Compulsory super for self-employed

/in , , /by

Nearly 10% of Australia’s labour force is self-employed and compulsory superannuation should include at least some of them, the Association of Superannuation Funds of Australia (ASFA) said.

“Only a relatively small number of the self-employed have business assets sufficient to support a comfortable standard of living in retirement,” AFSA’s submission to the government’s tax white paper argued.

Chief executive Pauline Vamos warned that “we cannot ignore the large proportion of self-employed Australians who are putting off planning and saving for their retirement.”

“While many self-employed workers believe their business will serve as their superannuation, this is not always the case” she said.

“Many of the self-employed do not have significant business or financial assets, and they may face problems retaining the standard of living they are accustomed to when they reach retirement age.”

Vamos said that of particular concern are self-employed workers “being forced to move to a contractor, rather than part-time worker model.”

The submission added that any changes to the superannuation system “need to be considered as part of a holistic review of the system and the Tax White Paper process provides such an opportunity.”

— via the FINANCIAL STANDARD, Aug 12

Power in super advertising

/in /by

Capturing an audience in the superannuation industry remains a challenge and in recent months several funds have rolled out new marketing campaigns to attract the biggest possible market.

The question is, which Australians are paying attention?

Breakfast television viewers would have noticed a flood of superannuation and pension products being advertised by companies such as IOOF, Sunsuper, MLC and Challenger Annuities among others.

Speaking at a recent executive roundtable hosted by Bravura Solutions, Colonial First State head of customer marketing Todd Stevenson, said a lot depends on the objective of the advertising — is it to acquire new customers or build brand recognition?

“Superannuation is, typically, not a directly purchased product. It is typically either ‘sold’ or acquired by default when you join an employer. A lot of the advertising we see today in the superannuation space is about brand recognition and loyalty,” Stevenson said.

“And industry funds have done a brilliant job at that. We have conducted research recently and found that people love their industry fund. When you ask them why, they do not know or can’t really tell you but the perception the advertising creates for this is that their industry fund is great value — perception is reality in the eyes of the individual.”

— via the FINANCIAL STANDARD, Aug 11

A$ down but will it stay down?

/in , /by

[vc_row][vc_column][vc_column_text]Here we go, here we go, here we go…

The Australian dollar is back in the news again for it has fallen below $0.73US late last month to $0.7278US — the lowest level since April 2009.

I can’t help but feel confused, because for all throughout the duration of the Greek tragic-comedy and the depression-inducing crash in China’s stockmarket, the AUD has remained not only above $0.74US but was fetching more than $0.76US.

Just when the Shanghai and Shenzhen exchanges stablise, China’s economy grows better than many expected and the Grexit was kicked three years further down the road, the AUD falls?

Not that there’s anything to complain about and the certainly RBA Governor Clenn Stevens would be pleased at this latest development. Gov Glenn would be happier with Black Rock’s prediction of a slide to around $0.70US before the New Year and Capitol Economics’ forecast of $0.65US by end-2016!

However, these are for reasons mostly recycled. Slowing China would take down commodity prices.

The rationale for the AUD’s fall is the divergence in monetary policy — with Greece and China now out of the way (or seemingly) — the Fed can now lift while RBA is expected to remain on hold, or, potentially cut further.

The AUD action — like we’ve seen over the past few months, is mainly a US dollar story, i.e, it depends on expectations of whether or not the Fed lifts, and when it does so.

Will it? Can it? Not if you ask the Federal Reserve Bank of New York.

Authors Mary Amiti and Tyler Bodine-Smith argue that “a 10% appreciation in one quarter shaves 0.5 percentage points off GDP growth over one year and an additional 0.2 percentage points in the following year if the strength of the dollar persists.”

Against major currencies, the US dollar has appreciated by 5.7% over the past three months and 21.3% over the past 12 months.

The bottom line is that the AUD’s fortune remains largely at the hands of the Fed and what it decides on interest rates.

