aussiland
What’s up
Down Under?
Advisors in
Australia say it’s
all ‘super.’
T
By Diana Cawfield
here’s not a lot of “down” in the continent Down Under these days. Canada’s commonwealth partner, Australia,
has been riding a bull-market wave that
still shows no signs of stopping. Just
like Canada, Australia’s equity markets
are robust, and the countries share an
urban-clustered culture, resource-rich
landscapes, and parallel economic and
environmental challenges.
The financial services sector is the
third largest in the Australian economy
and the country is considered a hub
for money moving in the Asia-Pacific
region. The sunburnt continent now
accounts for the world’s fourth largest
funds management portfolio (with the
total pool of funds under management
over $1 trillion).
www.advisor.ca
AE09_019-025.indd 19
Canadian pension veteran Dr. Leo
de Bever recently took on the position
of chief investment officer of Victorian Funds Management Corporation (VFMC) in the heart of bustling
Melbourne. “In Australia, they call
themselves the lucky country,” says de
Bever, a former executive vice-president, Global Investment Management
at Manulife Financial, and senior vicepresident for risk management at Ontario Teachers Provident Plan Board.
“In the last 15 years, the stock market
returns have been so good that when I
came here, people said, ‘Leo, Australia’s
different, the stock markets do much
better than the rest of the world.’ ”
While all markets have their ups
and downs, he notes Australia did miss
the big market downturn of 2000 and
adds, “They’re like Canada without a
tech sector.” His mandate upon joining
VFMC was to create a more efficient,
internal, risk-management strategy for
the $39 billion in Victorian insurance
and pension monies.
A key driver of the Australian investments industry, says de Bever, is
so-called superannuation (or super)
funds. They’re similar to pension
funds in other countries and current
Australian law makes it mandatory for
employees to sock away 9% of their
annual incomes into superannuation
coverage as a salary benefit. Further,
money that goes into a super fund is
taxed at a rate 15% below the marginal
tax rate. Much like RRSPs in Canada,
employees are given the option of topping up their contributions.
With these upfront benefits, it’s no
wonder that 2006 Australian Bureau
of Statistics data shows super funds
made up more than 50% of market
share of Australia’s funds under manContinued on page 20
advisor’s edge
| september 2007
19
08/20/2007 09:56:49 AM
Continued from page 19
agement. They’re categorized as corporate funds, industry funds, retail funds,
public sector funds, and self-managed
funds, depending on the issuer.
In recent years, government-mandated tax sweeteners have combined
with an aging demographic and greater
awareness of retirement needs to boost
the assets of superannuation funds in
Australia. Similar to Canada, unused
retirement savings plan room in Australia is enormous, says de Bever, and
he believes that was the impetus behind the government’s introducing the
mandatory 9% contribution.
“Well, just think of it, he says. If
someone earns $100,000 a year, they
would normally pay 40% in taxes.
But put it into a superannuation fund
taxed at 15% and they’ll pick up
$25,000,” de Bever says “As a further
tax incentive, effective July 1, under
new government legislation, a lump
sum of superannuation funds can be
withdrawn tax-free at age 60.”
While superannuation funds have
been attracting investors like a magnet in the last few years, de Bever says
there are two flaws in the system. First,
20 advisor’s edge
Difference Down Under
A few facts and figures on Australia’s
financial planning industry:
• While the industry is still dominated by independent advisors, commercial banks have
acquired a wide range of investment firms and savings banks which now account
for some 29% of all planners. While many work from the banks themselves, others
operate via seemingly independent firms.
• Insurers account for an additional 23% of the investments industry.
• Australia’s $1 trillion (as of Dec. 2006) of funds under management is the fourth
largest in the world (after the U.S., France and Luxembourg). This funding base
means that most international fund managers now have offices in Australia, adding
to both the quality and competition in local services.
• The funds management business cuts across the commercial banks, investment banks,
insurance companies, trustee companies and independent fund managers.
• At one time, life insurance companies dominated this business, but the banks have
—Michael Skully
since gradually replaced them.
lump-sum withdrawals don’t provide any incentive to keep the money
building during retirement, he says.
Secondly, a much larger proportion of
pension assets in Australia are defined
contribution, so if you outlive your assets, that’s your problem.
Sandy Grant, chief executive officer
of Cbus (Construction & Building
Industry Super Fund), has seen fund
assets grow by over $2 million in each
of the last two calendar years. Cbus
manages $6.5 billion on behalf of
430,000 members who receive con-
| september 2007
www.advisor.ca
Access multiple high net worth prospects at one time.
Double your assets. Don’t double your costs.
You get the credit. We do the work.
Take another look at group retirement plans.
Contact our sales team today!
