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Financial Planners Starting To Avoid Managed Funds
The results of a new survey suggest that under pressure from clients, financial planners and advisers have begun to avoid managed funds. According to the results of the report, planners are increasingly investing money directly into equities and other listed investments.
Investment Trends (IT), a market research firm which authored the report said that unlisted managed funds gained ground over the last year, and only half of the cash collected by planners was invested in managed fund, down 62 per cent from the previous year.
The survey which polled 700 planners during April and May suggests that planner’s estimate only 39 per cent of funds allocated would be directed towards managed funds by 2013.
Mark Jones of IT said that nearly 20 per cent of all new money was being allocated towards direct equities investment, and that asset allocation into exchange traded funds, real estate investment trusts and managed accounts has also risen.
“Planners have been gradually increasing their use of direct shares and other listed investments since 2008,” Mr Johnston said. “But this year has seen a dramatically larger shift.”
Approximately one third of planners can be described as high users of direct investment strategies, where client funds are allocated towards equities, ETF’s, with only 7 per cent of inflows from this groups allocated towards managed funds.
“That appears in part to be a response to . . . increased investor fee aversion and dissatisfaction with managed fund performance,” Mr Johnston said.
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ANZ To Rebrand ING Joint Venture Fully Acquired Last Year
Australian banking major ANZ is rebranding its ING wealth management and life insurance business as OnePath, the brand name of its own organically built specialist find management and life insurance business.
Phil Chronican of ANZ says the lender is establishing a more diverse set of options for its customers, after buying out joint venture partner ING in November last year.
“We’ve established a new organisational structure for our wealth group that provides better coordination of our wealth offerings,” Mr Chronican said in a statement to the Australian Securities Exchange (ASX).
“The introduction of the OnePath name and brand is another important element in our growth strategy. It recognises that successful wealth businesses need to be positioned and operate as specialists with capabilities that support the particular needs of customers and intermediaries.”
Mr. Chronican added that the rebranding would allow ANZ more flexibility to chase regional growth in markets where ING operates its own operation, and in which ANZ would not be able to use the ING brand.
ANZ which has the license to use the ING brand until November this year said that the OnePath brand would be officially launched later in the year.
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NAB Exclusivity Arrangement With AXA Set To Expire
Australian banking major NAB, which is embroiled in an acquisition attempt of AXA Asia Pacific Holdings (APH) has said that negotiations taking place over the proposed asset divestment of APH’s Wealth.net platform were still continuing, despite the fact that the lenders exclusivity agreement with APH expires in a few hours.
NAB’s extended exclusivity agreement with AXA APH and its French parent AXA SA expires at 0001 AEST on Friday. After expiration of the exclusivity arrangement, both APH and AXA SA are then free to terminate the agreement and begin negotiations with other interested bidders.
Sydney based Australian wealth manager AMP is still considering whether it intends to submit an improved bid to APH’s board, after its initial bid which valued APH at $12.85 billion lapsed.
NAB, whose initial bid was rejected by the competition regulator on the grounds that competition would be stifled within the wealth management space was granted an extension to the original exclusivity arrangement on June 1st, to allow the lender more time to address the regulators concern and win its approval for the deal.
A spokesperson for Australia’s third largest bank told the APP that discussions with third parties over the possible sale of APH’s North and Wealth.net platforms were indeed “progressing”, but that he could not comment on what stage the negotiations were at.
NAB also remains in talks with the Australian Competition and Consumer Commission (ACCC), which on June 25 said there still was no new information that could be released.
The regulator hat still not published its public competition assessment, which is a report that provides insight into why it failed to give its approval for the proposed NAB acquisition. The regulator has not set any date for its disclosure.
The ACCC rejected NAB’s bid on the grounds the deal would substantially lessen competition for retail investment platforms for investors with complex investment needs.
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Pimco Says Australia Is A Top Investment Destination
One of the largest global managers of fixed income securities, Pimco, says that Australia now offers the most investment opportunities in the developed world.
During one of its regular updates to the global bond markets, David Fisher who runs global product management for Pimco also said there was a “new normal environment”, which looked much different to that of previous decades.
Despite the volatility in Australia caused by former Prime Minister Kevin Rudd’s proposal to tax mining companies, a cooling China and debt concerns in Europe, Australia remains one of the top investment destinations of Pimco.
“Starting with a ladder, we would say those countries with solid fundamentals include in the developed world places like Canada and Australia, not only because they came into the crisis with better conditions … but also because they’re very well exposed to the growth dynamics in the emerging world and particularly through the channel of commodity prices,” Mr. Fisher.
Mr. Fisher also warned that there were risks posed by unrealistic expectations and over priced companies as both America and Australia both enter into critical reporting periods.
