Archive | Off The Cuffe

Superannuation switching intentions

According to Roy Morgan Research, almost 7% of investors in retail super funds are ‘very likely’ to switch to another fund in the next year, compared with almost 5% for industry funds.

The level for individual funds is shown below, with most concern for AMP, ANZ and NAB.

Roy Morgan switching super

APRA releases final BASEL III liquidity reforms

A big moment for anyone involved in managing the liquidity of Australian banks.

The Australian Prudential Regulation Authority (APRA) today released its final position on implementation of the main elements of the Basel III liquidity reforms for authorised deposit-taking institutions (ADIs) in Australia, linked here.

This position is provided in a response to submissions paper, which sets out the main issues raised in submissions on APRA’s discussion paper released in May 2013. Accompanying the response paper is Prudential Standard APS 210 Liquidity andPrudential Practice Guide APG 210 Liquidity, which come into force on 1 January 2014.

The Basel III liquidity reforms involve two new quantitative measures ― a 30-day Liquidity Coverage Ratio (LCR) to address an acute stress scenario and a Net Stable Funding Ratio (NSFR) to encourage longer-term funding resilience. These requirements will apply to the larger, more complex ADIs.

The LCR will become effective from 1 January 2015. The Basel Committee on Banking Supervision (Basel Committee) has yet to finalise the rules text for the NSFR; once it has done so, APRA will consult on the implementation of this measure in Australia. The NSFR will become effective from 1 January 2018.


Financial System Inquiry

The Treasurer, Joe Hockey, has announced the final Terms of Reference and the composition of the members of the Inquiry Panel, here.

He said:

“The next step for the Inquiry will be to receive submissions in line with the terms of reference. Submissions will open in early January and close at the end of March.

In framing submissions, stakeholders are asked to consider the impact of changes to Australia’s financial system since the 1997 Wallis Report, identify factors most likely to influence the future development of the system, the principles which should underpin the system, and discuss options for responding to them.

I have asked the Inquiry to release an interim report by mid-2014. There will be a second round of submissions before the Inquiry makes its final report to the Government, expected to be delivered to the Government by November 2014.”

So we can look forward to a hectic 2014 with speculation on the Inquiry’s findings. Cuffelinks will follow this closely.





Cognitive functioning and financial literacy study

The University of NSW is conducting a cognitive functioning and financial literacy study aimed at SMSF trustees.

The first part is online here [Survey is now closed]. Research staff can be contacted on 93850038. Parking and lunch is provided.

For an update on this study go to:

ATO SMSF statistical report for September 2013

The ATO has released its latest statistical report on SMSFs.

Lots of interesting details, including assets exceeding $500 billion for the first time.—September-2013/?default=&page=1#!

Government announces superannuation review.

 Extract from Federal Treasury announcement on superannuation review, contained here.

The Assistant Treasurer, Senator the Hon Arthur Sinodinos AO, has released for public consultation a discussion paper canvassing the issues of governance, transparency and default superannuation funds in modern awards.

This paper ‘Better regulation and governance, enhanced transparency and improved competition in superannuation’ builds on the Government’s election commitment to restore stability and certainty to Australia’s superannuation system and is a core component of the Government’s policy program to build a stronger and more prosperous economy.

The purpose of the paper is to seek feedback on governance and transparency issues contained in the Government’s superannuation election commitments. The paper also provides an opportunity for consultation on opening up competition and increasing transparency in relation to default employee superannuation fund contributions.  This feedback is sought ahead of the development of possible legislation and regulation.

The key issues raised in the paper are:

  • How best to ensure an appropriate provision for independent directors on superannuation trustee boards. Issues canvassed include how ‘independence’ could be defined and what could constitute optimal board composition.
  • How best to complete the outstanding aspects of the current regulatory regime, including:
    • to what extent the choice product dashboard should reflect the MySuper product dashboard; and
    • which model of portfolio holdings disclosure would best achieve an appropriate balance between improved transparency and compliance costs.
  • The best way to improve transparency and competition in the employee default superannuation funds market.

Superannuation Complaints Tribunal Quarterly Report

Superannuation Complaints Tribunal Quarterly Report

As part of the Government’s Stronger Super reforms, amendments were made to Trustees inquiries and complaints obligations. They require a trustee to give written reasons for its decision in relation to a
complaint that relates to the payment of benefits, and a quarterly report of the Tribunal’s activities is produced, here.



The collected insults of Paul Keating


At the time of the excellent series of interviews with Kerry O’Brien on ABC TV, the ABC collected these videos of Paul Keating’s extraordinary abilities as a parliamentary performer.

Australians come fifth in 2014 World Cup ticket allocations

Aussies love their sport, and the Football World Cup has always been popular.

Last week, FIFA allocated tickets in the first round ballot for the Football World Cup, and Australians came fifth in countries around the world for allocations. However, although 15,000 tickets were allocated to Australians, there were 88,000 requested.


A total of 889,305 tickets were allocated to people from 188 countries during the random selection draw for the first phase of ticket sales for the 2014 FIFA World Cup™. 71.5% of tickets were sold to Brazilian residents, while 28.5% went to fans from other countries.

Outside the host country Brazil (625,276 tickets), the highest number of tickets drawn was for residents of the United States (66,646), followed by England (22,257), Germany (18,019), Australia (15,401), Canada (13,507), France (11,628), Colombia (11,326), Switzerland (8,082), Japan (5,021) and Argentina (4,493).

The most popular venue-specific series ticket packages were for Rio de Janeiro (94,500), Brasilia (48,540) and São Paulo (46,916).

Treasurer’s announcement on taxing super pensions

Treasurer Joe Hockey’s Media Release on ‘Restoring integrity in the Australian tax system’, including the decision not to tax superannuation pension earnings above $100,000, is here.

Tax on Superannuation Pensions – tax on earnings on super assets supporting retirement income streams (Announced in April 2013 and documented in the 2013-14 Budget)

The Coalition Government will not proceed with Labor’s announcement which would have taxed people’s superannuation pension earnings above $100,000 in the draw-down phase.

The complexity and compliance costs associated with this initiative are extreme and essentially undeliverable.

This is a demonstration of the Government’s commitment to provide certainty for superannuation fund members by making no adverse unexpected changes to superannuation during our first term.

Macquarie analysts on AMP Limited

Macquarie analysts on AMP Limited

According to analysis by Macquarie, AMP continues to struggle with its life insurance business, with losses greater than management expectations, due to worrying structural issues:

* step premium pricing

* upfront commission structures

* high automatic acceptance limits

* limited underwriting

* competition in terms and conditions

* higher frequency of mental health claims.

According to Macquarie, other parts of AMP are going well, and they are well-positioned for expansion into the SMSF market.

Submissions to the Senate Committee on the performance of ASIC

Many of the submissions to the Senate Committee on the performance of the Australian Securities and Investment Commission make interesting reading, and almost 200 of them are publicly available here:

ASIC warns retail investors of dangers in FX trading

There is much promoting to retail investors of the benefits of learning to trade foreign exchange. ASIC has warned of the dangers.

The FX market is a network made up of banks, central banks, commercial companies, fund managers, non-bank foreign exchange brokers and retail investors. This means that there are no exchanges for FX trading as there are with listed products such as equities.

The average daily market activity in April 2013 increased to $5.3 trillion up from $4 trillion in 2010. The UK boasts the highest global turnover at 41% with the US accounting for 19%. Japan, Singapore and Hong Kong SAR each have turnover of around 5% while activity in Australia is just under 3%.

Here is an extract from ASIC’s website.


ASIC warns of dangers of foreign exchange trading for retail investors

ASIC today urged consumers to ensure they understand the risks of foreign exchange trading before putting their money on the line.

The warning about this complex investment comes after liquidators were appointed to GTL TradeUp Pty Ltd (GTL), a Sydney-based company involved in foreign exchange (FX or forex) trading. ASIC is investigating GTL and the circumstances around its collapse.

FX trading, which is becoming more accessible via electronic trading platforms, is when you buy and sell foreign currencies to try to make a profit. It involves speculating on the value of one currency compared to another.

It is normally conducted through ‘margin trading’, where a small collateral (property or asset) deposit worth a percentage of a total trade’s value, is required to trade.

FX trading raises the stakes further by letting investors trade with borrowed money (leverage), but they are responsible for all losses, which may exceed their initial investment

‘Forex trading is complex and risky. Even the most skilled and experienced forex traders have difficulty predicting movements in currencies. Trading in international currencies requires a huge amount of knowledge, research and monitoring,’ ASIC Commissioner Greg Tanzer said.

‘Like any investment, it is vitally important investors fully understand what they are getting into, and FX trading is no different. Unless you fully understand what investment you are making and the risks involved with that investment, don’t do it.’

Further, ASIC has seen an increasing number of people setting up businesses that promote this type of investment strategy.

ASIC banned Robert Lloyd Wilson from providing financial services and have warned the public against dealing with him for his promotion of a program that showed ‘when to get in and when to get out’ of trades. These trades included, among other things, FX trades (refer: 13-282MR).

‘We will not hesitate to take action when we see people or businesses and their dodgy practices preying on innocent investors who may know little about these risky investments,’ Mr Tanzer said.

To successfully trade in FX, you will need to have good knowledge of foreign exchange, leverage, volatility, the conditions of each country whose currency you are trading, and counterparty risk – knowing where your funds will be kept and the risk that an issuer will default on its obligations to clients, including failing to return client money.