1.866.OAL-GRSP (625.4777) or [email protected]
www.TheGroupRetirementCompany.com
AE09_019-025.indd 20
08/20/2007 09:57:12 AM
tributions from almost 40,000 participating employers. As the name implies,
the fund tailors its products to workers
in the construction sector. Fund management at Cbus is outsourced, as well
as administration and insurance work.
Current asset allocation is 32% Aussie
equities, 28% international equities,
13% infrastructure (such as roads and
airports), 13% properties, 7% fixed
income instruments, 1% cash, and the
remainder in private equities.
While a thriving market and robust
returns have accelerated money into
super funds, the number of funds has
diminished. New licensing regulations
have reduced the more than 1,300 superannuation funds to fewer than 400.
Most of the whittled-down funds were
corporate funds, not industry-tailored
offerings such as Cbus. At present,
there are about 80 industry-specific
super funds.
Many in the industry question
whether the tax advantages of super
funds will survive. “There are a lot
of people looking at it and saying,
‘Hang on; the impact from a tax take
is going to be very substantial,’ ” notes
Grant, explaining recent speculation
surrounding the funds’ eventual extinction. He also suggests the catalyst
for the establishment of the financial
planning industry in Australia was the
ability of people to get their superannuation at retirement and still qualify for the old age pension.
“Tax drives the investment decision
in Australia,” says Michael Skully, a
professor in the Department of Accounting and Finance at Monash University in Melbourne. Skully believes financial planners play a more significant
role Down Under than in some other
countries, citing a large percentage of
new university graduates moving into
Continued on page 22
Confidence inspired investing
You can have confidence knowing your clients’ assets are well invested and
protected. We’ve designed RBC Insurance Guaranteed Investment Funds (GIFs)
to be a powerful investment solution to help you meet the needs of your clients
and grow your business. RBC Insurance GIFs offer you: simplicity, strength and
trust. It all adds up to a compelling investment solution for you and
your clients.
RBC Asset Management has been recognized as the manager of
the Best Overall Fund Group in Canada by Lipper, with the best
risk-adjusted performance over 3 years*.
®
Performance of some of the underlying funds as of June 30, 2007:
AE09_019-025.indd 21
| september 2007
1 Year
3 Year
5 Year
10 Year
Since
Inception
RBC Balanced Fund
12.8%
11.5%
9.4%
6.5%
8.3%
RBC Canadian Dividend Fund
18.8%
17.5%
14.9%
12.9%
14.5%
RBC O’Shaughnessy
U.S. Value Fund
18.0%
11.5%
9.8%
–
8.4%
Visit us online at www.rbcinsurance.com/gif or speak with your RBC Insurance
sales representative at 1 866 850-6090.
®
* As of December 31, 2006. Lipper Inc. (a Reuters company).
The net return of the segregated fund which invests in an underlying fund will vary from the performance of
the underlying fund since the segregated fund has higher costs, mainly related to the guaranteed benefits,
and each fund’s performance is based on timing differences of deposits and redemptions. Past performance
is not indicative of future returns.
Any amount that is allocated to a segregated fund is invested at the risk of the
contractholder and may increase or decrease in value. RBC Insurance Guaranteed Investment
Funds are segregated funds and are referred to as individual variable annuity contracts. RBC Life Insurance
Company is the sole issuer and guarantor of the guarantee provisions contained in these contracts. The
underlying mutual funds available in these contracts are managed by RBC Asset Management Inc. and the
portfolios are managed by RBC Life Insurance Company. When clients deposit money in an RBC Insurance
Guaranteed Investment Funds contract, they are not buying units of the RBC Asset Management Inc. mutual
fund or the underlying investments in the portfolio and therefore do not possess any of the rights and privileges
of the unitholders of such funds.
®
advisor’s edge
Fund Name
Registered trademarks of Royal Bank of Canada. Used under license.
VPS41616
21
41616 AD_GIF_AdvrEdge_E.indd 1
08/20/2007 09:57:28 AM
8/7/07 9:15:44 AM
30,000 advisors operating in Austrathe financial services area. According to
lia, about half of whom are members
Kevin Bailey, CFP and chairman of feeof the Financial Planning Association
only firm The Money Managers Ltd.,
(FPA) there.
based in Melbourne, Australian univer“There’s a huge demand for advice,”
sity graduates of financial planning can
says Bailey. Advice, he notes, is particexpect to earn six-figure salaries within
ularly sought-after by older investors
two
to
four
years
of
convocation.
with retirement savings that are close
3014 AdvisorsEd_ Sep 4.625x7.5 8/7/07 10:51 AM Page 1
He adds there are approximately
to the values of their homes.
