FPA has

increased support to those members committed to completing the CFP program through the provision of more learning materials, webinars with case studies, and a resubmission option. There is also assistance to help people prepare for the exam.

“If you make anything too easy, it’s not worth having,” says Robinson. “That’s why the FPA has increased its assistance to people who are committed to completing the CFP program.”


1986 DFP 1–6 under IAFP (plus case study under peer review)

1993 DFP 1–8 Dec 1996 Introduction of CFP program agreed

April 1998 End of DFP 1–8 pathway announced as 2001 (extended to 2003)

1999 Announced RG146

Aug 2000 Pathways to graduates to use DFP8 + PKE* extended to June 2003

Jun 2002 Direct entry to CFP education program for relevant degrees

2002/03 RG146 mandatory

Feb 2003 CFPC unit announced

July 2003 Degree requirement announced

April 2004 CFP 1 unit + technical education + CFPC

April 2005 Transition for non-degree until 2008 (extended but must have commenced by 2006)

Alternate pathways (building on other qualifications)

– Jul 2000 Special Entry A program for Senior Associates (DFP8 Plan + PKE*)

Special Entry B program for allied professionals

Aug 2004 Challenge status for allied professionals restricted to those holding the accountants’ financial planning specialisations

Postgraduate qualifications qualify for exemptions for technical units within the CFP program

Timeline

*PKE = Practice Knowledge Exam

TECHNICAL UPDATE

PAYMENT OF A SUPER BENEFIT AND EXCESS CONTRIBUTIONS TAX

The excess super contributions tax issue has been a problematic one for super fund members. And it is arguable that the once-only option of having up to $10,000 of excess contributions refunded is in fact a ‘solution’ to the problem. But that aside, there are other issues with the excess tax issue that arise.

For example:

• Is the payment of excess contributions tax (ECT) from a super fund the payment of a superannuation benefit for the purposes of SIS Reg 6.22A (‘Priority in cashing benefits in certain cases - regulated superannuation fund’) and s 307-5 of the ITAA 1997 (necessitating the application of the proportioning rule in s 307-125 of ITAA 1997)?

• If the payment is considered to be the payment of a superannuation benefit for the purposes of the ITAA 1997, is there a mechanism to ensure that the payment does not also form part of the recipient’s assessable income (per Division 301)?

It is understood that the Australian Taxation Office (ATO) considers that a payment of excess contributions tax from a super fund is the payment of a superannuation benefit for the purposes of s 307-5 of the ITAA 1997, but it is not necessary to apply the proportioning rule in s 307-125.

Subsection 292-410(1) allows the individual to give the release authority to any superannuation provider that holds a superannuation interest for the individual. A superannuation provider that has been given a release authority is required to pay the relevant amount to either the member against whom the ECT is assessed or the

Commissioner. As the ECT is assessed in relation to contributions made for the individual and the law authorises the individual to choose the superannuation provider who must pay the amount, the ATO considers the payment made by the relevant provider is paid because the individual is a member of the fund.

If the fund pays the released amount to the Commissioner, the Commissioner will apply the amount to reduce the individual’s liability for the ECT. As the payment is clearly applied for the individual’s benefit, s 307-15(2) of the ITAA 1997 ensures that the payment is treated as being made to, or received by, the individual.

In the ATO’s view, the amount paid pursuant to a release authority is therefore a superannuation benefit as defined in s 307-5 of the ITAA 1997.

The ATO considers that the payment of excess contributions tax from a super fund is also the payment of a benefit for the purposes of SIS Reg 6.22A (‘Priority in cashing benefits in certain cases - regulated superannuation fund’).

A member’s benefits in a fund may be paid by being cashed in accordance with Division 6.3 of the SIS Regulations - subreg 6.17(2).

The priority in cashing benefits rules in reg 6.22A apply if a member of a fund satisfies a condition of release in respect of which there is a cashing restriction. Consequently, the ATO says it is necessary to give priority to benefits in the following order:

1. to unrestricted non-preserved benefits;

2. to restricted non-preserved benefits;

3. to preserved benefits.

If the amount of the superannuation benefit paid from a fund (or two or more funds) under the release authority exceeds the amount stated in the authority, the ATO says the excess is assessable income.

