The fund for Call Cbus on 1300 361 784 or visit www.cbussuper.com.au INSPIRING ADVICE PROFESSIONAL PLANNER October 17-18, 2013, Sydney DAY 1 2 T he value of advice businesses has fallen across the board in the last few years however quality practices are holding their value better, according to Bob Neil, director of Seaview Consulting. Neil estimated valuations had dropped up to 25 per cent since 2009 due to weaker economic conditions and the introduction of the Future of Financial Advice reforms, which had affected buyer confidence. “Valuations have declined indiscriminately but some are falling much quicker than others,” he said. “Previously there wasn’t much separating the good and bad practices, in terms of valuations, but now that gap is widening as buyers become tougher and more selective. e range is the widest I’ve seen in 15-20 years.” Two years ago, good advice businesses were valued at around 6-to-6.5 times earnings before interest and tax (EBIT), according to research by Seaview. However, more recent transactions show that good businesses are sold for multiples of 5-to-5.25 EBIT. More alarmingly, average businesses are now being sold for 3.5-to-4 times EBIT, and in some cases, less than three times, compared to two years ago when transactions were being done at five times EBIT. “e numbers are dramatic but what’s more important is that financial planners understand why there’s a gap,” Neil said. “Advisers may not have control over the price that the market dictates, but given that the best businesses are commanding over five times EBIT and core businesses get three times, they can control where they’re positioned within that band.” Speaking on a panel with Michael Francis, partner at Toowoomba-based practice Bryon Capital, and John Hewison, managing director of Hewison Private Wealth, Neil said valuations would never go back to their pre-FoFA heights, however, things were stabilising. He said characteristics of quality businesses included sustainable profits, formal systems and processes, access to the market, a strong talent development framework and the ability to adapt to changes in the environment. “Buyers want businesses that can demonstrate the ability to continue delivering benefits and value in the future,” he said. Hewison said principals should consider having their business valued, even if there were no plans to sell, as a way of benchmarking performance. Hewison had his business first valued by Neil in the mid-1990s. at year he started developing a succession plan. e business is valued on a regular basis. “Understanding the value of your business is fundamental to business planning,” he said. Valuations fall post-FoFA “ The range is the widest I’ve seen in 15-20 years Bob Neil, Michael Francis and John Hewison INSIDE 02 ASIC on conflicts 02 Platinum advice 03 FPSB to refresh strategy 03 SMSFs: the tax trap 04 Captured 06 Planner virtues 06 Superior performance 07 Battle over best interests 08 Stronger together: FPA and Cbus
Transcript
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I N S P I R I N G A d v I c e
PROFESSIONAL PLANNEROctober 17-18, 2013, Sydney DAY 1 2
The value of advice businesses has fallen across the board in the last few years however quality practices
are holding their value better, according to Bob Neil, director of Seaview Consulting.
Neil estimated valuations had dropped up to 25 per cent since 2009 due to weaker economic conditions and the introduction of the Future of Financial Advice reforms, which had affected buyer confidence.
“Valuations have declined indiscriminately but some are falling much quicker than others,” he said.
“Previously there wasn’t much separating the good and bad practices, in terms of valuations, but now that gap is widening as buyers become tougher and more selective. The range is the widest I’ve seen in 15-20 years.” Two years ago, good advice businesses were valued at around 6-to-6.5 times earnings before interest
and tax (EBIT), according to research by Seaview. However, more recent transactions show that good businesses are sold for multiples of 5-to-5.25 EBIT.
More alarmingly, average businesses are now being sold for 3.5-to-4 times EBIT, and in some cases, less than three times, compared to two years ago when transactions were being done at five times EBIT.
“The numbers are dramatic but what’s more important is that financial planners understand why there’s a gap,” Neil said.
“Advisers may not have control over the price that the market dictates, but given that the best businesses are commanding over five times EBIT and core businesses get three times, they can control where they’re positioned within that band.”
Speaking on a panel with Michael Francis, partner at Toowoomba-based
practice Bryon Capital, and John Hewison, managing director of Hewison Private Wealth, Neil said valuations would never go back to their pre-FoFA heights, however, things were stabilising.
He said characteristics of quality businesses included sustainable profits, formal systems and processes, access to the market, a strong talent development framework and the ability to adapt to changes in the environment.
“Buyers want businesses that can demonstrate the ability to continue delivering benefits and value in the future,” he said. Hewison said principals should consider having their business valued, even if there were no plans to sell, as a way of benchmarking performance.