Continued from page 21
They need more income
You can
unlock the
value of their
biggest asset
One call to CHIP
is all it takes
We help homeowners
60 and older unlock
up to 40% of the
equity in their homes
without moving.
We can provide
up to $500,000 in
tax-free cash that you
can invest to enhance
their income.
An experienced
CHIP representative
will answer all your
clients’ questions
and complete all
the paperwork. You
receive a referral fee
and the opportunity
to invest the proceeds.
Find out how you
can offer the CHIP
Home Income Plan.
Call 1- 866- 536-2447.
www.chipadvisor.ca
TM
Trade-mark of the Canadian Home Income Plan Corporation.
Fee Fracas
As a result of a government-mandated
9% superannuation retirement contribution, the banks and big accounting
firms have moved into financial planning. Bailey’s firm provides fee-only
advice that varies depending on the
scope of the service. Much like the
Canadian scene, there’s been ongoing
debate in Australia about whether feebased or commission-compensated
advisors best serve their clients.
Bailey says the majority of advisors
earn more than 60% of their incomes
from commissions or trailer fees and
considers having $10 million to $20
million in assets under management as
a fair indication of success.
That, however, doesn’t preclude
industry funds from having an ongoing war with financial planners, notes
Grant. He attributes this to the fact
fund companies don’t pay commissions. As a result, he says advisors
make a point of downplaying super
funds among clients. To illustrate,
Grant cites a recent regulatory investigation that found 35,000 cases in
which inappropriate advice had been
given at a large investment firm.
Despite the required superannuation contribution, conventional wisdom says clients need about 15% of
their annual incomes to retire comfortably. The old age pension in Australia,
which amounts to about $13,000 annually for individuals and $20,000 for
a couple, can make up the difference.
Donna Dunn, a nursing coordinator
at Victoria University in Melbourne,
bought her first home in 1982 and
when she sold it 12 years later, the
house had more than doubled in price.
The huge gain inspired her to begin
investing in residential housing.
About 70% of Australians own
their homes, says Grant, and there’s no
22 advisor’s edge
| september 2007
Publication: Advisor’s Edge Size: 4.625" x 7.5" Bleed: 0.25" all 4 sides Material Due Date: Aug 7/07 Insertion Date: Sept/07
AE09_019-025.indd 22
08/20/2007 09:58:05 AM
capital gains tax on the sale of a principal residence. As a result, buying the
house next door and renting it to cover
the mortgage has become a favourite
way to create supplementary income
and additional savings.
So when Dunn recently sought the
advice of a financial planner, his counsel came as a complete surprise. After
carefully taking into account her age,
finances, risk tolerance and goals, the
advisor stated quite clearly that superannuation, not a rental home, was her
best option.
The reason for his caution? The
risk factor of an overheated real estate
market. Last year, the Reserve Bank of
Australia increased interest rates three
times, cooling inflation, and another
increase is expected in the next year.
Since high mortgage rates tend to sap
housing booms, advisors are starting
to urge caution.
Dunn paid a $2,000 one-time fee
for drawing up a financial plan and
pays an annual 0.55% fee for ongoing
portfolio management. “It’s a relatively
high-cost model,” says de Bever, “and
if you want to set up the equivalent of
an RRSP—they call it an individually
managed account—it costs a couple
of thousand dollars a year, because it
is set up as a trust in Australia.”
Jeff Rogers, chief investment officer, IPAC Securities Ltd. in Sydney,
considers the fee structures very transparent for the firm’s $15 billion in assets under management. The typical
Australian superannuation fund in one
of his client’s portfolios has a strong
equity bias toward Aussie stocks.
Home-country tilt is common.
“The thing that’s untested in all
this,” says Rogers, “is if we were to
run into an environment, say a U.S. or
Canadian pension fund in 2001,
2002, where the equity market is going
backwards, it would be a surprise to a
lot of people.” For a super fund, there’s
only been one year in the last 15 with a
negative return, he adds.
Peter Dunn, managing director,
Moneyplan Australia (MP) Proprietary Ltd., offers clients the option
of a fee-based or commission-based
service. “We’re probably a bit be-
hind the times,” he says, “because we
only charge $550 for most financial
plans,” and then a percentage of the
assets invested.
One question that keeps popping
up, says Dunn, is if they move to
purely a fee-based service, how will
younger people or those who don’t
Continued on page 25
Don’t gamble with
your client’s future!
As a Certified Divorce Financial Analyst™, you’ll be able
to help your divorcing clients arrive at a settlement that
fully addresses their long-term financial needs.
Why you should become a CDFA™
Live Training
The next live training
courses will be held in:
� Calgary, Sept. 24–26
� Toronto, Oct. 22–24
CDFA™ training will
be available across
Canada in 2008.
Visit our website or call
for more information.