The ATO’s view is that, if the payment is considered to be the payment of a superannuation benefit for the purposes of the ITAA 1997, there is a mechanism to ensure that the payment does not also form part of the recipient’s assessable income (per Division 301).

Together, the ATO considers that subsections 304-15(2) and (3) ensure the superannuation benefit is not assessable income and not exempt income provided that the total of all the amounts released from any superannuation fund using the release authority does not exceed the amount of the excess contributions tax stated in the authority.

Terry Hayes is Senior Tax Writer at Thomson Reuters.


–– The excess super contributions tax issue has been a problematic one for

super fund members.


REGULATION UPDATE

Pillar 2 – Professional PractitionerPolicy Example – Enshrining the Term Financial PlannerIn the September issue of Financial Planning magazine, we examined one of the FPA’s key objectives - to strengthen consumer protection by restricting the use of the term ‘financial planner’ to only those individuals who possess the relevant education qualifications, continuing professional development, competency, ethics and standards, and belong to a professional body recognised by the industry regulator.

We looked at how the first of the Four Pillars principles – Public Interest – could be used in formulating policy for ‘Enshrining the Term Financial Planner’ by ensuring that the policy is created in the public’s best interest.

This month we will examine the second of the Four Pillars principles – Professional Practitioner.

To ensure that the policy ‘Enshrining the Term Financial Planner’ meets this particular principle, it must first meet the interests of practitioner members in a way that helps to enhance the professionalism of planners and facilitate a sustainable business and advice offering to clients.

“This principle is not only about meeting the interests of our members,” says FPA General Manager, Policy and Government Relations, Dante De Gori. “It’s not meant to be a member serving benefit, but one that enhances their standing within the professional community. Therefore, by ‘Enshrining the Term Financial Planner’, it will provide practitioners with the professional recognition they are currently not getting.”

Clarifying the definition of what it is a financial planner does, and the educational and professional standards they must adhere to, not only works in the best interests of consumers, it has a flow-on effect for practitioners. This is achieved by providing recognition of the professional competencies of

financial planners compared to the myriad of other advice givers, such as mortgage brokers, insurance brokers and real estate agents.

“A clear definition accepted by government provides greater clarification to consumers of what it is a financial planner does, whereas now they’re either confused or don’t know,” De Gori says. “The first two Pillars (Public Interest and Professional Practitioner) really exemplify this particular policy. By ‘Enshrining the Term Financial Planner’, it will enhance the professional recognition of FPA practitioner members within the community.”

However, De Gori admits there is some crossover between the Professional Practitioner pillar and the Public Interest pillar.

“Obviously, the Public Interest pillar is purely consumer-centric, but this pillar does crossover to the Professional Practitioner pillar. That’s because if a consumer can trust what the individual calls themself and understand what it means to be a financial planner, then that provides confidence and trust in the individual with whom they are dealing,” he says.

“They know what it is a financial planner does and therefore have clear expectations, just as they would have with other professionals like an accountant or a lawyer. This will increase planners standing within the community.”

De Gori believes that by fulfilling the Public Interest

and Professional Practitioner pillars, it will help the FPA achieve some of its core mission objectives. “These are to help financial planning become a universally respected profession, and raise the professional standards and community standing of our members.”

In next month’s issue, we will look at the third of the Four Policy Pillars – Government and Regulatory – and demonstrate how ‘Enshrining the Term Financial Planner’ can be mapped to this principle.

THE PROFESSIONAL PRACTITIONER PILLARFollowing on from the past two issues of Financial Planning magazine, this month we look at the second pillar – Professional Practitioner – and how this principle can be used as part of the Four Policy Pillars in formulating policy at the FPA. Dante De Gori spoke to Jayson Forrest.

The key elements of the Four Policy Pillars are as follows:

1. Public InterestAs a professional association, all policy must be created in the public’s best interest.

2. Professional PractitionerAll policy developed and approved must meet the interests of practitioner members in a way that helps to enhance the professionalism of planners and facilitate a sustainable business and advice offering to clients.