Hewison had his business first valued by Neil in the mid-1990s. That year he started developing a succession plan. The business is valued on a regular basis.
“Understanding the value of your business is fundamental to business planning,” he said.
Valuations fall post-FoFA
“The range is the widest I’ve seen in 15-20 years
Bob Neil, Michael Francis and John Hewison
InsIde02 ASIC on conflicts
02 Platinum advice
03 FPSB to refresh strategy
03 SMSFs: the tax trap
04 Captured
06 Planner virtues
06 Superior performance
07 Battle over best interests
08 Stronger together: FPA and Cbus
*FirstChoice and FirstWrap ranked 1st and 2nd for average overall satisfaction in the 2013 Wealth Insights Platform Service Level Survey– 859 advisers participated in this survey between February and March 2013. Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State). FirstWrap is issued and operated by Avanteos Investments Limited ABN 20 096 259 979, AFSL 245531 (Avanteos), the trustee of The Avanteos Superannuation Trust ABN 38 876 896 681. CFS2102V1/STRIP/MM
FirstChoice & FirstWrapwith
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Colonial First State delivers the power and scale of two award-winning* platforms with all the resources and capabilities you need to help drive business efficiency.
I N S P I R I N G A d v I c e
PROFESSIONAL PLANNEROctober 17-18, 2013, Sydney DAY 1 2
Peter Kell, Steve Helmich and Noel Maye
Platinum advice
ASIC shines spotlight on conflictsThe Australian Securities and
Investments Commission, and regulators around the world, are
focused on removing conflicts of interest and boosting professionalism in financial services, according to ASIC deputy chair Peter Kell.
Speaking on a panel with AMP director Steve Helmich; Financial Planning Standards Board chief executive Noel Maye; and FPSB chair Barry Horner, Kell said the Global Financial Crisis had shown regulators where they needed to pay greater attention.
He said the financial services industry still needed to manage conflicts of interest in areas such as audit, financial planning and research and ratings. It also needed to get better at self-regulation and secure retail consumer confidence. “There’s recognition around the world that
there wasn’t sufficient focus on the retail investor although there has been a lot of focus on the prudential and wholesale market,” Kell said.
He added that retail investors were the focus of a new working group recently set up by the International Organisation of Securities Organisations (IOSCO) to look into how consumers are sold products and advice.
Kell said Australia’s financial services framework was recognised as world class, with regulators globally in agreement that the Future of Financial Advice reforms had lifted professionalism.
“It’s really important that the industry’s self-regulation is integrated with what the regulator is doing because the GFC showed that self-regulation in a range of sectors obviously didn’t deliver what people expected,” he said.
Savvy investors ignore the crowds and the media, look for neglected companies, resist the pressure to
conform and understand that price is everything, Platinum Asset Management co-founder and managing director, Kerr Neilson told advisers and their clients at breakfast on Thursday.
He said investors needed to put memories of the dot.com bubble behind them and embrace opportunities in technology and ecommerce. He likened the internet to the railways and canals that were built in the 1800s.
Internet stocks feature prominently in Platinum’s portfolios including Google, online real estate database Zillow, Chinese web service company Baidu and Chinese
media company Sina Corp. The fund is also invested in instant messaging sensation, LINE, which adds around one million new users a day in Asia.
Platinum also holds Italy’s largest bank Intesa Sanpaolo.
“No one is buying banks in Europe but we look where there’s neglect. Neglect pays off and presents opportunities,” Neilson said.
“When things look glum, we want to put money in there, and when people are getting really excited, we want to leave.”
Neilson urged Australians to take advantage of the strong Australian dollar to invest more of their money offshore, particularly in emerging markets. “There is a huge opportunity set when you invest
abroad and it strikes me as odd that Australians are taking advantage of the currency to travel overseas but they still don’t want to invest offshore,” he said.
“Australians often use franking credits as an excuse to justify their home country bias but we calculate that the benefits of franking credits only add one to two per cent compounded. They’re seen as a much bigger advantage than they actually are.”
Kerr Neilson
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Aaron Dunn
I N S P I R I N G A d v I c e
PROFESSIONAL PLANNEROctober 17-18, 2013, Sydney DAY 1 2
SMSFs: avoiding the tax trap
FPSB plans to refresh strategyThe Financial Planning Standards
Board (FPSB) plans to refresh its strategy, including a review of
remuneration structures, at a global meeting of member organisations in Sydney next week.