It is very risky because:

  • There are significant investment risks as currency fluctuations may move against you, causing you to lose money. Exchange rates are very volatile – they tend to move around a lot even within very short periods of time.
  • Markets are open 24 hours a day 6 days a week (due to time zones), so you need to devote a lot of time to tracking your investment.
  • Currency markets are extremely difficult to predict because so many factors affect exchange rates.
  • Even small market movements can have a big impact, because most forex trading products are highly leveraged.
  • Risk management systems, such as stop loss–orders, will only give you limited protection by capping your losses. You may have to pay a premium price to guarantee your stop loss order.



Noel Whittaker on property

Well-known financial adviser, author and commentator Noel Whittaker issues a monthly newsletter on

In the October 2013 edition, he made many interesting comments on property versus shares, including his own experiences with investment property, and these kind words:

“Anybody who’s got a property knows that you never have your hand out of your pocket. If it’s not the rates bill or the water bill or the insurance bill, it will be a bill for repairs. With shares, there are never any outgoings to pay, nor are there any vacancies.

If you’re interested in learning more about this, I urge you to sign up for Cuffelinks, which is a free newsletter that comes out most weeks. You can sign up, and also read past issues, at

There is a brilliant article in Cuffelinks on October 3 2013 by Graham Hand, which is too long to reproduce here, but should be essential reading for anybody interested in buying real estate. In the article, Hand points out that the main driver of the current property boom is FOMO (Fear of Missing Out) – investors who are rushing into property are certainly not buying it on its inherent fundamentals.”

Towers Watson on thematic investing


At the 10th Annual Towers Watson Australian Ideas Exchange, Tim Hodgson, head of Towers Watson’s Thinking Ahead Group, identified six mega trends that will have favourable and adverse effects for the global economy in the long term:

* economic imbalance (rebalancing and leverage, demand for safety)

* adverse demography (such as, ageing populations in the Western world and population growth in emerging markets)

* degradation of natural capital (climate, scarcity)

* innovation and technology (new technology, globalisation)

* business shake-up (labour, capital)

* the increasing role of government.

These trends should be considered in all investment decisions.

RBA warning on SMSFs gearing into property

The Reserve Bank’s Financial Stability Review for September 2013 has received much attention for its comments on SMSFs. Here’s the link to the Review, where the exact wording is:

“In this issue of the Review, a particular focus has been placed on the self-managed superannuation fund (SMSF) sector. Although this sector does not currently pose material risks to financial stability, it is important for the financial position of the household sector and has a number of aspects that warrant careful observation in the period ahead. Changes to legislation in recent years have permitted superannuation funds, including SMSFs, to borrow for investment, for example to purchase property. Since then, property holdings by SMSFs have increased and this type of investment strategy is being heavily promoted. The sector therefore represents a vehicle for potentially speculative demand for property that did not exist in the past.”

Plus there’s also an unreported warning about SMSFs buying hybrids.

“SMSFs and other retail investors have also been the dominant class of purchasers of hybrid securities recently. These investors seem to have been attracted by the higher yields offered on hybrids compared with conventional debt securities; it is important that they fully appreciate and price in the risks embedded in these more complex products.”

Individual taxpayer reports coming


Treasurer Joe Hockey announces each taxpayer will receive a report on where their taxes are being spent.

“The starting point is to thank taxpayers for the tax they have paid each year and to tell them where the money would be spent. I think that is hugely important so that people understand, for example , that if they have paid $20,000 tax in a year that $6,936 would go on welfare, $3,246 would have gone on health and then $1,493 on education and so on.”

Deloittes on Dynamics of the Australian Superannuation System: The next 20 years

Interesting study by Deloittes on Australian superannuation until 2033.

Here’s the research paper.

With these projections:

Our projections show the pool of assets growing to $7.6 trillion by 2033, or in real terms from less than 100% to approximately 180% of GDP over the next 20 years. The government has stated its intention to defer the
increase in the Superannuation Guarantee by two years. This will reduce assets by only 1% over the next 20 years.

The number of Australians over the age of 65 will increase by 75% over the next 20 years (from 3.3 million in 2012 to 5.8 million in 2032), and at a much faster rate than the working population. The implication for government is clear. There will be proportionately fewer working Australians available to fund those in retirement.

What drives Chinese investment in Australia?

Extract from Lowy Institute lecture.

On 18 September 2013, the Lowy Institute for International Policy hosted Mr Andrew Michelmore for the Lowy Institute 10th Anniversary China Changing Lecture in Beijing.

Mr Michelmore, based on his extensive professional experience, shared his views on the Australia-China investment relationship and the role played by Chinese state-owned enterprises (SOE) in Australian resource and energy investments.

While Chinese direct investment into Australia increased 21% in 2012 to US$11 billion, China still represents less than 3% of total Australian stock of investment.
In 2013, the Australian community remains cautious about welcoming further Chinese investment – particularly in agricultural land.
Most recently, Australia has sent mixed messages and ‘tarnished’ its reputation for policy stability because of mismanagement and miscommunication around the introduction of the Minerals Resource Rent Tax and the Carbon Pricing Mechanism.
Both nations must take an active and partnership role in ensuring that the case for Chinese-Australian investment is made. We must create the policy environment to facilitate growth and must lower the barriers to investment.




Hedge funds no systemic risk to financial system

Extract from ASIC website.

Hedge funds no systemic risk to financial system

Australian hedge funds do not currently pose a systemic risk to the Australian financial system, an ASIC report released today has found.

Key points:

  • Hedge funds ASIC identified manage only a small share of Australia’s $2.1 trillion managed funds industry with more than half of these holding less than $50 million each
  • The survey indicates Australian hedge funds do not currently appear to pose a systemic risk to the Australian financial system
  • Listed equities represent surveyed hedge fund managers’ greatest asset exposure, with 32% of this being in Australian-listed shares

Surveyed qualifying hedge funds also use low leverage and appear to have adequate liquidity to meet obligations

The survey was representative of the state of the Australian hedge fund industry as a whole, with the assets of the 12 surveyed qualifying hedge funds representing approximately 42% of the assets held by single-strategy hedge funds in Australia.

Australian wholesale investors are the main investors in the surveyed funds. Their hedge-fund investment relative to their total investments is minimal, which tends to reduce systemic impact of any problems in the sector.

By asset class, listed equities (over US$19 billion) are the surveyed fund managers’ greatest gross exposures, with almost one-third of this being Australian equities. Equity derivatives and G10 sovereign bonds are the next two most significant asset classes, with exposures of US$8.2 billion and US$6.9 billion respectively.

Hedge fund redemptions exceeded applications in 2012, compared with the substantial inflows in 2010. However, the 2012 redemptions are unlikely to result in liquidity pressures because the average redemption size is relatively small as a percentage of funds’ net asset value.

The average time in which surveyed funds can liquidate 92% of their portfolio is less than 30 days. However, creditors can demand 99% of fund liabilities in less than 30 days. If the Australian market were subject to significant stress, the sector may struggle to meet redemption requests. However, this risk is offset by all the surveyed funds being able to suspend redemptions, if required.

Surveyed funds use relatively low levels of leverage, with synthetic leverage being the largest source in 2012. Average leverage, by gross market value as a multiple of net asset value, increased from 1.25 times assets in 2010 to 1.51 times assets in 2012.

Hedge funds’ investments have in the past adversely affected the financial system by disrupting liquidity and pricing in markets (market channel risk) or by causing creditors to lose money (credit channel risk). The potential for systemic risk depends on the size, significance and interconnectedness of hedge funds.

In 2010 and 2012, the International Organization of Securities Commissions (IOSCO) called on members to survey their jurisdictions’ largest hedge fund managers to better understand the systemic risk these funds posed. In late 2012, ASIC surveyed hedge fund managers operating in Australia with more than US$500 million under management.

Bloomberg Magazine’s third annual 50 Most Influential list

They shape economies, move markets, do deals and change the world. They manage money, control companies, set policies and develop ideas. The people on Bloomberg Magazine’s third annual 50 Most Influential list command attention as masters of the global financial system.

Here is a link to the list of the 50 Most Influential.



Incredible history of football transfers



Football transfers

Size of Australian managed funds

From the Australian Bureau of Statistics:

At 30 June 2013, the managed funds industry had $2,130 billion funds under management, an increase of $33 billion (2%) on the March quarter 2013.

The asset types that increased were overseas assets, $20.9b (7%); deposits, $7.6b (3%); other financial assets, $4.2b (14%); units in trusts, $3.6b (2%); land, buildings and equipment, $3.3b (2%); short term securities, $1.3b (1%); and derivatives, $0.3b (20%).

These were partially offset by decreases in shares, $8.7b (2%); other non-financial assets, $0.6b (3%); and loans and placements, $0.6b (2%). Bonds, etc. were flat.

The following chart shows the levels of the asset types of managed funds institutions at 30 June 2013.

Managed Funds Institutions Assets
Graph: Managed funds institutions assets

The following diagram shows the value of the Total Managed Funds Industry at 30 June 2013 and the relationships between the components of this industry:

ABS managed funds

ABC’s Vote Compass is a useful aid

The ABC’s Vote Compass is a useful tool to see how your views on various social and economic issues align with the political parties. And in case we worry that voters are disengaged, almost one million people have filled it in. See

Australia’s debt – the official numbers

Lots of numbers are thrown around on Australia’s debt and the volume of Commonwealth Government Securities on issue. For the correct numbers, go to the Australian Office of Financial Management website,

The correct amount (gross not net) is $270 billion, rolled over at the rate of about $800 million a week. Since half is owned by foreigners, Australia relies on the good graces of foreign investors to buy our bonds.