3. Government and RegulatoryPolicy needs to contribute to creating efficient and effective regulation of the industry, without creating unnecessary regulation, duplication and additional ‘red tape’. Policy should ideally minimise or remove existing regulation without compromising the integrity of what is best for the consumer.

4. Code of Professional PracticeThis pillar clearly differentiates FPA members from other associations in the marketplace. The Code aligns members to a high standard of professionalism and integrity, which provides practitioners with a higher level of standing and trust within the community. Policy, therefore, needs to be fully consistent with the Code of Professional Practice to reinforce and support the behaviours that reflect good conduct.

Four Pillars

Dante De Gori,FPA

CENTRELINK


ROLLOVER AND SUPERANNUATION INVESTMENTSSuperannuation and rollover investments are investments held in:

• personal or industry superannuation funds;

• master funds or trusts;

• self-managed superannuation funds (SMSF);

• small APRA funds (SAF); and

• retirement savings accounts.

Income streams such as an annuity or pension, although technically a superannuation product, are not covered by these rules.

A person’s superannuation or rollover investments are disregarded for income and assets test purposes while they are under age pension age. Once the person has reached age pension age, these investments are considered under the income and assets test.

Superannuation and rollover investments for customers (and/or their partner) who have reached age pension age are:

• included as assets under the assets test, and

• regarded as financial investments, and added to the value of other financial investments and

deemed to calculate income from all financial investments.

Where the superannuation investment cannot be accessed, a Ministerial Exemption may be available. If approved, the investment is exempt from income and assets assessment whilst the investment cannot be accessed.

Deeming rates apply:

• For a single person – 3 per cent of the first $44,600 of their total investments with 4.5 per cent for any balance above $44,600;

• For a pensioner couple (both receiving a pension) or a pensioner/allowance couple (one person receiving a pension and the other receiving an allowance) – 3 per cent for the first $74,400 of their combined total investments with 4.5 per cent for any balance above $74,400; and

• For an allowance couple (both receiving an allowance) – 3 per cent for the first $37,200 of the total investments held by each, with 4.5 per cent for any balance above $37,200.

Note: These rates are current as at 1 July, 2011.

An amount withdrawn from a customer’s (or their partner’s) superannuation investment is

not treated as income under the Social Security Act. However, what a customer does with the money may affect the rate of their pension or allowance.

Example: If the money were used to purchase an income stream, then the applicable income and assets test assessment would apply. If the money were placed in a bank account, it would be assessed as an asset and income determined using the deeming rules.

Superannuation money can generally only be accessed before retirement if the status of the fund is non-preserved. The preservation rules were introduced to ensure that superannuation money should only be available once the person reaches preservation age and retires from the workforce.

The minimum preservation age for a pension varies depending on their date of birth (see table).

Early access may be possible under the ‘severe financial hardship’ rules in the Superannuation Industry Supervision (SIS) Act. The trustee of the superannuation fund administers the release of benefits in accordance with these rules. In addition, early release is also subject to the governing rules of the superannuation fund, which in some cases may prevent release even if hardship is established.

The trustee of the superannuation fund makes all early release decisions. Centrelink’s role in the process is to provide a statement/letter confirming the period the person has been in receipt of income support.

To find out more about rollover and superannuation investments, call 13 23 00 or visit www.centrelink.gov.au.

Born Minimum preservation age

Before 1 July 1960 55

1 July 1960 to 30 June 1961 56

1 July 1961 to 30 June 1962 57

1 July 1962 to 30 June 1963 58

1 July 1963 to 30 June 1964 59

From 1 July 1964 60

Table

CHAPTER EVENT REVIEW

REGIONAL ROUNDUPThe Chapter Committees are embracing their new Chapter web pages, recently launched as part of the revamped FPA website. Members now have a ‘hub’ for their local Chapter whereby they can keep up-to-date on local activities.

The Brisbane Chapter continues its involvement with Griffith University’s Professional Development Program. The affiliation is helping to embed the ethical and professional practice principles that underpin the FPA’s own approach to professionalism (see Financial Planning August issue p30-35).