“A lot has been changing post financial crisis – it’s a very different environment for financial planning and financial planning practitioners around the world,” Noel Maye, chief executive Financial Planning Standards Board (United Kingdom) said.
“We think it’s a really good time to come together and look at what are the issues, what do we do to stay on track with; what do we modify and maintain.” The organisation’s long-term strategy was last
Self-managed super funds (SMSFs) may represent the fastest growing sector of the retirement industry but
one area still poses a common stumbling block: excess contributions tax.
Yet another round of recent legislative changes threatens to add to the already overly-complex area, which can result in heady tax penalties for those who breach the caps.
Aaron Dunn, managing director of online community and resource portal, The SMSF Academy, said it’s important to understand exactly what counts as contributions subject to the skill set of your clients (for example, a professional builder supplies her own services to increase a property’s value).
“Look to use the contribution caps as much as you possibly can – they are a use it or lose it approach,” he said.
The concessional contributions caps for 2013-14 are: $25,000 (for those aged under 60), $35,000 (for those aged 60 and over), and superannuation guarantee payments only (for those aged 75 and above). The non-concessional contribution cap is $150,000 although those under 65 can contribute multiple years’ worth of contributions under the ‘bring forward’ rule.
Dunn said it is important to be aware of the different levels of contributions tax that can apply – for example, a higher rate of tax now applies to individuals earning $300,000 or more – and while there is no respite from non-concessional breaches, other strategies need to be evaluated where appropriate. For example, the ATO can apply the ‘de-minimus’ rule on a case-by-case basis for small, unintentional breaches.
set in 2010 and the meeting will include a review of government regulatory issues, consumer issues, practice issues, and the way the FPSB operates.
When asked about commissions, which are charged on life insurance products, Maye said the FPSB may spend half a day of the five-day conference talking about the implications of such remuneration structures.
“There’s a notion that if you take all this [commissions] away it will be alright – that’s actually a dangerous track to go down,” he said, but noted that remuneration would still be a proxy for trust and accountability in the short-term.
Steve Helmich, chairperson, Financial Planning Standards Board (Australia),
said he was unsure if commissions would eventually be removed from insurance products, pointing out that the insurance industry was struggling, there was some debate that the ‘best interest’ clause may result in churning, and that there remains a major underinsurance problem across Australia.
“We’ve got to find a sustainable model where advice can be given and clients can get good advice and good cover put in place and planners can be rewarded for it,” he said.
Barry Horner, chairperson elect of the FPSB (United Kingdom) said the UK financial planning industry had recently gone through reforms similar to those which have occurred in Australia.
“We think it’s a really good time to come together
*FirstChoice and FirstWrap ranked 1st and 2nd for average Overall Satisfaction in the 2013 Wealth Insights Platform Service Level Survey – 859 advisers participated in this survey between February and March 2013. FirstChoice rated Best Overall Platform in the 2013 Wealth Insights Platform Service Level Survey.FirstChoice is issued and operated by Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (Colonial First State), the trustee of the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557. FirstWrap is issued and operated by Avanteos Investments Limited ABN 20 096 259 979, AFSL 245531 (Avanteos), the trustee of The Avanteos Superannuation Trust ABN 38 876 896 681. CFS2102v2/STRIP/MM
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FirstChoice & FirstWrapwithranked 1st & 2nd by advisers for Overall Satisfaction in the 2013 Wealth Insights Platforms Service Level Survey.
I N S P I R I N G A d v I c e
PROFESSIONAL PLANNEROctober 17-18, 2013, Sydney DAY 1 2
CapturedGodfrey Nti and Sankie Morata from Financial Planning Institute of Southern Africa
Derek Taylor and Wayne Benson from WealthStream
Ray Miles from Fortnum Finanical Advisors and Riley Abbott from AMP Horizons
Tony Bingham from Godfrey Pembroke; Yvonne Neilson from Asteron Life and Neil Kendall from Tupicoffs
Sam Armstrong, Barwon Investment Management principal; with financial planning clients Graham Hill, Marjorie Hill and Tom Donnelly
Emma Heffernan from Magellan Asset Management and Sam Henderson from Henderson Maxwell
Call Cbus on 1300 361 784 or visit www.cbussuper.com.au
Average return over 29 years Growth (Cbus Choice) investment option (after fees and tax) Past performance is not a reliable indicator of future performance. Cbus’ Trustee: United Super Pty Ltd ABN 46 006 261 623 AFSL 233792 Cbus ABN 75 493 363 262.