Pimco chief Bill Gross surprised global markets when he announced the asset manager had begun investing in equities.
“While we think bonds are priced for a depression, we think that equities are still priced for something more akin to the ‘old normal’ than the ‘new normal’, he said. We think that there’s still some scope for compression in PE ratios and we think that optimism over profit recovery is probably a little bit exaggerated in this environment of very, very weak growth, outside of a few countries such as Australia and Canada and the emerging world. So, on a relative basis, we would say that the returns in global bonds, while not spectacular, are certainly attractive.”
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Jeremy Cooper Defends The Controversial Cooper Review
Jeremy Cooper, the former deputy chairman of the Australian Securities and Investment Commission (ASIC) and author of the controversial government review of the Australian superannuation system, has defended his plan for low cost MySuper accounts.
The accounts are intended as a default for people who do not select a retirement fund.
Mr. Cooper who made his comments during a luncheon organized by the Australian Superannuation Funds Association in Melbourne, said that the criticism that his plan was paternalistic could in fact be applied to the entire concept of superannuation.
The criticism was leveled earlier in the week by the Investment and Financial Services Association.
“It’s acutely paternalistic — it’s saying that if we don’t force Australians to defer some of their wages and salary and put them away for a time, they’re simply not going to save, so we’ll force them, and so that’s how we have to see the system,” Mr. Cooper said.
By cutting fees and improving investor returns, it is hoped that the MySuper account will serve as a benchmark for the rest of the industry to follow Mr. Cooper said.
“Because it’s a compulsory system, we think all workers in Australia are entitled to have super that is as good as a MySuper product,”
Mr. Cooper also issued a denial that the rules which determine fees on the MySuper accounts would result in lower investor returns. Mr. Cooper says that the fund trustees would be both obliged to minimize the cost and maximize investment returns.
Chris Bowen, the minister for Superannuation says that the government intends to move quickly to examine the proposals for MySuper and SuperStream, the proposed revamp of superannuation administration, which he terms as being “largely commonsense”.
“I understand the government needs to provide some direction and some certainty around those proposals so the industry can go forward with some sense of confidence, and I hope to be giving an indication of our response . . . over coming weeks.” Mr. Bowen said.
Mr. Bowen says it was unlikely that the government would make any changes to the superannuation preservation age, which is presently set for 60. Mr. Bowen added that the government would not sponsor any specific superannuation products or mandate compulsory income-style investments for retirees.
Speaking after the lunch, Mr Bowen also rejected claims by IFSA that making a low-cost default fund available to workers would lead to increased apathy.
“There are always people who will be disengaged from super and we need to make sure the fees are as low as possible,” he said.
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Competition Regulator To Decide On NAB Bid For AXA APH In September
The saga that has gripped the Australian wealth management industry involving the bitter take -over battle for AXA Asia Pacific Holdings between two bidders NAB and AMP, is unlikely to be resolved before September when the competition regulator consults the market regarding NAB’s proposed $14 billion bid.
The Australian quoted unnamed sources as playing down the likelihood that a new bid from NAB, one which would address the concerns that the Australian Competition and Consumer Commission’s had were imminent.
NAB is rumoured to be negotiating the sale of part of APH as part of plan that would alleviate the competition regulators worries, after its initial bid failed to receive the regulator’s blessing.
The Australian previously reported NAB had identified IOOF as its preferred buyer for APH’s North investment platform and was working towards an agreed deal.
Despite the proposal to divest certain parts of the business, the regulator needs to be satisfied such a sale would address its concerns, and this may involve sounding out the opinion of market participants, a process which may take a few weeks, after which the regulator will once again consider the matter.
NAB proposes to pay $4.6bn for APH’s Australian assets, and to sell the Asian assets to APH’s French parent AXA SA for more than $9bn.
Despite the ACCC’s failure to grant its blessing for the NAB bid not surprising many, its reasoning in not doing so did raise some eyebrows. The North investment platform has been valued at less than $50 million, yet such a small part of the APH business seems to have become the main obstacle to the deal proceeding.
IOOF remains the preferred buyer, ahead of other interested parties that include Perpetual and Count.
AMP the other bidder in the takeover battle has itself engaged in a strategy of counter attack, lobbying the regulator with the argument that the sale of the North investment platform would not have the effect of increasing competition.
The group has argued that IOOF does not have the distribution muscle or funds under management to build North into a competitor able to challenge the likes of NAB’s wealth management unit MLC, or Westpac’s BT and Asgard operations.
Both NAB and APH have the right to terminate their agreement on July 15. Failure to terminate would mean the deal is automatically extended.