The Gold Coast Chapter ran an interactive seminar on building and sustaining a profitable business, focusing on the implications of the impending Future if Financial Advice (FoFA) reforms. FoFA was a big focus this month, with the Ballarat and Sydney Chapters also choosing to address the implications of the proposed legislation. While in Melbourne, Senator Mathias Cormann paid a visit to the Chapter to give members an update on the Coalition’s views on FoFA and provided members with an opportunity to ask their own questions.

On a lighter note, the Mid North Coast Chapter held its annual Charity Golf

Day at Wauchope Country Club, raising funds for the Rural Fire Service and for the FPA’s own Future2 Foundation. The charity golf day is in its 20th year and has raised in excess of $83,000 for local charities.

At a recent Sydney Chapter seminar, attendees were presented with tips, reminders, insights and plenty of new strategies to make themselves more referrable. The Chapter also held a member lunch on ‘scaled’ advice, where a panel of four Sydney CFP® practitioner members from different financial planning business models, covering small and larger AFSLs, met to openly discuss their approach to providing financial advice.

Also on the practice management front, the Western Australia Chapter hosted its latest breakfast on social media, giving local members an opportunity to learn about how this new phenomenon can be applied to financial planning practices.

FPA Chair, Matthew Rowe CFP® and the FPA Board hosted the latest Professionals Lunch in Sydney last month. About 130 members gathered together to celebrate professionalism within the industry and the FPA’s new direction.


Aberdeen Asset ManagementadviserQuest AMP Financial PlanningAMP CapitalAustralian Unity

AVIVA AustraliaAXABT Financial GroupBT Investment ManagementChallengerColonial First State

Commonwealth Financial PlanningCustomer ReturnFamily Life MattersFidelity InvestmentsHays

InvescoIOOFIRESS Wealth ManagementMercure HotelMLCNab

Orbis – AustraliaPerpetual InvestmentsRussell InvestmentsSecuritorVanguard Investments

Thank you to our Chapter supporters

Sydney Professionals Lunch: 130 members gathered in Sydney last month for the latest event hosted by the FPA board.

FPA Sydney Chapter August member lunch.Melbourne Chapter breakfast: Rory Toal and Frank Camilleri.

EVENT CALENDAR


NSWBrent Lynch CFP®

ANZ

Fred Walker CFP®

FL Walker Financial Services

Ana Maglaya CFP®

Tess Maglaya & Associates Financial Planners

Alison Williamson CFP®

PrincipleFocus

Leo Sandhu CFP®

Cedar Financial Consultants

Tony Bingham CFP®

Neilson and Associates

William Oliver CFP®

William. D. Oliver Insurance Services

Shen Yu Jun CFP®

AFS

Daniel Ronai CFP®

State Super Financial Services

QLD Natalie Martin-Booker CFP®

Greenhalgh Pickard

David Teoh CFP®

Westpac

SASimon Wotherspoon CFP®

Astute Investing

Andrew Hiscock CFP®

Industry Fund Financial Planning

VICAndrew Licciardi CFP®

Outlook Financial Solutions

Benjamin Payne CFP®

RBS Morgans

Jennifer Roche CFP®

Essential Financial Planning

Vincent Pierorazio CFP®

Sterling Financial Group

Peter Ryan CFP®

Essential Financial Planning

Greg Johnson CFP®

Partners Investment/Retirement Planning

Terry Hodge CFP®

Commonwealth Financial Planning

WAPaul Barsden CFP®

Macquarie Private Wealth

Hean-Sing Koay CFP®

RMG Financial Services

For more information about

Chapter events, contact:

Vic and TasFosca Pacitto – 02 9220 4537

or [email protected]

NSW, ACT and WADi Bungey – 02 9220 4503


Qld and NTZeina Nehme – 02 9220 4508


SAVicki Seccombe – 02 9220 4515


PROFESSIONAL DEVELOPMENT EVENTSCPD LIVE ONLINETransacting client accounts at your discretion – how far

can you go without an MDA authority?

12 October, 12:00pm-1:30pm

Following the GFC and with the advent of FoFA, financial

planners’ interest in providing managed discretionary account

(MDA) services has increased. Many planners see this as a

way to add value to clients and to enable them to provide more

control and flexibility in the management of client portfolios.