Total Commonwealth Government Securities on Issue – $269,978 million

consisting of:

  • Treasury Bonds – $244,740m
  • Treasury Indexed Bonds – $18,719m
  • Treasury Notes – $6,500m
  • Other Securities – $20m

Securities on issue subject to the limit under the Commonwealth Inscribed Stock Act 1911 total $265,391 million.

As at 23 August 2013 (updated each week).

ASIC review highlights conflict of interest

An Australian Securities and Investments Commission (ASIC) review of the 21st to 50th biggest Australian Financial Services (AFS) licensees has found a majority of their income comes from product issuers, which may give rise to conflicts of interest.

ASIC Report 362 Review of financial advice industry practice: Phase 2 found that the management of conflicts of interest remains a “critical risk that requires ongoing attention from licensees”.

Product concentration also represents a “significant risk” for licensees, according to the report.

“Any product failure will have a much greater impact on licensees whose product recommendations are concentrated into a small number of products, not only in relation to client losses but also in relation to the licensees’ income if a large proportion of their income is from commissions,” said the report.

Report 362 is a follow-up of the September 2011 Report 251, which was based on the top 20 financial advice firms.

ASIC plans to visit other newly licensed financial advice businesses to discuss implementation of the Future of Financial Advice reforms.


SMSF supervisory levy rising quickly

The supervisory levy from the ATO is currently supposed to be $191, but the actual payment required for 2012/2013 will be $321. This is made up of $191 for 2012/2013 plus an advance payment of 50% of the $259 levy for 2013/2014, totalling $321. It’s even worse the next year, with the remaining half of the 2013/2014 levy of $129, plus the 2014/2015 levy of $259 paid in advance. That’s a tidy $388. New funds will pay $259 in 2013/2014 plus a $259 payment in advance for the following year, a total of $518.



ASIC submission on Commonwealth Financial Planning

ASIC has released its initial submission to the Senate enquiry on its performance relating to the monitoring of Commonwealth Financial Planning (CFP) since 2008.

CFP has paid to date just over $50 million in compensation to affected clients.

Amazing fall in crime rates

The cover story from The Economist of 18 July 2013 reports some amazing statistics on the fall in crime rates:

“Every now and again a startling global trend emerges. Thus it is with crime, which has plunged in the rich world over the past two decades. Last year there were just 69 armed robberies of banks, building societies and post offices in England and Wales, compared with 500 a year in the 1990s. In 1990 some 147,000 cars were stolen in New York: last year fewer than 10,000 were …  we argue that the main reason is simply fear of being caught (especially thanks to new technology) rather than harsh sentences, which look increasingly counterproductive.”

The Economist, 18 July 2013

Smart beta strategies set to surge

The Financial Times of 15 July 2013 reports ‘smart beta’ strategies could reach one-third of all equity allocations by 2017.

Smart beta strategies aim to provide better performance (lower risk or higher returns) than cap-weighted indexes by weighting market according to other factors, such as economic fundamentals. They are niche plays at the moment, but Morningstar and Lombard Odier both predict a rise towards one-third, which would be a massive equity allocation change.

The Economist updates its Big Mac index

The Economist magazine has updated its Big Mac index, as described here.

The index is a lighthearted guide to currency values. It calculates the cost of a Big Mac in USD terms in dozens of countries around the world. It is based on the purchasing-power parity model which says that in the long run, exchange rates should adjust such that the price of an identical product is the same across boundaries.

Here is their latest chart,  showing local currency under (-) or over (+) valuation against the USD. The Norwegian krone is 65% overvalued, while the AUD is valued correctly.


Brazilian Real falls more than Aussie dollar

The strength of the USD has left many currencies in its wake. Since 1 May, the AUD is down over 10%, but the Brazilian Real is down almost 12%. Other currencies to fall heavily are Indian, South African and Turkish, so holidays in those countries will not feel quite as painful as visiting New York City.


Fear of change can prevent action when it’s most needed


A new book by Stephen Grosz called The Examined Life looks at why we don’t act when it matters most, such as in an emergency.

Here’s a review from The New York Times, and here’s a fascinating extract from the book.

“When the first plane hit the north tower of the World Trade Center, Marissa Panigrosso was on the ninety-eighth floor of the south tower, talking to two of her co-workers. She felt the explosion as much as heard it. A blast of hot air hit her face, as if an oven door had just been opened. A wave of anxiety swept through the office. Marissa Panigrosso didn’t pause to turn off her computer, or even to pick up her purse. She walked to the nearest emergency exit and left the building.

The two women she was talking to – including the colleague who shared her cubicle – did not leave. “I remember leaving and she just didn’t follow,” Marissa said later in an interview on American National Public Radio. “I saw her on the phone. And the other woman – it was the same thing. She was diagonally across from me and she was talking on the phone and she didn’t want to leave.”

In fact, many people in Marissa Panigrosso’s office ignored the fire alarm, and also what they saw happening 131 feet away in the north tower. Some of them went into a meeting. A friend of Marissa’s, a woman named Tamitha Freeman, turned back after walking down several flights of stairs. “Tamitha says, ‘I have to go back for my baby pictures,’ and then she never made it out.” The two women who stayed behind on the telephones, and the people who went into the meeting, also lost their lives.”

US Survey on financial capability shows poor results


The Wall Street Journal article, ‘So You Think You’re a Financial Genius’, reports on findings from the latest National Financial Capability Study.

There is a widening gap between what we think we know about investing and what we actually know. Much like most people think they are above average in driving ability, nearly three quarters of the 25,000 American adults surveyed awarded themselves above-average marks for financial capability.

But when given a simple five-question quiz, only 39% of respondents were able to correctly answer at least four questions.

For example, one quarter of those surveyed couldn’t say whether $100 deposited in a savings account earning 2% interest per year would grow to more than $102, less than $102 or exactly $102 after five years.

(Answer: $110.41—$100 grows to $102 the first year, $102 grows to $104.04 the second year, and so on.)

Bowen and Bradbury take over from Shorten in Financial Services.

In the new Kevin Rudd Ministry, the former Minister for Financial Services and Superannuation, Bill Shorten, has become Minister for Education and Minister for Workplace reforms.

This suggests responsibility for FOFA has passed to David Bradbury, who is now Assistant Treasurer, Minister for Competition Policy and Consumer Affairs, Minister Assisting for Deregulation, and Minister Assisting for Financial Services and Superannuation. The new Treasurer, Chris Bowen, who was Minister for Financial Services in 2009, will probably share the financial services role with Bradbury.


APRA guidelines for Single Customer View


APRA has released the final version of the government guarantee on deposits, the so-called Financial Claims Scheme (APS210).

It has also published a ‘Response to Submissions’, which clarifies its thoughts on various comments and objections raised.

The payment, reporting and communications requirements will take effect from 1 July 2013 and ADIs have 12 months to comply with the new requirements. The commencement date for existing FCS requirements relating to the single customer view remains 1 January 2014.

The main requirement is that ADIs give a Single Customer View, to ensure that any depositor is only entitled to one $250,000 limit.

Michael Lewis speaks in Sydney

Famous author Michael Lewis was in Sydney recently, and in answer to a question on rolling news coverage and investing: “It’s pretty hard to imagine anyone who’s good at investing paying any attention to what happened on [24-hour business news channel] CNBC.”

Lewis says Obama made a point of not watching cable news, saying it was ‘toxic’ and got in the way of clear thinking. “I think that’s probably good advice for everyone in investment.”

57% of Australians have never searched for their lost super

Almost half of Australians are missing out on more than $18 billion in “lost” superannuation sitting in unused accounts. Westpac claims 47% of Australians are likely to have missing superannuation, and 38% did not know if they had lost super while 57% had never searched for it.

Many retail and industry funds now offer a service to track down lost super, but it’s easy enough to do by going directly to the ASIC website.

BlackRock and Vanguard head Top 20 asset manager list


I&PE Magazine’s list of the Top 20 Global Asset Managers contains some eye-popping numbers. We like to think Australia has a massive superannuation and fund management industry, but these 20 fund managers increased their FUM last year by more than the $A1.5 trillion in super.

Top 20 Global















While BlackRock remained the world’s largest manager with €2.86 trillion in assets, Vanguard rose to second place after a nearly €200bn increase in assets to €1.62 trillion.

The company’s 13% increase in assets was the largest total rise, beaten in relative terms only by the 19.4% increase seen by the UK’s Legal & General Investment Management (LGIM).

Regardless of what the world thinks about funds managers and the move to direct investing, money is flowing into these businesses by the trillion.

George Soros and his spectacular wins – and a few losses


Cuffelinks devotes most of its attention to long-term investing ideas, but it’s informative to read how George Soros makes his spectacular short-term raids on markets.

It’s certainly not for the faint-hearted, as it plays out in days rather than years.

Investopedia has it wrong on tipping in Australian restaurants.


Investopedia recently ran an article on tipping practices around the world. It’s useful to know, especially in the US where many staff are so poorly paid that the 20% tip barely takes them up to minimum wage.