— via the FINANCIAL STANDARD, Aug 11[/vc_column_text][/vc_column][/vc_row]

SMSF direct property investment

SMSF direct property investment jumps 60%

/in , , /by

The value of self-managed super fund (SMSF) investment in residential real estate has jumped 60% in the last four years, according to figures from the Australian Securities and Investments Commission (ASIC).

In its submission to the Parliamentary Inquiry into Home Ownership, the primary financial markets regulator revealed that as of March 2015, the value of residential real property investments through SMSFs was $21.78 billion, or 3.7% of total Australian and overseas assets.

This is up from $19.49 billion, or 3.6% of total Australian and overseas assets, in March 2014.

Albeit from a relatively low base, there has been an increase in the value of investment in residential real property through SMSFs of 11.78% in the 12 months to March 2015, and an increase of 58.69% since March 2011.

While it is feared that SMSFs ability to borrow money to buy residential property via limited recourse borrowing arrangements (LRBAs) is helping to fuel the housing bubble, SMSF Association technical and professional standards director Graeme Colley said it is misleading to use these figures to conclude that SMSF investment in residential property is rapidly expanding.

“I’d be interested to see the whether there’s been much of an increase in the actual numbers of properties that have been bought. The rise in market value of residential property is likely to account for most of the increase,” Mr Colley said.

Colley also accused ASIC of stepping outside of its remit in drawing attention to the numbers.

“ASIC’s responsibility is to look at the provision of advice for SMSFs rather than these sorts of figures. I’m surprised to see them commenting”

The Financial System Inquiry (FSI) has recommended banning LRBAs, a move which was drawn criticism from industry quarters.

The Association of Financial Advisers dubbed a potential ban “draconian” at the SMSF Association Annual Conference back in February.

At the same conference, AMP SMSF head of policy Peter Burgess said: “So few funds use LRBAs, the effect is immaterial. Any problems should be addressed with legislation, and the effects measured before we scrap them off hand.”

[via Financial Standard]

Organised criminals

Organised criminals eye super

/in , /by

The Australian Crime Commission believes Stronger Super reforms implemented from 2013 have reduced illegal early release schemes run through self-managed super funds (SMSFs).

In the latest report, Organised Crime in Australia 2015, the commission explains SMSFs have traditionally been more attractive to exploitation than prudentially regulated funds. The report said because SMSFs generally hold the largest balance of superannuation assets it provides an opportunity for low-volume, high-impact fraud on individuals’ funds “that may be managed by financially inexperienced individuals.”

The commission said allowing the Australian Tax Office (ATO) to address wrongdoing and non-compliance by SMSF trustees; capturing rollovers to SMSFs as a designated service under the Anti-Money Laundering and Counter Terrorism Financing Act 2006; and established a register of SMSF auditors have all helped to reduce organised crime in the space.

Australian Crime Commission chief executive, Chris Dawson, said organised crime affects everyone.

“Whether it’s the ripple effect of illicit drug use on families and the community, the significant financial loss from investment scams or having your identity stolen by cyber-criminals — everyone is at risk,” Dawson said.

“But the fight against organised crime, we must recognise and build on the critical role the private sector, industry and the public play in this matter.”

As Australia’s superannuation pool is in excess of $2 trillion and expanding exponentially, the commission said infiltration of the system by organised crime — and associated losses through fraud — would result in more people relying on the social security system in their retirement.

[via Financial Standard]

Bond investors

Bond investors warned not to overlook

/in , /by

While most fixed income investors recognise the need to take a more flexible approach to finding return in a threatening interest rate environment, T. Rowe Price head of international fixed income Arif Husain believes that most investors are overlooking fixed income’s role in protecting portfolios from equity market shocks.

With record low interest rates and the 30-year bond market bull rally coming to a close, returns in fixed income markets are becoming increasingly hard to find. That is why many fund managers have successfully marketed so-called unconstrained bond funds which do away with traditional benchmarks and are instead free to use any market, any security, and any means to find value.