But in this jargon laden area of the financial services

industry, there is considerable confusion about what an

MDA actually is, what discretions advisers can exercise

without an MDA authority and the compliance implications

of providing discretionary management services. This

session will:

• Explore four different levels of MDA services, from

rebalancing client portfolios to a full MDA (and a couple in

between);

• Explain when an MDA authorisation is required from

ASIC – and what advisers can do without it; and

• Examine the compliance implications of the various

levels of MDA services.

Claire Wivell Plater will use her usual forthright approach

in shedding, some light on this grey area.

EVENTS AND PROFESSIONAL DEVELOPMENT CALENDAR: OCTOBER 2011

21 October, 12:00pm-1:30pm

Business Law Specialist Leigh Adams has been at the forefront

of debate and negotiations on trust law for decades and can

clearly articulate the changes and latest issues impacting

financial planners. In this advanced session, Adams will

practically address key contemporary issues facing practitioners

dealing with trusts, including the complexities surrounding

funding structures in insurance.

Our expert will focus on:

• How trusts differ from other business structures;

• Types of trusts and how they start and finish;

• Examples of how people wreck a trust set-up without really

trying;

• Domestic issues: mutual wills and cascading trusts;

• Business issues: internal and external uses for insurance;

• Types of buy-sell agreements; and

• Funding options including superannuation, employee share

schemes, Division 152 and Division 7A.

This session provides planners with the opportunity to bring

more to your client conversations in regards to this complex area.

Trusts and Succession Funding Structures

FEATURED EVENT

CHAPTER EVENTS

3 OctoberGeelong – Member Lunch

6 OctoberSunraysia – Member Lunch

11 OctoberMelbourne – Young Planners’ Evening

13 OctoberGoulburn Valley – Launch Evening

13 OctoberTownsville – Launch Evening

18 OctoberNewcastle – CFP Dinner

20 OctoberSydney – Annual Golf Day

25 OctoberACT – Technical Workshop

27 OctoberWestern Division (Dubbo) – Workshop

27 OctoberNew England – Annual Golf Day

27 OctoberSouth Australia – Awards Function

28 OctoberWestern Division (Orange) – Workshop

The FPA congratulates the following members who have been admitted as CERTIFIED FINANCIAL PLANNER® practitioners.

Member Services: 1300 337 301Sydney officeTel: (02) 9220 4500 Fax: (02) 9220 4582Email: [email protected]: www.fpa.asn.au

FPA BOARDChair Matthew Rowe CFP® (SA)Chief Executive OfficerMark Rantall CFP®

DirectorsBruce Foy (NSW)Neil Kendall CFP® (Qld)Louise Lakomy CFP® (NSW)Julie Matheson CFP® (WA)Peter O’Toole CFP® (Vic)Philip Pledge (SA)Andrew Waddell (Vic)

ChaptersFosca PacittoMember Engagement and Development ManagerTel: (02) 9220 4537 Fax: (02) 9220 4582Email: [email protected]

NEW SOUTH WALESFPA: Di BungeyGPO Box 4285 Sydney NSW 2001Tel: (02) 9220 4503 Fax (02) 9220 4582Email: [email protected]

SydneyScot Andrews CFP®

ChairpersonTel: 02 8916 4281Email: [email protected]: Stewart BellElixir ConsultingTel: 0411 988 765

Mid North CoastDebbie Gampe AFPChairpersonTel: (02) 6583 5811 Fax: (02) 6583 4311Email: [email protected]: James Seville AFPSt George BankTel: (02) 6583 0755

NewcastleMark Reeson CFP®

ChairpersonTel: (02) 4927 4370 Fax: (02) 4927 4376Email: [email protected]: Jason Kolevski AFPTrigenreTel: (02) 4926 6999

New EnglandJohn Green CFP®

ChairpersonTel: (02) 6766 5747 Fax (02) 6766 5778Email: [email protected]: Karen Cox AFP PlanPlus Wealth AdvisersTel: (02) 6761 2099

RiverinaPat Ingram CFP®

ChairpersonTel: (02) 6921 0777 Fax: (02) 6921 0732Email: [email protected]: Lisa Weissel CFP®