But they say this about Australia, which is way off the mark. Who doesn’t leave at least a small tip in a restaurant in Australia?

In a country where the toilets flush backwards, it may not surprise you to find that Australia’s tipping customs are completely opposite from those in North America. Essentially, there is no tipping in Australian restaurants. The minimum wage for servers is $15 per hour, which eliminates any pressure on customers to supplement a server’s income. Small tips are appreciated for exceptional service or in upscale eateries, but they aren’t expected. While this seems like a great deal for the customer, there is a downside. Taking tips off the table eliminates a lot of incentive for servers to increase customer satisfaction, and the sometimes-lackadaisical service can be frustrating for diners who are used to being catered to.



Minutes of the Monetary Policy Meeting of the Reserve Bank Board

Have you ever read the Minutes of the Monetary Policy Meeting of the Reserve Bank Board? From the 7 May 2013 meeting, they are linked here.

This one is especially interesting as it led to an historical reduction in the cash rate to 2.75%. While mining investment is falling and business conditions are below average, there was positive news on housing, responding to previous stimulus from lower rates. The RBA says:

“Dwelling prices were around 4 per cent above their trough in mid 2012, and auction clearance rates had increased. New borrowing for housing had also picked up, while forward-looking indicators and the Bank’s business liaison suggested that demand for new housing was improving – notwithstanding a decline in building approvals in the March quarter – with enquiries from prospective purchasers and visits to display homes increasing. New dwelling investment had increased since the middle of the previous year, with members observing that approvals for higher-density dwellings had increased, while approvals for detached dwellings had been flat over this period.”

Interesting that the RBA monitors “visits to display homes”.

Worth a quick read to see what the RBA watches every month.

Mobiles dominate PCs, and open up the world


The highly respected tech analyst Benedict Evans of Enders Analysis has compiled some fascinating slides about the future of technology, and the move from PCs to smart phones and tablets is the big trend.

Here are a couple of graphs from a presentation he just gave to the BookExpo America convention in New York. The forecast is that of the 7.3 billion people in the world, over 3 billion will have a smart phone. That represents millions of people in less developed countries becoming part of global communications for the first time, many of which never owned a computer.



Updated government super website

Minister Bill Shorten has announced updates to the government’s website, which now includes a retirement calculator using the increasing caps and the first increase in the Superannuation Guarantee, to 9.25% from 1 July 2013.

Boost for after-tax reporting on LICs


Investors who like to see performance measures in after-tax terms will be pleased to hear index provider FTSE will provide after-tax reporting and performance on selected listed investment companies (LICs).

FTSE has advised that 15 of the major LICs, including AFIC, Argo, Milton and Whitefield Limited, have already signed up to report pre- and post-tax performance for investors in mid and high tax brackets, as well as tax exempt investors and superannuation funds.



Morningstar Conference on global equity confidence

At the 2013 Morningstar Investment Conference, the audience of over 300 people, mainly planners and researchers, was polled on which asset class they intended to invest more on over the coming 12 moths.

At the start of the session, 54% voted for global equities and only 16% Australian equities. After the speakers gave a negative outlook for the Australian dollar and portrayed the Australian market as yiled-driven rather than earnings-driven, the audience was polled again. This time, the global equity allocation had increased to a staggering 68%.

When you consider the modest allocation to global equities in most Australian retail discretionary portfolios, a big potential shift is possible. And the majority wanted an unhedged exposure, suggesting it’s as much a currency play as company valuation preference.

The other dominant theme was that it is difficult to pick an asset class that is not overvalued at the moment, especially bonds.


APRA’s Insight released

The latest edition of APRA’s free Insight magazine has a comprehensive review of the superannuation industry, including interesting graphs on contribution levels.


Valuation of SMSF assets

The Australian Taxation Office has issued a note on valuation of SMSF assets.

It’s no longer acceptable to ignore the market value of a fund’s assets, and this is increasingly relevant with more property finding a place in SMSF portfolios. For 2012/13 and later, SMSF trustees must value their fund’s assets at market value when preparing financial accounts. The ATO provides guidelines on how SMSF trustees should comply.

Super changes if Liberals elected


The leader of the opposition, Tony Abbott, has announced that if the Liberals win the election, the phased increase in the superannuation guarantee rate will be delayed by two years, saving $1.1 billion a year.

This is in addition to discontinuing the low income superannuation contribution which was paid for by the mining tax, which will be abolished.



Paying benefits from a self managed super fund


The ATO has produced a new publication called Paying benefits from a self-managed super fund. This publication addresses a growing need for more specific information to assist you if your fund has members who will soon be entering, or have entered, retirement.

The rules and regulations that apply to your SMSF in the accumulation phase continue when a member retires, however, paying retirement benefits brings additional regulatory and taxation requirements. This publication provides topical information about the issues you need to understand to meet the regulations that govern the payment of benefits. For more information about SMSFs, refer to

Number plates in SMSFs

Everyone is targetting SMSFs. Now buying number plates is a diversification strategy ‘amongst discerning investors and increasingly into Self Managed Super Funds’.

But can you put them on your car and still meet the sole purpose test? Surely that’s one of the reasons you buy such a plate, to show it off.


Number plates

More government bonds on issue

The Australian government expects the face value of treasury bonds on issue to rise to around A$260 billion at June 2014, up from $233 billion at June 2013, Treasury projected in last night’s budget papers.

The Australian Office of Financial Management is likely to release its plans for handling this increase in the borrowing task today.

Treasury noted that the AOFM’s approach in recent years has been to lengthen both the nominal and real yield curves gradually. Treasury said the weighted average term to maturity of Australia’s treasury bond portfolio increased to 5.22 years as at March 2013 from 4.64 years March 2011 .

Treasury argued that increasing the term to maturity of debt reduces both refinancing risk and the variability of public debt interest costs.

Net debt for the Australian government is now expected to peak at $191.6 billion in 2014‑15 (11.4 per cent of GDP), falling to $185.7 billion (10.0 per cent of GDP) in four years time.

Source: Banking Day

Seniors incentive to downsize


The 2013 Budget papers state, “from 1 July 2014, senior Australian homeowners who have owned their family home for at least 25 years and who decide to downsize will have the option to invest surplus funds (up to $200,000) in an account. The funds invested in the account and earned interest, will be exempt from the age pension means test for up to 10 years.”

Superannuation ‘Charter Group’ announced

Bill Shorten, the Minister for Financial Services and Superannuation, has announced a new superannuation ‘Charter Group’.

It will include Australian Prudential Regulation Authority deputy chair Ross Jones, former MLC chief executive Steve Tucker, former AustralianSuper chair Elana Rubin, former Cooper Review chair Jeremy Cooper and former Federal Court judge Alan H Goldberg. It will work with, but separately from, a recently announced Council of Superannuation Custodians.

90 day bank bill rate 2.7%, 3 year bond rate 2.5%

Investors who switched from bank term deposits to listed hybrids in an effort to protect their income have seen most of the margin pick up eroded by fallng rates

The 90 day bill rate is now only 2.7%, and 3 year bonds 2.5%. The chart below shows how the 90 day bank bill futures market has moved in the last year, with the yield being 100 minus the price (96.00 represents 4.00%).

So, dor example, the recent Suncorp Hybrid issue paying BBR plus 2.85% (after franking adjustment) will be around 5.5% in yield. Not a great compensation for the added risk of a hybrid compared with a senior term deposit.


90 day BBR

No improvement in financial planner ratings


The Roy Morgan ‘Image of Professions’ survey asks respondents to rate various occupations for honesty and ethical standards. Accountants do relatively well, with 49% believing they are ethical and honest.

But financial planner ratings have fallen, despite initiatives like FoFA and attempts to improve professionalism. As shown below, only 25% of responses were favourable for planners. Stock brokers fare even worse, rating at only 15%, below talk-back radio announcers, and insurance brokers are at 13%. Oh dear. Not a good look for the wealth management advisers who deal with the public.

Ethics ratings

Source of graphic: Sydney Morning Herald, 2 May 2013.


ASIC addresses capital guaranteed products

ASIC has released a health check of the Australian market for unlisted retail structured products promoted as having capital protection or a capital guarantee.

Key points:

  • Capital protection or capital guarantee products are complex
  • Complex products can be difficult for investors to understand
  • Those selling complex products need to ensure marketing and advice directed at retail investors are accurate

ASIC found retail investors often have a poor understanding of these complex investments, and products are labelled with confusing or potentially misleading messages about the level of risk investors are exposed to.

Despite being labelled or described with terms such as ‘capital protected’ and ‘conditional capital protected’, some products have knock-out clauses and performance hurdles that may lead to investor losses. The report highlights concerns around:

  • the accuracy and balance of advertising for these products
  • the labelling and description of reverse convertible products as offering ‘conditional capital protection’ or ‘conditional protection’. The value of these investments is usually linked to the worst performing reference share, meaning investors could lose some or all of their money, and
  • certain ‘internally geared’ structured products that are described as entailing a compulsory capital protected loan, where all of the investor’s outlay is at risk of loss if reference assets don’t perform. Where the investment exposure is ‘notional’, there may also be risks for investors who claim tax deductions on their payments.



Is diversification a bad idea?


According to London-based consultancy Inalytics, diversified equity portfolios have been found to underperform highly concentrated ones.