But while using currency markets, negative duration, derivatives and so forth to achieve higher returns is all very well, it only deals with one part of the fixed income story.

Speaking to Financial Standard, Husain said: “The unconstrained world is a garden of both good and evil. The majority of folk out there have taken that broader flexibility and used it to try and find return. To borrow an American expression, they go on offense.”

“We’re using all that extra flexibility to try and find new ways to go on defence.”

Husain wants his bond fund, the T. Rowe Price Dynamic Global Bond Fund, to behave like bond funds used to behave – to be a store of value, or even post positive returns when equity markets fall.

“We want to provide a bit more liquidity, a bit more simplicity and a bit more transparency. We don’t want to use all the funky derivative structures that are out there,” Husain added.

“I used to be a derivatives trader so I know there’s nothing wrong with them, but I don’t think every client wants them in their portfolio.”

What Husain and his team look for when buying bond markets is three characteristics: low volatility; little probability of what the bond expert calls ‘jump risk’, or a regime change in volatility; and a relatively steep yield curve.

Regionally that approach has seen the fund take a relatively negative view on the US, where Husain believes a rate hike will come sooner than most investors expect; a very positive view in Asia, especially in lower volatility countries like South Korea; and a negative view on Europe, where the outcome from Greece’s debt crisis remains uncertain.

The strategy is unique in that it was built for the Australian market. Unusually, it launched here first (in February 2014) and was then released to the US market later. It is only just being made available to European investors now.

The fund has not had its defensive characteristics fully tested yet as the equity market has performed well in the 18 months it has been running but Husain did note its rolling correlation with equities over that period has been close to zero, if not a little bit negative.

Further, in short, sharp periods where the equity market has faced drawdowns, the fund has done exactly what it’s aimed to do – either staying stable or posting positive returns.

“The coming months up until and a little bit after the Fed rate hike are going to be a real testing ground for these types of strategies. When we see negative returns across traditional bond funds, you’ll want to see these strategies at least at zero and hopefully positive,” Husain concluded.

[via Financial Standard]

Property bubble debate

Property bubble debate heats up

/in /by

Public officials’ concerns of a property bubble in Sydney and Melbourne are spreading uncertainty amongst those thinking about increasing their exposure, but are not dissuading Chinese investors.

Treasury secretary John Fraser was the last public official to warn about fast rising house prices: “When you look at the housing price bubble evidence, it’s unequivocally the case in Sydney,” he told a Senate committee, and added that this was “certainly the case in higher priced areas in Melbourne.”

Fraser joined the Australian Prudential Regulation Authority (APRA), which recently reviewed bank lending standards for property investors and last December warned lenders not to increase investor loans by more than 10% a year.

But the precautions are still a long way from the measures taken by the New Zealand government, which has put in place severe measures to cool house prices in Auckland, including a 33% tax on properties bought or sold in the city within two years.

Speaking about APRA’s measures to tighten lending, Property Investment Professionals of Australia (PIPA) chief executive Ben Kingsley said: “We recognise that marketplaces like Sydney and Melbourne are posing concerns, as new and existing investors are potentially speculating in trying to capitalise on boom conditions.

“However, there are plenty of other property markets in Australia and these measures are an unfair imposition on investors who want to invest in other parts of our country.”

At the same time, a Credit Suisse report highlighted the difficulties of cooling down the Australian property market, as Chinese buyers are expected to invest as much as $60 billion into the sector until 2020.

Only during the last financial year, Chinese citizens bought close to $9 billion worth of Australian property, 60% more than the previous year.

They were buying mostly in Sydney and Melbourne, where Chinese demand accounted for 23% and 20% of the new supply, the report said.

Lombard Street Research attributed Chinese interest in the Australian market to the falling Australian dollar: “The currency angle is often underestimated.”

The local currency has depreciated 20% relative to the Renminbi over the last year and almost 50% since the resources cycle peaked in 2011.

This “has rendered Australian real assets increasingly attractive to Chinese yield.”