Evergreen Wealth ProfessionalsTel: (02) 6921 7546

Western DivisionPeter Roan CFP®

ChairpersonTel: (02) 6361 8100 Fax: (02) 6361 8411Email: [email protected]

Secretary: Toni RoanRoan Financial Tel: (02) 6361 8100

WollongongDavid Richardson CFP®

ChairpersonTel: (02) 4227 2122 Fax: (02) 4228 1637Email: [email protected]: Mark Lockhart AFP Jam FinancialTel: (02) 4244 0624

ACTFPA: Di BungeyGPO Box 4285 Sydney NSW 2001Tel: (02) 9220 4503Fax: (02) 9220 4582Email: [email protected]

Claus Merck CFP®

ChairpersonTel: (02) 6262 5542Email: [email protected]: Ian DalziellTel: (02) 6248 7625

VICTORIAFPA: Fosca PacittoGPO Box 4285 Sydney NSW 2001Tel: (02) 9220 4537 Fax: (02) 9220 4582Email: [email protected]

MelbourneJulian Place CFP®

ChairpersonTel: (03) 9622 5921Email: [email protected]: David Howell Ipac SecuritiesTel: (03) 8627 1729

Albury WodongaWayne Barber CFP®

ChairpersonTel: (02) 6056 2229 Fax: (02) 6056 2549Email: [email protected]: Colleen Peffer CFP®

Bridges Financial ServicesTel: (02) 6024 1722

BallaratPaul Bilson CFP®

ChairpersonTel: (03) 5332 3344 Fax: (03) 5332 3134Email: [email protected]: Craig Smith CFP® Mor Financial PlannersTel: (03) 5333 3202Email: [email protected]

BendigoGary Jones AFPChairpersonTel: (03) 5441 8043 Fax: (03) 5441 7402Email: [email protected]

GeelongBrian Quarrell CFP®

Chairperson Tel: (03) 5222 3055 Fax: (03) 5229 0483Email: [email protected] Secretary: Ian Boyd CFP®

Wheeler Investment AdvisorsTel: (03) 5222 3055

GippslandRod Lavin CFP®

ChairpersonTel: (03) 5176 0618 Email: [email protected]: Terry Kays CFP®

AXA Financial PlanningTel: (03) 5176 5556

Goulburn ValleyJohn Foster CFP®

ChairpersonTel: (03) 5821 4711 Fax: (03) 5831 3548Email: [email protected]

South East MelbourneScott Brouwer CFP®

ChairpersonTel: 1300 657 872 Fax: 1300 657 879 Email: [email protected]: Sean Clark CFP®

Austbrokers PhillipsTel: (03) 8586 9338

SunraysiaMatt Tuohey CFP®

ChairpersonTel: (03) 5021 2212Email: [email protected]: Robert ChiswellTrilogy Financial PlanningTel: (03) 5021 1235Email: [email protected]

QUEENSLANDFPA: Zeina NehmeGPO Box 4285 Sydney NSW 2001Tel: (02) 9220 4508 Fax: (02) 9220 4582Email: [email protected]

BrisbaneIan Chester-Master CFP®

ChairpersonTel: 0412 579 679Email: [email protected]: Philippa BakerTynan MackenzieTel: (07) 3223 9300

CairnsChapter contact: Zeina NehmeTel: (02) 9220 4508

Far North Coast NSWBrian Davis AFPChairpersonTel: (02) 6686 7600 Fax: (02) 6686 7601Email: [email protected]: Paul MurphyAdvicePlus Financial SolutionsTel: (02) 6622 6011

Gold CoastMatthew Brown AFPChairpersonTel: (07) 5554 4000 Fax: (07) 5538 0577Email: [email protected]: David Armstrong CFP®

National Australia BankTel: (07) 5581 2282

MackayJames Harris CFP®

ChairpersonTel: (07) 4968 3100Email: [email protected]: Bev FerrisLatitude Financial PlanningTel: (07) 4957 3362Email: [email protected]

Rockhampton/Central QldChapter contact: Zeina NehmeTel: (02) 9220 4508

Sunshine CoastGreg Tindall CFP®

Chairperson Tel: (07) 5474 1608Email: [email protected]: Natalie Martin-Booker Greenhalgh Martin Financial PlanningTel: (07) 5444 1022Email: [email protected]