After studying Inalytics’ database of 599 equity portfolios, the consultant found that–contrary to popular opinion–highly concentrated equity portfolios performed almost 400 basis points better than the most diversified ones.

The full article, including possible reasons for this unconventional result, is here.


23 million heading for 62 million


The Australian Bureau of Statistics publishes a population clock. They advise that on 23 April 2013, the population of Australia will reach 23 million. ABS says:

“This projection is based on the estimated resident population at 30 September 2012 and assumes growth since then of:

  • one birth every 1 minute and 44 seconds,
  • one death every 3 minutes and 32 seconds ,
  • a net gain of one international migration every 2 minutes and 19 seconds, leading to
  • an overall total population increase of one person every 1 minute and 23 seconds.”

Peter Kell, ASIC Commissioner, on SMSF regulations

Peter Kell is a Commissioner at the Australian Securities and Investments Commission (ASIC). On 10 April, 2013, he spoke at the CPA Australia SMSF conference.

In September last year, he became one of two ASIC Commissioners responsible for heading up ASIC’s SMSF taskforce, so when he speaks on SMSFs, it worth listening.

He focussed on three key things:

  • the critically important role of gatekeepers in the SMSF sector, including the new, limited licence for accountants and the registration of SMSF auditors
  • ASIC’s focus on SMSFs and the recent review of the quality of advice provided to SMSF investors
  • working together to ensure that the SMSF sector remains healthy, vibrant and safe for investors.

His speech is here, and some short extracts follow.

“ASIC’s primary role in relation to SMSFs is to regulate the gatekeepers – the accountants, financial planners, SMSF auditors and providers of products and services to SMSFs. Secondly, ASIC also regulates many (but not all) of
the financial products that SMSFs commonly invest in. From that perspective, we are very keen to ensure that SMSF trustees are adequately equipped to make good investment decisions by being fully informed about the risks and returns.”

“Currently, reg 7.1.29A of the Corporations Regulations 2001 permits accountants to provide advice on the establishment of SMSFs without the need for an AFS licence. This exemption will cease on 1 July 2016, and from that date all accountants who wish to give advice on SMSFs will need to be licensed.”

“As part of the Stronger Super reform initiatives, ASIC became the registration body for approved SMSF auditors from 31 January 2013. This reform recognises the key gatekeeper role that approved SMSF auditors play… Since the introduction of the SMSF registration regime, ASIC has received 2,934 applications and we have registered and approved 1,178 SMSF auditors.”

“We were also concerned by several developments, including an increase in geared investment strategies and increasingly aggressive advertising for SMSFs. Finally, we have seen an increase in the targeting of SMSFs by less scrupulous operators, and we are keen to address this risk.”

“Through our file reviews, we found that there is room for significant improvement in aspects of the SMSF advice giving process. Where we found problems with the advice it tended to be in the following areas:

  • the advice was not sufficiently tailored
  • replacement product disclosure was absent orinadequate
  • insurance recommendations were absent or inadequate
  • an inappropriate single asset class was provided to investors
  • suitable alternatives to an SMSF were not considered
  • there was inadequate consideration of the investor’s long-term retirement planning objectives.

Notably, we also found that investors were not warned about the very real risk of not having access to a statutory compensation scheme in the event of theft or fraud.”

“Let me be very clear – a person requires an AFS licence if they recommend that an existing or proposed member of an SMSF purchase a property through their SMSF. This is because the vehicle through which the underlying investment is made is an SMSF and an interest in an SMSF is a financial product. It does not matter for licensing purposes that the underlying investment (real property in this case) is not a financial product. In the past year, we have seen an increase in the number of advertisements pushing property purchases through SMSFs. We do not want to see SMSFs become the vehicle of choice for property spruikers. Where we see examples of unlicensed SMSF advice we will be taking regulatory action.”

In addition, on 18 April, ASIC released its report, “SMSFs: Improving the quality of advice given to investors”, with link here. Mandatory reading for anyone involved in SMSF advice and management.



Jeff Bezos of Amazon’s Shareholder Letter 2013

Jeff Bezos is Founder and Chairman of Amazon. His 2013 letter to shareholders is here.

A short extract from this totally customer-focussed executive.

“One advantage – perhaps a somewhat subtle one – of a customer-driven focus is that it aids a certain type of proactivity. When we’re at our best, we don’t wait for external pressures. We are internally driven to improve our services, adding benefits and features, before we have to. We lower prices and increase value for customers before we have to. We invent before we have to. These investments are motivated by customer focus rather than
by reaction to competition. We think this approach earns more trust with customers and drives rapid improvements in customer experience – importantly – even in those areas where we are already the leader.”


Australia is the new Switzerland

Just a handful of countries inspire confidence in the market place, and Switzerland is no longer one of them.

From a macro perspective, Australia is in much better shape than the rest of the bankrupt western hierarchy.

Ten funding models for nonprofits


Article from Stanford Social Innovation Review on funding models for nonprofit organisations.

Some nonprofit organisations have as many people in their fundraising department as they do in the part of the business directly helping the clients.  Money is a constant topic of conversation among nonprofit leaders. It is vital for the efficient usage of scarce resources that nonprofit leaders become much more sophisticated funding their organisations. Philanthropists often struggle to understand the impact (and limitations) of their donations.

There are consequences to this financial fuzziness. When nonprofits and funding sources are not well matched, money doesn’t flow to the areas where it will do the greatest good.

Australian spending habits


Lots of interesting information from this ASIC website. The average household is estimated to spend $69,166 on general household living costs in 2012.

There is also an app so you can find out what you spend your money on, by using  TrackMySpend mobile app.


Sydney most expensive for a ‘cheap date’

According to Zero Hedge, Deutsche Bank calculates a ‘cheap date’ index, as part of mapping the world’s prices. Using a price parity calculation, the ‘cheap date’ index consists of:

i) a standard bouquet of roses

ii) cab rides

iii) pizza

iv) a soft drink

v) two movies tickets

vi) a couple of beers.

Friends visiting Sydney from overseas often complain about prices, especially taxis, and seems they are right.

Minister’s speeches and announcements


Bill Shorten in the Minister for Financial Services and Superannuation and his major speeches and announcements appear here. These include the recent superannuation proposals.

Treasury paper on distribution of benefits

The Treasury discussion paper, ‘Distributional Analysis of  Superannuation Taxation Concessions’ is often quoted in the superannuation debate.

The distribution of super and pension benefits suggests the inequity issue is mainly with the top 5% of income earners, and the increase in the contributions tax to 30% for those earnings over $300,000 will go some of the way to addressing this.

Surprising cost for an ad to appear on a Google search

Google Adwords allows advertisers to select keywords, and pay to have their advertisement appear on the first page when those words are searched. Google gives an estimate of how much it will cost to be on the first page based on how much other advertisers are willing to pay. The payment is made to Google each time the advertisement is clicked (whether or not it leads to a purchase).

It’s a brilliant business model. If someone searches for ‘SMSF’, then of course an administrator of SMSFs wants to appear on the same page. And as high as possible.

But what is most interesting is how much it costs to make the first page. This is prime real estate because most searchers do not go on to other pages. So here are a sample taken in the week of 1 April 2013.

It shows where the money is. ‘Self managed super fund’ costs $19 a click, ‘SMSF’ is $11 and ‘financial advice’ is a bargain $4.75.

When you search on Google, did you realise that every time you click on an ad, you could be putting $19 into Google’s coffers? No wonder searches are free.

Sydney Morning Herald gets it wrong on super

Superannuation regulations are complex and a thorough knowledge takes time to accumulate, and the details become part of a financial planner’s skill that clients can access (and pay for appropriately).

The debate about the cost of super to the Australian budget is often hijacked by incorrect claims, and hundreds of thousands of SMH readers were treated to a ripper on 3 April 2013.

Peter Martin wrote:

“Superannuation is designed backwards. It gives the biggest subsidies to those who need them least. For Australians on truly enormous incomes those subsidies are obscene.

The notion the super-rich wouldn’t save for their old age is laughable. The idea that without government support they would fall back on the pension and be a ”drain on the public purse” is not only wrong but, in the context of what’s handed to them, almost sick.

Think about an executive on $1 million a year. Not quite one of Joel Fitzgibbon’s ”battlers”, but someone several rungs above.

His or her company pays a legislated $90,000 a year into a super fund of their choice, perhaps a self-managed one. Instead of being taxed at the marginal rate – 45 per cent plus the 1.5 per cent Medicare levy – the payment has until now been taxed at just 15 per cent. So instead of paying $41,850 in tax, the executive pays just $13,500. The gift from the tax system is $28,350.”

Oh dear.

There is a cap of $25,000 on concessional contributions for everyone and any employer contributions above that are taxed at an additional 31.5% excess contribution tax. Furthermore, the employer is only obliged to pay 9% on $183,000 ordinary time earnings. Any additional SGC is voluntary. And let’s not overlook the fact that an executive on $1 million will pay almost half that in income tax.

By early in the morning, the Herald had corrected its online version amid a barrage of critical comments, but the print version was still sitting in thousands of homes, inflaming the debate.


Mike Carlton on superannuation

Mike Carlton joins the superannuation debate:

“A flood of speculation from Canberra suggests the government will slap a higher tax on the earnings of money invested in super, up from 15 per cent to perhaps 30 per cent.