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Financial Planning Associations Rail Against Cooper Review Proposals
Financial planners are fiercely opposing the proposal by the Cooper Review, which would ban commissions on insurance in superannuation, fearing that many clients will not be able to afford a fee which is charged upfront.
The Association of Financial Advisers has levelled the accusation against many of the proposals recommended by the review, which was conducted under the leadership of former Australian Securities & Investments Commission chairman Jeremy Cooper, of threatening the income of thousands of planners, by banning the practice of commission payments on all insurance products that are part of the super, including group risk and personal risk.
“Average mums and dads in Australia, they are going to struggle with this whole idea of being charged another fee,” AFA national president Jim Taggart said yesterday.
The Financial Planning Association lent its support to the AFA argument, suggesting that many in Australia either cannot afford or will not want to pay an upfront fee, which may amount to thousands of dollars due to the length of time and effort required to establish a policy.
Mark Rantall chief executive of the FPA says the proposal runs the real risk of lower income earners not being able to afford to buy insurance.
“They would love to do it, but they have a business to run at the end of the day,” he said.
Among its 174 recommendations, the Cooper review has called for the banning of commissions on all MySuper products and on any insurance offered as part of packages.
Despite the loud chorus against the proposal, some sections of the superannuation have come out in support of a ban on commissions for insurance sales.
Sacha Vidler the chief economist at Industry SuperNetwork, a group that represents industry super funds warned that should the government fail to adopt the proposal, that there is a risk that insurance commissions could be loaded up.
“If the government bans the commissions on the super product but doesn’t ban the commissions on the life (insurance) product, one option for the providers of those products is to load up the commissions on to the life insurance,” he said.
Global Financial Market Instability Hits Australian Super Fund Returns
Volatile global financial markets that plunged in the aftermath of the European sovereign default crisis have consumed the highly anticipated bounce in super fund returns.
The drop in financial markets is likely to result in investment earnings falling below double digits for the financial year, ending at about 9.6 per cent.
The recent volatility has seen Australian super funds lose as much as 50 per cent of their valuations which provided the federal government with the impetus to ease rules on capital draw downs from pension funds.
As recently as two months ago, analysts were confidently predicting investment returns as high as 15 per cent. However in the last couple of months valuations have been hammered by renewed fears of the recovery in the global economy, which has produced a string of negative equity market returns in Australia.
The poor performance this year has resulted in lower rolling cumulative returns, with the median five year return now estimated to be 3.7 per cent, according to research firm SuperRatings.
Since the compulsory super was established in 1992, the median balanced fund has returned 6.8 per cent a year, illustrating the fact that a well diversified portfolio does indeed protect investors from catastrophic loss.
Balanced funds have both met and exceeded their long term objectives of outrunning the Consumer Price Index by an annual 3 per cent SuperRatings data shows.
Chant West, another research firm estimates that the median returns for investment funds who hold between 61 to 80 per cent of their portfolio in growth assets is exactly 10 per cent.
Superannuation industry figures look better when taken over the past seven years, but the record has been remarkably volatile.
After a shaky start to the decade, when many Australians fell behind compared to the returns of cash investments in the aftermath of the collapse of the tech bubble, Australians enjoyed a four year period of uninterrupted gains in their super, after which the onset of the first global financial crisis took hold.
Growth funds especially were hit in the financial years 2008 and 2009, posting negative returns of more than 6 per cent and 12 per cent respectively.
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Suncorp Seeks To Double Life Insurance Business In Three Years
Banc-assurance group Suncorp-Metway is seeking to more than double the size of its current life insurance business over the next three years, as it expands its presence in direct sale and financial planning markets.
Geoff Summerhayes, chief executive of Suncorp Life says the insurer has managed to expand its presence in the independent financial advisory market, mainly through its Asteron brand.
Whilst building the brand, the Brisbane based insurer also began building a direct distribution platform and selling general insurance under the Suncorp, APIA and GIO brands.
“Our strategy is clear, we are on track and have made excellent progress.” Mr. Summerhayes said in a speech on Wednesday.
Suncorp has embarked on a strategy of revitalising the company by positioning itself as a multi brand financial services provider that offers banking, wealth management, life and general insurance, and has specifically targeted growth in the life insurance segment.
Mr Summerhayes said the division aimed to grow in-force premium by double digits on average over the next three years while aiming also to reduce costs.
Suncorp is also seeking to improve its claims experience by largely making improvements to the process.
Mr Summerhayes said the life insurance market had exceptional potential with double digit industry growth from the current $8.1 billion of in-force premiums.
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Competition Regulator Unlikely To Grant Approval For NAB Acquisition Of APH
According to investment bank Credit Suisse, the proposed acquisition of AXA Asia Pacific Holdings (APH) by National Australia Bank is likely to not be approved by the competition regulator.
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