[via Financial Standard]

Future of Financial Advice

FoFA among top 20 global regulatory nightmares

/in /by

The Future of Financial Advice (FoFA) reform is one of the 20 most challenging pieces of regulation globally, according to a survey of 600 compliance professionals across the world.

The ‘Cost of compliance 2015’ report by Thomson Reuters asked compliance professionals from financial services firms all over the world to name the regulation that poses the greatest challenge for the coming year.

FoFA was listed along major regulatory changes such as the Basel III rules that will require banks to hold more capital, or the Volcker Rule in the United States that limits the bank’s relationships with hedge funds and private equity funds to prevent them from making speculative investments.

The US Dodd-Frank Act, a major regulatory reform following the GFC that has been compared to FoFA, is also listed among the most difficult regulatory challenges.

However, the UK’s equivalent piece of legislation, the Retail Distribution Review (RDR) was not part of the list.

The research also found that compliance officers are experiencing “regulatory fatigue and overload in the face of snowballing regulations.”

As many as 70% of the firms are expecting regulators to publish “more” regulatory information in the next year and 28% expect that the increase will be “significantly more.”

More than a third of the firms surveyed spend at least a whole day every week tracking and analysing regulatory change.

“Global regulatory change is creating the biggest challenge due to inconsistency, overlap and short time frames,” the report said.

“Understanding regulators’ expectations and requirements and being able to interpret and apply them is as great a challenge as keeping abreast of the changes.”

As a consequence, regulatory risk and costs are both expected to rise in 2015, with 68% expecting the compliance budget to be slightly or significantly higher than today in 12 months’ time.

[via Financial Standard]

Sydney Apartment

Beware over paying for assets

/in , , /by

Sydney_Apartment1The Australian economy is facing a number of head wins as we enter 2015 and therefore is expected to grow below long term averages.  Whilst consumer spending is improving and residential construction and prices are rising, consumer confidence remains weak. Business confidence and investment is also weak.

Australian bond yields have fallen to historical lows. The RBA cut the cash rate by 25 basis points to 2.25% in February concluding that growth is continuing at a below trend pace, with domestic demand growth overall point weak.  The financial markets are expecting the RBA to make further cuts to interest rates in the coming months.

As a result, investors seeking yield will continue to reallocate from cash and term deposits into higher yielding assets, including real estate.  Demand for both residential and non-residential assets should continue and competition for both income generating and development assets will remain high.

According to the PCA/IPD Property Index, non-residential property has generated a total annual return of 10.6% in 2014, and Folkestone expects a similar return in 2015 as investor demand continues to underpin capital values.

Investors need to be cognisant that they do not overpay for assets in a market being driven by capital hunting for yield.  The market runs the risk that if the disconnect between capital market and real estate market fundamentals widens, the price some investors pay for assets may overshoot the underlying fundamentals.

In the residential sector, the housing boom has not been uniform across Australia.  Whilst Sydney has been the stand out performer with prices up 13% in the year to January 2015, price growth across the rest of Australia’s major cities was between -0.3% in Canberra and 7.0% in Melbourne.

There is no doubt the Sydney median house price has risen to levels that make it difficult for first home buyers to enter the market, but we should remember that the average annual growth in Sydney house prices has only risen by an average of 4.5% per annum over the past 10 years.  Sydney is now paying for a gross undersupply of accommodation as a result of poor government planning and high government levies which have restricted the release of land and pushed up land prices.

Low interest rates are certainly driving the investor market, with investors taking over owner occupiers as the largest borrowers of finance in the December quarter.  We expect investors will continue to invest in the residential sector in 2015 but in doing so, they need to ensure that they do their homework.  There are certain markets such as inner Melbourne and inner Brisbane where an oversupply is looming.

The recent APRA announcement around investment lending may go some way to restricting the availability of finance to investors.  Overall we are expecting another solid year of housing market conditions and further capital gains, albeit at a more sustainable rate than we have seen over 2014.

 — via the FINANCIAL STANDARD, Mar 30