Here I acknowledge naked self interest, although millions of Australians are on the same playing field. Like most baby boomers, I was careful to save for my retirement. Not all of us could do it; many will be living on the seniors’ pension now, with more and more joining them as the years roll on. But those of us able to put aside that nest egg made our decisions and investments by the rules of the game at the time. Shifting the goalposts now would be a spectacular act of bastardry. Rather, the government should be closing the loopholes available to such supranational companies as Google or Starbucks, who apparently pay next to no tax in this country.

Mind you, Tony Abbott is also planning to clobber millions of retired Australians on the lower end of the scale by bringing back the 15 per cent tax on superannuation for people earning $37,000 or less. That would cost your average punter about $500 a year.

None of this touches the politicians themselves, of course. Their superannuation ”entitlements”, lavishly underwritten by the taxpayer, are very comfortably removed from the real world inhabited by the rest of us.”

Mike Carlton, The Sydney Morning Herald, 30 March 2013 (reproduced with permission). 


Superannuation Complaints Tribunal


The Superannuation Complaints Tribunal (SCT) is an independent dispute resolution body which deals with superannuation-related complaints and offers a free, ‘user-friendly’ alternative to the court system. The SCT will inquire into the complaint and try to resolve it by conciliation. If conciliation is unsuccessful, the SCT will conduct a formal review of the complaint and issue a determination.

The SCT recently reported that complaints had increased 6.5% in 2012, with greater account balances and increased awareness of superannuation generally linked to the rise.

Another reason for the complaints is the general poor understanding of super, especially in the event of the death of the member and whether super forms part of the estate.


Cyprus in perspective

Let’s put Cyprus in perspective. It’s GDP is a little over $20 billion. The capital of the Commonwealth Bank is $110 billion.

Jim O’Neill of Goldman Sachs Asset Management has observed that China produces a new Cyprus every week.

Encouraging 2013 Human Development Report


The 2013 Human Development Report is the latest in the series of global Human Development Reports published as independent, empirical analyses of major development issues, trends and policies.

The Rise of the South: Human Progress in a Diverse World argues that a large number of developing countries are becoming dynamic major economies with a significant impact on human development progress:

“The Report notes that, over the last decade, all countries accelerated their achievements in the education, health, and income dimensions as measured in the Human Development Index (HDI) — to the extent that no country for which data was available had a lower HDI value in 2012 than in 2000. As faster progress was recorded in lower HDI countries during this period, there was notable convergence in HDI values globally, although progress was uneven within and between regions …

“By 2020, according to projections developed for this Report, the combined economic output of three leading developing countries alone — Brazil, China and India — will surpass the aggregate production of Canada, France, Germany, Italy, the United Kingdom and the United States. Much of this expansion is being driven by new trade and technology partnerships within the South itself, as this Report also shows.

“A key message contained in this and previous Human Development Reports, however, is that economic growth alone does not automatically translate into human development progress. Pro-poor policies and significant investments in people’s capabilities — through a focus on education, nutrition and health, and employment skills—can expand access to decent work and provide for sustained progress.”



SMSFOA research paper defends super tax incentives

The super industry is fighting back on many fronts against the threat of new regulations. The SMSF Owners’ Alliance (SMSFOA) has released a research paper showing that the cost of super tax incentives is recovered in multiples in lower pension outlays and that the Government should be increasing contribution limits.

The paper is here.


Super to reach $6 trillion in 17 years

Speakers at the recent Conference of Major Superannuation Funds (CMSF) said the super system will increase from the current $1.3 trillion $6 trillion in 2030. That’s 180% of the GDP, and only 17 years from now. There were also predictions of far greater use of global equities, mainly because the Australian equity market is small.

The pension and superannuation access ages will both rise and be merged into the same timing, and there will be a move to take annuity payments, not lump sums.

Fiona Trafford-Walker, Managing Director of Frontier, predicted a slowdown in SMSFs “… as people realise it is not that fun and that it is hard to manage your own money.” Fiona may be overlooking the fact that the software required to run and account for an SMSF is improving all the time, and that the administrative burden will be eased in future for little cost.

SMSF annual returns due soon

The Taxation Office is writing to trustees reminding them that SMSF annual returns are due by 15 May 2013.

The letters include some serious warnings:

  • the fund may be given a notice of non-compliance, resulting in the loss of its concessional tax treatment, or
  • criminal penalties may be imposed against the trustees through the courts.

There is also a reminder that the assets must be set aside for the benefit of members.


National Disability Insurance Scheme

On 21 March 2013, the National Disability Insurance Scheme (NDIS) Bill passed both houses of Parliament and will soon become law. The vote was unanimous, with every MP showing their support for this reform.

More details are on

APRA imposes Single Customer View (SCV) for government guarantee

APRA has written to all Authorised Deposit-Taking Institutions (ADIs) requesting information on their preparedness for implementing the Single Customer View (SCV) requirements. This is part of APRA’s management of the government guarantee on deposits (the so-called Financial Claims Scheme) which offers a guarantee of up to $250,000 per entity per institution.

APRA is ensuring that ADIs:

  • identify each unique account holder, and
  • develop and implement an SCV

The main intention is to ensure a customer does not receive multiple rights to the guarantee by operating multiple accounts. The ADI must design and operate their accounts to identify and merge each individual in their reporting. You can rest assured that this is a major technology headache for most of the ADIs in Australia who have never had an SCV before. And the implementation date? 1 January 2014, barely 8 months away.

‘Financial planner’ enshrined into law

Another step towards improving the credibility of advice has been taken by the tabling in Parliament by Financial Services Minister Bill Shorten of  legislation enshrining the term ‘financial planner’ into law. Previously, almost anyone regardless of training or qualifications could use the term, which clearly compromised the value of the title. In future, it will be restricted to practitioners who are fully licensed and authorised to provide personal financial advice.


CoreData research indicates major change coming from FoFA

CoreData recently released a White Paper called, “Fixing the Culture of Advice in Australia”. It suggests the majority of financial advisers believe change is necessary in their industry, especially a change in fee structures.

Some interesting data in the paper:

  • 53% of financial planners say FoFA reforms will have a negative impact on them
  • 42% believe FoFA will be negative for their clients
  • 60% say FoFA will be adverse for their business
  • About 10% expect to leave the industry in the next 2 to 5 years.


ASIC adds reverse mortgage calculator


ASIC has many useful calculators on its Money Smart website, freely available to anyone. They have released a reverse mortgage calculator which works out:

  • How much your debt will increase over time and what this means for the equity in your home
  • How changes in interest rates and house prices could affect the equity in your home

Many older people who are asset rich (their family home) and cash poor have been turning to reverse mortgages to finance their later years, and this calculator shows how much value might be left in the house. It’s worth checking whether the reverse mortgage might do more to compromise the amount left for the children that is generally expected, as with rising longevity and future higher interest rates, it will not be difficult to erode the remaining equity.

In 2012, flows to fixed interest funds dominated

Morningstar’s inaugural Annual Global Flows Report shows balanced or multi sector funds in Australia attracted the largest net inflows in 2012, mainly into industry funds. Alternative funds also did well, as investors suffering from the sharemarket losses of 2011 sought uncorrelated and absolute returns.

However, Australian share funds were heavily hit by withdrawals, losing $9.7 billion over the year. With the rally in the second half of 2012 and into 2013, it again demonstrates that investors often give up at the worst time possible. Much of the money went into fixed interest, cash and term deposits.

Morningstar reported that the Australian funds industry had much in common with other countries, in particular the withdrawals from share funds and flows to fixed interest. PIMCO now manages US$442 billion of fixed income, making it the largest actively managed strategy.


Bond rates rising in Australia

With our close focus on cash rates, steady at 3% recently, it’s easy to overlook longer term rates rising. Rates are up about 0.6% in the 10 year maturity since their lows of June 2012, on offshore selling and switching into equities. These movements are significant for long bonds and generate capital losses for fixed interest portfolios with long duration.

Source: Bloomberg

Forecasts – who should you believe?

A few readers have asked us for our views on where equity markets are headed.

As an indication of what an uncertain craft this forecasting business is, note that The Australian Financial Review’s Markets Today column monitors the forecasts of 11 investment banks in Australia.

These forecasts are made by economists and analysts who spend their entire lives studying relevant statistics and markets, they have vast experience and they are highly educated.

The S&P/ASX200 is currently 5069. The forecasts for the end of year is a range of 4000 by Gerard Minack (Morgan Stanley) to 5200 by Tony Brennan (Citigroup).

Draw your own conclusions on the merit of Cuffelinks adding a 12th opinion. Which would you believe?

Warren Buffett’s annual letter


Warren Buffett’s annual letter to Berkshire Hathaway shareholders was released last week. Always worth reading.


ASX100 changes a sign of the times

Fairfax Media and struggling publisher, PMP, have been replaced in the ASX100 by the REA Group, which owns, and Trade Me, the New Zealand equivalent of ebay.

It shows the strategic errors made by Fairfax five to ten years ago, in allowing businesses like Seek, REA and to grab the old classifieds business, once the ‘rivers of gold’. To make it worse, REA is part-owned by News Limited, and Fairfax had to sell Trade Me recently to improve the structure of its balance sheet.




Groupon CEO farewell email to staff

(This is for Groupon employees, but I’m posting it publicly since it will leak anyway)

People of Groupon,

After four and a half intense and wonderful years as CEO of Groupon, I’ve decided that I’d like to spend more time with my family. Just kidding – I was fired today. If you’re wondering why… you haven’t been paying attention. From controversial metrics in our S1 to our material weakness to two quarters of missing our own expectations and a stock price that’s hovering around one quarter of our listing price, the events of the last year and a half speak for themselves. As CEO, I am accountable.