• Create a new source of revenue and business referrals
• Increase your expertise in the financial aspects of divorce,
from spousal and child support to property division to tax
and insurance issues
• Get referrals from lawyers and mediators
• Be part of our “Client Referral Program”
• Receive CE Credits; check out our website for details
• The course offers up-to-date Canadian content and
instructors with extensive professional experience
Register for the course today!
Mention this ad to receive 20% off*
For more information, or to take advantage
of this time-limited offer, please contact:
� (800) 875-1760
www.InstituteDFA.com
* Offer valid until Oct. 15, 2007. Not valid with any other promotions or discounts.
advisor’s edge
AE09_019-025.indd 23
| september 2007
23
08/20/2007 09:58:10 AM
Continued from page 23
have adequate wealth afford a financial planner? He notes that a typical
financial plan takes between eight and
12 hours to prepare, so if the advisor
fund choices
Australian funds under
management, by market
share, 2006
Super funds
54.4%
Public unit trusts
21.6%
Life insurance offices
19.1%
Others
4.9%
Source: Professor Michael Skully:
“Lecture Seven: AFF9260”
Australia Capital Markets,
April 16, 2007
charges $300 an hour, that’s a minimum
$2,400 fee. “It’s all very well for the
consumer advocates to say you should
charge a flat fee, but there are some
pretty significant issues,” says Dunn.
Bailey points out one key difference
between Aussieland and Canuck territory is that Australia has a national
regulatory body for the securities industry. He adds Canada’s “provincebased regulations are a little bit more
difficult for planners to get around,”
making it harder for advisors to run
fee-only practices.
Despite Australia’s federal regulatory
system, “there’s still lots of chances for
individuals to get their fingers burnt
very badly,” says Kevin Davis, a professor and director at the Melbourne Centre for Financial Studies. “People don’t
understand that high returns probably
involve pretty high risk.”
Diana Cawfield is a Toronto-based
freelance writer.
advisor’s edge
www.advisor.ca
Donna Kerry, Publisher of
Advisor’s Edge, Advisor’s
Edge Report is pleased to
announce the appointment of Andre Meurer
to National Account
Manager of the Advisor
Group on contract for a
maternity leave. Andre
brings to his role a strong
background of experience
having worked for seven
years in media sales and
advertising. Most recently, Andre held a senior role in a
boutique agency and prior to that led the interactive sales
team of CanWest Global launching many new initiatives
with key clients in all categories including financial
services. Andre is enthusiastic, hardworking and a
welcome addition to the Advisor Group team.
Advisor's Edge, Advisor's Edge Report, Advisor.ca, are a part of Rogers Publishing, a division of Rogers Media
Inc., a division of Rogers Communications Inc. (TSX: RCI; NYSE: RG) Rogers Communications Inc. is a
diversified Canadian communications and media company. It is engaged in cable television, high-speed Internet
access and video retailing through Canada's largest cable television provider, Rogers Cable Inc.; in wireless voice
and data communications services through Canada's leading national GSM/GPRS cellular provider,
Rogers Wireless Communications Inc.; and in radio, television broadcasting, televised shopping and publishing
businesses through Rogers Media Inc.
AE09_019-025.indd
25
7AE22730
1
Skully, who moved from the United
States to Australia more than 15 years
ago, says the national licensing requirement, brought in around 2002, has had
a big impact on the financial services
industry. Basically, anyone who provides
financial advice in Australia must first
have a licence, and second have a certain level of training in order to be accredited. The licensing requirement, he
says, has forced out a number of players who were unwilling to go through
the accreditation process.
In the end, that’s good for investors. Says Bailey: “We’ve spent a lot
of time in this country educating a lot
of our legislators, building very strong
relationships, so we get sensible legislation and sensible licensing.”
07/16/2007 02:54:30 PM
| september 2007
25
Appointment Notice
Andrew Milne
Vice-President, National Accounts
Standard Life Investments Inc.
Standard Life Investments Inc. is pleased to announce
the appointment of Mr. Andrew Milne to the position of
Vice-President, National Accounts. Andrew is responsible for
the national distribution and client service strategy of the WRAP
programs in which Standard Life Investments Inc. participates.
Andrew has several years of experience in sales and service
positions at financial institutions, including the construction and
oversight of the separately managed wrap programs at a leading
North American brokerage firm.
Standard Life Investments Inc. has been providing investment
management services in Canada since 1973 and manages
approximately $27 billion of assets. (www.sli.ca)
Standard Life Investments Inc. is a subsidiary of Edinburgh-based
Standard Life Investments Limited, a leading asset management
company with approximately CDN$310 billion of assets under
management. (www.standardlifeinvestments.com)
08/20/2007 09:58:39 AM