I N S P I R I N G A d v I c e
PROFESSIONAL PLANNEROctober 17-18, 2013, Sydney DAY 1 2
Captured
Liam Ferguson and Martin Silec from FB Wealth Managment
David Southwood from BUSSQ Super and Julie Dalling and Paul Latemore from QInvest
Benjamin Robert-Smith inspires the crowd with tales from Afghanistan
AccuVest financial planners Bob Baker, Sarah Pedwell, Clifford Baker
Danielle Kelly and Alison Henderson from SWA Financial Planning
Dodgshun Medlin’s Ian Dodgshun and Kerry McDonald with Wayne Barber from Maximum Wealth Strategies
FirstChoice rated Best Overall Platform in the 2013 Wealth Insights Platform Service Level Survey. FirstChoice is issued and operated by Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (Colonial First State), the trustee of the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557. CFS2102V3/STRIP/MM
FirstChoice
Find out more. Contact your Business Development Manager, call 13 18 36 or visit colonialfirststate.com.au/platforms
rated Best Overall Platform in the 2013 Wealth Insights Platforms Service Level Survey.
Cholena Orr
I N S P I R I N G A d v I c e
PROFESSIONAL PLANNEROctober 17-18, 2013, Sydney DAY 1 2
Over 70 per cent of financial services professionals are unsure if they want to stay in their
current job for the next 12 months with almost 92 per cent indicating they’re open to new opportunities, according to research by Profusion Group.
The survey, which included over 2,000 respondents, also found that the main contributors to job satisfaction are salary, team work and culture, and challenging work.
Profusion director Cholena Orr said people commonly joined organisations because of the money but left because of management.
“It’s hard to pull a good financial planner out of a business. It takes a trigger which is usually management related,” she said.
In her session, titled ‘Identifying, attracting and retaining top talent in
Fraser Gurling remembers the first few times he received financial advice less than fondly.
“He pretty much focused immediately, as I now know, on things which gave him an income stream. We finished up with funds and trees and vineyards and cattle that died,” he said, noting that strategies at the time were focused on minimising tax which ultimately lost money.
However, the product-pushing past of the industry is fast fading into the distance as the industry continues to raise professional standards and Gurling, a retired orthodontist, says he has now had a happy financial relationship with
Hood Sweeney Securities’ Matthew Rowe for 15 years.
“Acting in your clients best interest and running a successful business are not mutually exclusive – if you look after the client first, the business stuff will come,” Rowe said.
Gurling and Moore spoke as part of a panel extolling the virtues of financial planning from a client perspective.
The majority of the panel said it remained challenging to convince clients of the worth that financial planners provide and that forming a personal relationship was critical.
Retiree Paul Kelly said he was initially sceptical of paying for advice but was
convinced by financial planner Claire Mackay’s inclusive approach. “Listen, at every opportunity, to your clients,” she said.
The reputation of the industry is also improving after being battered for years over once-entrenched conflicted remuneration structures.
Andrew Lindsay lost his mother to cancer and the 24 year-old and his family turned to Hillross’ Sylvia Searle, who does pro-bono work, for advice to set up a trust fund.
“We didn’t know what to do… there were all these expenses that she knew were going to come and that’s why Sylvia basically volunteered herself.”
today’s market’, Orr urged principals and employers to write a list of the qualities and personal attributes they looked for in their ideal employee.
She said employers commonly placed too much importance on skills, qualifications and experience, and not enough value on personal characteristics such as loyalty, motivation, integrity, resilience and communication skills.
“The biggest risk in recruitment is hiring someone based on their skills and background alone. A better risk to take is to hire someone with fire in their belly, who wants to do a good job and is a strong cultural fit for the business,” Orr said.
“People can learn new skills but it’s hard to motivate people and even harder to get them to change their personal characteristics.”
In order to find the best possible fit for an organisation, Orr said employers needed to ask the right questions, learn how to probe to find the truth, implement repeatable processes, and use social networking sites such as LinkedIn to identify potential candidates.
Employers also need to understand what motivates people, not just in the recruitment process but throughout their career. That could include money, flexibility, recognition and opportunity.
Orr added that all candidates lie to make themselves sound better.
“The key to lying is to keep it simple and the key to uncovering the truth is to keep asking questions,” she said.