You are doing amazing things at Groupon, and you deserve the outside world to give you a second chance. I’m getting in the way of that. A fresh CEO earns you that chance. The board is aligned behind the strategy we’ve shared over the last few months, and I’ve never seen you working together more effectively as a global company – it’s time to give Groupon a relief valve from the public noise.

For those who are concerned about me, please don’t be – I love Groupon, and I’m terribly proud of what we’ve created. I’m OK with having failed at this part of the journey. If Groupon was Battletoads, it would be like I made it all the way to the Terra Tubes without dying on my first ever play through. I am so lucky to have had the opportunity to take the company this far with all of you. I’ll now take some time to decompress (FYI I’m looking for a good fat camp to lose my Groupon 40, if anyone has a suggestion), and then maybe I’ll figure out how to channel this experience into something productive.

If there’s one piece of wisdom that this simple pilgrim would like to impart upon you: have the courage to start with the customer. My biggest regrets are the moments that I let a lack of data override my intuition on what’s best for our customers. This leadership change gives you some breathing room to break bad habits and deliver sustainable customer happiness – don’t waste the opportunity!

I will miss you terribly.



Chant West releases 2013 super fund ratings

Chant West is an independent superannuation research and consultancy firm, and it recently released its 2013 ratings for its Top 10 super funds. There were two new entrants, Commonwealth Bank Group Super and Telstra Super – both large corporate super funds. The Top 10 for 2013 is:

Retail investors can also check the rating of almost any fund available to the public on the Chant West website. Its ratings sums up its overall view on the merits of particular funds relative to industry best practice. Funds are awarded a rating from 5 Apples (the highest) to 1 Apple (the lowest).

Property double stamp duty

The Australian Financial Review of 25 February 2013 reports that many trustees buying property in their SMSF are following incorrect procedures that result in paying double stamp duty.

SMSF trustees are buying at auction in their own name but later find the property title is meant to be held by the trustee of the super fund.

Where this happens they face paying double stamp duty. Thanks to clampdowns by state government revenue offices, both entities – the individual and the fund – need to pay stamp duty on the purchase. The total tax bill depends on which state or territory the property is located, but it could be as much as $50,000 extra stamp duty. Buyers are making offers on properties on which their banks refuse to lend for SMSFs, such as commercial property or service stations.

Institutions dominate ASX300

Small time investors have reduced their shares in Australia’s top 300 companies according to a new study.

Research by the University of Melbourne’s Dr Carole Comerton-Forde for the Australasian Investor Relations Association (AIRA) found that over the decade leading to 2011, small time investors (in this study, those owning less than 10,000 shares) have reduced their holdings in ASX 300 company shares by one third to 9.9%.

Institutions (including superannuations funds and offshore investors) now account for 90.1% of the issued capital of Australia’s top 300 companies.

While retail investors are more concentrated with larger companies in the ASX 20 index, 97.1% being small shareholders, they only own 25.2% of shares.

(Originally printed in The Conversation).

Perhaps one reason why active fund managers struggle to outperform the index is not because they are not talented or have the requisite skills, but quite the opposite: there are so many well-educated and smart analysts and fund managers working in wealth management, and they own 90% of the stocks, that it is difficult for any one to gain an edge over the others.


How not to run a pension

This extraordinary example is quoted by John Mauldin in his excellent newsletter, drawing on a Wall Street Journal article.

“It is almost too easy to pick on California and Illinois, but I am going to do it anyway in order to create a teaching moment. Plus, this sorry tale will make us think about the nature of the social contract and the fabric of society. It would almost be funny if it were not so serious.

Let’s start with a few paragraphs that appeared in the Wall Street Journal. Carl Demaio writes this week:

Consider California, where just 10 individual pensioners will cash $50 million in pension checks from state and local governments over the next 25 years. Already some 30,000 retired California government employees pull in pensions higher than $100,000 a year. One retired librarian in San Diego receives a $234,000 annual pension. Beach lifeguards in Orange County are retiring at age 51 with $108,000 annual pensions plus health-care benefits.

Note that those benefits are cost-of-living-adjusted. But the problem is not just in California; it is nationwide.

A 2011 study by the Congressional Research Service pegged the combined liabilities faced by state and local pension funds at over $3 trillion. That is more than all the bonded debt officially listed on state and local balance sheets combined. To put the issue in perspective, all the federal tax hikes approved by Congress on Jan. 1 would pay less than 20% of America’s state and local pension debt over the next 10 years.”

CBA to be less competitive in retail deposits

Billions of dollars found its way out of equities into attractive term deposit rates after the GFC. It shored up bank balance sheets when wholesale funding was expensive, but it also gave investors positive real rates of return, and satisfying absolute rates over 5%.

In presenting the CBA’s results to December 2012 this week, CEO Ian Narev signalled a change in attitude which will push down his bank’s competitiveness. CBA will use cheaper wholesale funding in preference to more expensive retail deposit funding. Narev said: “What we will continue to do is make sure that we’re not writing deposits that are eroding value to shareholders.”

CFO David Craig said, “We think it would be very silly funding all of our growth trying to compete in an incredibly hot retail deposit market, and hurting our shareholders by taking more expensive funding when there’s cheaper funding available in the wholesale markets.”

Narev also said, “We have decided that the best way of creating value for our shareholders is to go easier on the price lever, and just manage margins well while focusing on our customers.”

The 90 day bank bill rate is currently about 3%, so receiving more than 4% from CBA will be a struggle.


APRA December 2012 Quarterly Superannuation Performance

The Australian Prudential Regulation Authority (APRA) has released its December 2012 Quarterly Superannuation Performance publication. The $1.5 trillion milestone has been reached officially.

Total estimated assets rose by $192.2 billion (14.6 per cent) to $1.51 trillion over the 12 months to 31 December 2012, taking into account an increase of $47.1 billion (3.2 per cent) in total assets over the December quarter.

Over the December quarter, the total estimated assets of industry funds increased by 4.8 per cent ($13.5 billion) to $294.7 billion, retail funds by 3.2 per cent ($12.3 billion) to $398.1 billion and public sector funds by 2.0 per cent ($4.6 billion) to $236.9 billion. Total assets of corporate funds decreased by 0.9 per cent ($0.5 billion) to $57.8 billion.

Contributions to funds with at least $50 million in assets over the December quarter were $21.9 billion, with employers contributing $17.9 billion and members contributing $3.6 billion. Other contributions, including spouse contributions and government co-contributions, totalled $357 million.

Warren Buffett’s letter on giving away his wealth

Warren Buffett’s letters to Berkshire shareholders are always great reading, and the website has them all since 1977. Worth spending a lazy afternoon trawling through them.

This week it was announced that Graham Tuckwell of ETF Securities was donating $50 million to fund new scholarships at The Australian National University. Good one, Graham.

It prompted me to take a look back at the biggest donation of them all, that of Warren Buffett. In the 2006 letter to shareholders, he confirmed that he planned to give away all his wealth.  Here’s an extract from the newsletter:

“Last year I arranged for the bulk of my Berkshire holdings to go to five charitable foundations … In my will I’ve stipulated that the proceeds from all Berkshire shares I still own at death are to be used for philanthropic purposes within ten years after my estate is closed. Because my affairs are not complicated, it should take three years at most for this closing to occur. Adding this 13-year period to my expected lifespan of about 12 years (though, naturally, I’m aiming for more) means that proceeds from all of my Berkshire shares will likely be distributed for societal purposes over the next 25 years or so.

I’ve set this schedule because I want the money to be spent relatively promptly by people I know to be capable, vigorous and motivated. These managerial attributes sometimes wane as institutions – particularly those that are exempt from market forces – age. Today, there are terrific people in charge at the five foundations. So at my death, why should they not move with dispatch to judiciously spend the money that remains?

Those people favoring perpetual foundations argue that in the future there will most certainly be large and important societal problems that philanthropy will need to address. I agree. But there will then also be many super-rich individuals and families whose wealth will exceed that of today’s Americans and to whom philanthropic organizations can make their case for funding. These funders can then judge firsthand which operations have both the vitality and the focus to best address the major societal problems that then exist. In this way, a market test of ideas and effectiveness can be applied. Some organizations will deserve major support while others will have outlived their usefulness. Even if the people above ground make their decisions imperfectly, they should be able to allocate funds more rationally than a decedent six feet under will have ordained decades earlier.”

Many examples of philanthropy by Australians, not quite on the scale of Graham Tuckwell’s but generous nonetheless, have surfaced in recent years, and perhaps Australians are not only starting to match Americans in their desire to give back some of their wealth, but are also wanting to talk about it.


Warren Buffet bets index fund can outperform hedge funds

In 2008, Warren Buffett bet that an S&P 500 index fund will outperform a group of hedge funds over 10 years, to demonstrate his point that retail investors should use low cost index funds rather than pay high fees to hedge fund managers. Fortune magazine reported recently that Buffett pulled ahead in 2012 after s strong year for equities.

Buffett made the wager with the money managers who own Protege Partners LLC, with both sides putting up about $320,000 to invest in their respective markets. Buffett has guaranteed that the winner of the bet will be able to donate at least $1 million to the charity of their choice at the end of the bet, but if the wagers are worth more, then more will be donated.