Toowoomba/Darling DownsJohn Gouldson CFP®

ChairpersonTel: (07) 4639 2588Email: [email protected]: Paul Ratcliffe CFP®

Tynan MackenzieTel: (07) 4548 0700Email: [email protected]

TownsvilleChapter contact: Zeina NehmeTel: (02) 9220 4508

Wide BayNaomi Nicholls AFPChairpersonTel: (07) 3070 3066 Fax: (07) 4152 8949Email: [email protected]

SOUTH AUSTRALIAFPA: Vicki SeccombeGPO Box 4285 Sydney NSW 2001Tel: (02) 9220 4515 Fax: (02) 9220 4582Email: [email protected]

AdelaideCarl Wilkin CFP®

ChairpersonTel: (08) 8407 6931Email: [email protected]: Barry StrappsAsteronTel: (08) 8205 5332

NORTHERN TERRITORYFPA: Zeina NehmeGPO Box 4285 Sydney NSW 2001Tel: (02) 9220 4508 Fax: (02) 9220 4582Email: [email protected]

DarwinGlen Boath CFP®

ChairpersonTel: (08) 8941 7599 Fax: (08) 8942 3599Email: [email protected]: Marie-Clare BoothbyAll Financial ServicesTel: (08) 8980 9300

WESTERN AUSTRALIAFPA: Di BungeyGPO Box 4285 Sydney NSW 2001Tel: (02) 9220 4503 Fax: (02) 9220 4582Email: [email protected]

Pippa Elliott CFP®

ChairpersonTel: (08) 9221 1955 Fax: (08) 9221 1566Email: [email protected]: Steve Dobson AFP Mal Dobson & AssociatesTel: (08) 9455 4410

TASMANIAFPA: Fosca PacittoGPO Box 4285 Sydney NSW 2001Tel: (02) 9220 4537 Fax: (02) 9220 4582Email: [email protected]

HobartTodd KennedyChairpersonTel: (03) 6233 0651 Fax: (03) 6245 8339Email: [email protected]

Northern TasmaniaFosca PacittoGPO Box 4285 Sydney NSW 2001Tel: (02) 9220 4537 Fax: (02) 9220 4582Email: [email protected]

FPA CONTACTS AND CHAPTER DIRECTORY

CHANGES: Please advise of alterations to the list through Fosca Pacitto at [email protected]

DIRECTORY


Past performance is not a reliable indicator of future performance.

This advertisement was issued by FIL Investment Management (Australia) Limited ABN 34 006 773 575 AFSL No. 237865 (“Fidelity Australia”). Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity Worldwide Investment. You should consider whether this product is appropriate for you. You should consider the Product Disclosure Statements (“PDS”) for Fidelity products before making a decision whether to acquire or hold the product. The relevant PDS can be obtained by contacting Fidelity Australia on 1800 119 270 or by downloading from our website at www.fidelity.com.au. This document may not be reproduced or transmitted without the prior written permission of Fidelity Australia. The issuer of Fidelity funds is Perpetual Trust Services Limited (“Perpetual”) ABN 48 000 142 049. Perpetual is not the publisher of this document and takes no responsibility for its content. *Company contact data is based on FIL Limited coverage of the MSCI World Index as at 31 July 2011. **Based on the Mercer Wholesale-Equity-Australia-All Cap-Core Universe and Mercer Wholesale-Equity-Global-Large Cap-Core Universe as at 31 July 2011. Notes about the Mercer universe: includes funds according to criteria determined by Mercer – it does not include all international share funds available in Australia. Should be distinguished from the Mercer institutional performance surveys. Performance data is sourced from Lipper. The Fidelity Australian Equity Fund and Global Equity Fund’s relative performance/ranking may change if compared with a different universe. Fidelity, Fidelity Worldwide Investment, and the Fidelity Worldwide Investment logo and F currency symbol are trademarks of FIL Limited. © 2011 FIL Investment Management (Australia) Limited.

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Financial Planning Magazine - October 2011

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Transcript of Financial Planning Magazine - October 2011