“Ask for details. Ask what, when, why, who and how, and then evaluate the answers.”
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Clients extoll planner virtues
“Listen, at every opportunity, to your clients
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I N S P I R I N G A d v I c e
PROFESSIONAL PLANNEROctober 17-18, 2013, Sydney DAY 1 2
The principal-agency issue is a fundamental one for investors, who regularly delegate investment
and financial advice to professionals who may not always act in their best interest. Investment guru Jack Gray has an answer: imagine your client was your mother.
“We’ll assume you love your mother… put her face on it and then ask ‘is this the way you would treat her?’
You ask that question and answer it honestly, then you’ve gone a long way towards answering the agency problem.”
Gray, a pension fund advisor and academic, told an audience during a Portfolio Construction forum that market forces would not solve the issue, which was entrenched in society. Agency costs include over-servicing (such as over-trading), ‘shirking’ by agents
not interested in performing well, and over-charging (often possible because investors cannot understand the product).
“If you dropped your price… it would be read as a signal of low quality,” he said. “If you’re underperforming, put your price up – it works.”
FPA members have always had an obligation to put client interests first but from July 1, 2013, new legislation was also introduced which required financial planners to offer advice in clients’ best interests. The industry has been attempting to build trust between principals (clients) and agents (planners) by raising standards and eradicating conflicted remuneration structures such as commissions.
Gray used himself as an example of agency-principal conflicts several times, noting that he had made investment decisions during his time as Sunsuper’s chief investment officer because they were interesting – such as over-relying on active managers.
However, he also contrasted that decision with the major Ontario Teachers’ Pension Plan (which he advises) and its move to internalise much of its funds management activities, which also presents conflicts of interest.
More recently, Gray said he had joined a hedge fund as a director on the proviso that it created an uncommon fee structure that was strongly aligned with investor interests, including a base fee that reduces as funds under management increase (including reaching a no-fee point and then a rebate to clients).
“How’s that for a real disincentive for us to just keep gathering assets? We know this is an economy of scale business – the more assets you get the [worse] your performance.”
The battle over best interests
Jack Gray
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FirstChoice
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Greg Harper
I N S P I R I N G A d v I c e
PROFESSIONAL PLANNEROctober 17-18, 2013, Sydney DAY 1 2
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Industry superannuation fund Cbus has launched a pilot program in conjunction with the Financial Planning Association
to provide members in selected geographical locations with referrals to financial advisers.
The initiative, which was spearheaded by Cbus chief executive David Atkin; Cbus general manager, advice services, Greg Harper; and FPA chief executive Mark Rantall, will see the $24 billion construction and building industry fund refer members who want face-to-face advice to a qualified FPA Professional Practice.
FPA practitioners who participate in the program must be a Certified Financial Planner, adhere to the FPA’s Professional Code of Conduct, charge a fee for service, and provide the initial consultation at no cost to the member.
Harper said demand for advice was particularly strong among Cbus members who were in, or nearing, retirement.
“Of our members who want advice, they want to know how to replace their pay packet in retirement, and that requires technical knowledge about superannuation and investments as well as the Centrelink benefits,” he said.
“A significant percentage of our members are in the pre-retirement category and they need ongoing advice, particularly about retirement incomes.”
Rantall said the program was a practical example of the benefit of increasing professionalism in financial planning.
Cbus provides intra-fund advice to its 700,000 members via a phone and internet service. Ongoing personal advice is provided in conjunction with Industry Fund Services. In-house advisers are located in Sydney, Melbourne
and Perth. Until now, it has been difficult for members in regional Queensland, South Australia, Tasmania and the Northern Territory to access face-to-face advice.
Harper said the new program would ensure greater service coverage for all members through the FPA. Furthermore, Cbus would not be responsible for the cost of providing those services.
“As a fund where all our profits go back to the members, if we can create greater efficiencies in our operations, ultimately the benefits will be passed onto our members and there will be more money in our members’ accounts.”
Since the fund’s inception in 1984, its default growth option - which is the fund’s MySuper investment option – has returned an average of 9.1 per cent annualised.
Over the five, seven and ten year periods to June 30, 2013, the fund has outperformed the median fund in the Superratings’ universe.
In the 2012/13 financial year, the default option, Growth, returned 16.15 per cent*.*Past performance is not a reliable indicator of future returns.
Stronger together: FPA and Cbus
“Ultimately the benefits will be passed onto our members and there will be more money in our members’ accounts