Buffett’s index fund now posts a total gain of 8.7%, while the hedge funds are up only 0.1% after five years.

Treasury’s views on super not all predatory

When Dr Martin Parkinson, Secretary to the Treasury, spoke at the 2012 ASFA conference on 28 November about the future challenges for Australia’s superannuation system, he made all the right noises. Here is what he said, with our underlined emphasis:

“There are various reasons higher national saving is particularly welcome at the moment, though some sectors are adversely affected. With the international environment more uncertain than over most of the preceding 15 years, borrowing less and saving more makes us more resilient to possible adverse developments. While our terms of trade remain high by historical standards, the recent decline only emphasises that some (unknown) portion of our current national incomes is temporary. And there are benefits to saving more now to support a progressively older population, before the impacts of population ageing become more pressing.

Superannuation’s large pool of stable and unleveraged superannuation assets contributes to financial stability by adding depth and liquidity to financial markets; providing an alternative source of finance for other sectors; and acting as an important buffer against external shocks.

In addition to the rise in total flows into superannuation funds, an increasing proportion of financial asset acquisition has been going into domestic equities and deposits, particularly in the post-GFC period. This has helped Australian banks and non-financial firms shift toward safer forms of financing in an environment where debt financing is less readily available and is seen as more risky than it was pre-GFC.”

So while it is often believed that Treasury looks at the tax concessions in superannuation like a buzzard hovering over a carcass, and clearly has targetted lower contribution limits, let’s hope Dr Parkinson’s views translate into restraint on additional taxes.

What the PM actually said about taxing the over-60s

After much speculation in recent weeks that the Government may impose new taxes on super withdrawals, there was a sigh of relief from many older superannuants when the Prime Minister ruled out taxing people over 60 years of age. It is interesting to check the Hansard for 6 February 2013 to see what Julia Gillard actually said, in response to a Coalition question:

“I would also remind the Leader of the National Party that if he were paying any attention to the economic debate in this country, he would know we addressed questions of superannuation, including superannuation withdrawals, when we released the tax review in May 2010. I refer him to the media release which accompanied that report and said the government reaffirms that it will never remove tax-free superannuation payments for the over-60s.”

So there it is. We never needed to worry. There was no new announcement in Parliament this week, it was a reminder that the policy was set in stone 2 1/2 years ago.


Lost super now $17 billion

The Australian Taxation Office estimates $17 billion of superannuation is lost, and has a service called SuperSeeker to help members track it down. It’s worth taking 10 minutes to check for yourself or anyone in your family, perhaps from a long-forgotten part time job. Go to

You can use SuperSeeker to check super accounts that have received money for you in the last two years, find your lost super or even transfer your super to another fund.

Low Income Super Contributions

Until recently, it was not tax-effective for low (or non) tax payers to contribute to super. The good news is that from 1 July 2012, legislation removed this disadvantage. Called the ‘low income super contribution’, it provides a new super contribution tax refund of up to $500 annually for low income earners. The payment amount will be 15% of concessional contributions (including employer contributions) made by or for individuals with an adjusted taxable income that does not exceed $37,000. The refund is automatically credited to your super account.

What motivates clients to take financial advice?

It’s a further worry for the financial planning industry when research shows a decline in intention among potential advice clients to take up financial planning. CoreData’s 2012 Financial Planning Shadow Shop revealed that for the first time, the value of the planner’s services has become the most critical driver of client intention, followed by ability to enthuse, ability to influence, recommendations suited to client needs and ability to build relationships. It shows financial planners must provide tangible evidence of the benefits of advice, and sell their services with a compelling message.

Howard Marks of Oaktree Capital on his Key Repeating Themes

Among the daily dross on investing that the internet serves up, there are also some gems. Howard Marks, Chairman of Oaktree Capital, has been posting his memos on his company’s website since 1990, and readers can subscribe to receive an email notification when a new memo is posted. In his first memo for 2013 just published, he identifies his key themes from the past 23 years:

  • the importance of risk and risk control
  • the repetitiveness of behaviour patterns and mistakes
  • the role of cycles and pendulums
  • the volatility of credit market conditions
  • the brevity of financial memory
  • the errors of the herd
  • the importance of gauging investor psychology
  • the desirability of contrarianism and counter-cyclicality
  • the futility of macro forecasting.

Investors fail to learn from history and repeat patterns of behaviour and make the same mistakes.

What the best minds think about forecasting

Here at Cuffelinks, we are highly sceptical about the value of economic forecasting. There are too many variables, too many unknowns and too much speculation for it to be other than guesswork. OK, educated guesswork. So of course we like it when a highly respected analyst liberally sprinkles his article on forecasting with more self doubt than a three-legged antelope being chased by a cheetah.

Jason Hsu is the Chief Investment Officer of Research Affiliates, a global leader in asset allocation strategies. Jason issued his ‘Year-End Capital Markets Forecast’ here, and he is as well-qualified as anyone to predict the future. His paper if chock full of empirical evidence and tables, and it’s difficult to resist the conclusions. However, it is his use of cautionary notes advising of the perils of forecasting which this Off The Cuffe highlights:

“The only function of economic forecasting is to make astrology look respectable.” John Kenneth Galbraith

“I must remind you that forecasters use statistics as drunks would use lamp posts—for support rather than illumination.” Original quote is attributed to the famous Scottish poet Andrew Lang.

“Wall Street has predicted nine out of the last five market crashes.” This quote is attributed to the Nobel Laureate Paul Samuelson.

“My forecasts, like those of any other avid forecaster/soothsayer/talking head guru, come in only two flavors—lucky or wrong.” Jason Hsu himself.

And so say all of us.

ATO SMSF announcements

Trustees of SMSFs can subscribe to SMSF News  to receive announcements from the ATO relevant to their fund.

For example, on 19 December 2012, the ATO made this announcement:

We have recently undertaken a review of the Trustee declaration (NAT 71089) and the associated fact sheet Self-managed super funds – key messages for trustees (NAT 71128). 

As a result of this review, changes have been made to both documents.

The most notable changes to the 2012 version of the Trustee declaration are the following inclusions:

  • requirement that the investment strategy be regularly reviewed
  • consideration of whether the fund should hold insurance cover for members
  • declaration that trustees of SMSFs are aware that they do not have access to the government’s financial assistance program in case of financial loss due to fraudulent conduct or theft.
In Self-managed super funds – key messages for trustees, we have provided information for trustees about the protection of super in SMSFs. All new trustees (and directors of corporate trustees) of SMSFs must complete and sign the Trustee declaration to show they understand the trustee duties and responsibilities under super law.

Surprising ASIC statistics

The 2011-2012 ASIC Annual Report contains some fascinating statistics. Great for a work trivia session. ASIC monitors 176 authorised deposit-takers and an incredible 6,004 credit providers. There are 24 investment banks, 220 hedge fund managers, 44 retail OTC derivative providers and 25 credit rating agencies and research houses. Plus 230 super fund trustees (excluding SMSFs), 589 responsible entities, 4,289 registered managed investment schemes and 680 custodial service providers. It’s clearly not all fun and games. ASIC also reports receiving and assessing 12,454 reports of misconduct and 1,344 breach reports. That’s a lot of licence holders facing compliance issues, and they need to ensure their responses cover the factors listed in section 912D of the Corporations Act 2001.

Unprecedented sovereign bond yields

Sovereign bond yields around the world are at unprecedented low levels (written in October 2012). In Holland, 10 year yields hit their lowest in 496 years; 10 year US Treasury yields are their lowest since 1790; official base rates in the UK are at the lowest since the Bank of England’s inception in 1695; Australia’s are the lowest since the 1950s; and in June, Germany’s two-year bond yield turned negative for the first time ever (you had to pay money to invest!). It is equally appropriate to consider this a ‘bond market bubble’ as it is to worry about an ‘equity market bubble’ when company stock valuations are at extremes. Investors in long term bonds can suffer serious erosion of capital on a mark to market basis when bond rates rise.

A couple of hints from Bryce

Bryce Courtenay died on 22 November 2012 at the age of 89, having established himself as one of Australia’s most commercially-successful authors. I once attended a day-long writing class run by Bryce. There were only a dozen people in the room, and it must have been a distraction from his own writing, but he wanted to share his knowledge and enthusiasm. Bryce gave many tips but two stand out in my mind. First, you need ‘bum glue’. Don’t just talk about it, sit down and write it and don’t move until you have. For investors, the equivalent is spending sufficient time to understand a company or security before you rush off and buy. Second, you must be able to summarise your book in 25 words or less. That’s all you’ll have with most people. Peter Lynch of the Fidelity Magellan Fund said that he had to be able to describe why he was buying a stock in three sentences at most. And film maker Stanley Kubrick advised his students just to get hold of a camera and some film and make any kind of movie at all. Until you do something about it, an idea is not much more than an interesting thought. Graham Hand

US debt is only part of the problem

There is much focus on the current US Federal Government debt of US$16 trillion, forecast to rise to US$20 trillion by 2015 if corrective action is not taken. This is over 100% of the GDP of the United States. But that’s only part of the picture: the unfunded obligations of welfare programmes such as Medicare, Medicaid and Social Security are over US$65 trillion. We can be confident that the United States will never run a budget surplus sufficient to pay off its debts, as was expected around 2001.

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