Communicating to SMSFs and their advisers and accountants

Media, word of mouth the new drivers of SMSF creation

Day 2 of the FSC Conference (#FSC13) and I find myself bouncing between the major issues sessions on super and insurance, while my colleagues (@BlueChip_Comm and @madd_23n) attend the advice sessions.

The super session right now is all about SMSFs. In another first for the FSC this session was the first of its kind to focus on the fastest growing segment of our national superannuation savings.

The speakers are @ASlattery_SPAA, Recep Parker of Investment Trends and Michael Chaaya from Corrs Chambers Westgarth.

It was Recep's comments that, cheerily delivered, had my full attention. The mode of delivery helped but it was the content that really had me - and should attract the attention of anyone wanting to communicate to, or market to, SMSF trustees, their accountants or their advisers.

Why they do what they do

As we all know, the primary driver for those who want an SMSF is control. SMSF trustees become trustees because they get their statement, see poor performance, look at fees & reach the (not unreasonable) conclusion that they can make better investment decisions than the professional investment managers. 

Control may be a primary driver but when Recep dug further into the Investment Trends knowledge bank he offered some other reasons commonly cited as driving the set up of an SMSF:

- The ability to choose specific shares

- An opportunity to save money on fees and 

- Disgruntlement with current super funds.

Who are they?

The much desired SMSF trustee is, according to Wealth Insights many years of research, still "rich old (er) men". While the trustees are typically pretty evenly split between the genders Recep suggested the decision makers are far more likely to be male.

Where is the money coming from?

Traditionally, SMSFs were set up as a result of retail super fund members making the big switch. Increasingly however the funds flow into the sector is coming from industry funds.  

Some 25% of last year's inflows came from industry super. Overall we're seeing a massive outflow from APRA-regulated super funds into SMSFs. While more than half of those SMSF start-ups are still instigated by financial advisers, that's on the decline. 

Media and word of mouth are playing a far greater role.

What happens next?

Although accountants are still typically the instigators of SMSF set up, there is an increasing cohort of self-directed investors setting up their own SMSF, and running solo making best use of the lower cost, technologically-enabled platforms now available.  

And the next wave of SMSF trustees are anything but "pale, male & stale". They're younger, less likely to seek advice and more likely to want to invest in property.

Investment Trends suggest:

- 18% of adults with super wants to set up an SMSF in the future

- 2% of super members plan to do so in the next 12 months

- They're still driven to have more control, and equally disgruntled with returns

- But a third also want access to property

This next generation of SMSF trustees are younger - in their 20s and 30s - and represent the next wave. 

With SPAA's Andrea Slattery reminding us that 50% of the national retirement savings sit in SMSFs, and bullish growth predictions, we're going to have to have to get pretty good at talking to them.

Understanding the demographic and their drives is a good starting point.

I'm attending the FSC Conference with Aideen McDonald (@BlueChip_Comm) and Bruce Madden (@madd_23n) on behalf of BlueChip. You can follow my commentary at @carden and www.cardencalder.com

ISN & FSC JOIN FORCES: AUSTRALIA BENEFITS

Pictured is David Whitely, CEO of ISN addressing the FSC delegates in an historic first

The main news, to my mind, from the morning sessions of Day 2 of the Financial Services Council's 2013 conference (#FSC13) happened off stage.

And that news was the joint announcement by the Industry Super Network (@IndustrySuper) and the Financial Services Council (@FinServCouncil) that they will work, collaboratively, on a better future for superannuation in Australia.

Now I could permit cynicism to kick in at this news, but the fact remains: this is a "maturity milestone" for Australia's retirement savings system.

Warring parties, fundamentally trying to achieve the same thing, albeit with different philosophical bents, have come together in the name of a greater good: a decent retirement, characterised by the greater choices and standard of living you can only get from having enough money.

I particularly liked these two quotes, from David Whitely and John Brogden respectively:

"Industry Super Network and the Financial Services Counsil should lead the elevation of superannuation out of the political discourse and ensure policy making is considered, sector neutral and even handed."

"Because we have allowed ourselves to be divided, the significance of the industry and our prominence in the minds of government and consumers has been diminished. Ultimately, it is superannuation that suffer."

The full release is available on both the FSC and ISN websites.

Perhaps it's time for both sides to read it, and bury the hatchet - for the sake of a better future.

I'm attending the FSC Conference with Aideen McDonald (@BlueChip_Comm) and Bruce Madden (@madd_23n) on behalf of BlueChip. You can follow my commentary at @carden and www.cardencalder.com.

FSC 2013 Day 1: Settling into a new normal

There was a sense of homecoming on Day 1 of the 2013 Financial Services Council conference (#FSC13 @finservcouncil).

@bowenchris was warmly welcomed back by a generally supportive crowd, in his new role as Federal Treasurer.

Aboriginal dancers welcomed delegates in a moving display of traditional dancing and fire-starting.

The regulators (@ASIC_Connect and APRA) shared their thoughts from the couch in the annual fireside chat, ably facilitated by the FSC's Martin Codina.

And delegates obediently queued, school excursion-like, for the bus trip to an offsite venue for pre-dinner drinks prior to the traditional Day 1 private dinners.

Brisbane may be a one-time home of mine - but the homecoming vibe wasn't about the many former Queenslanders flying in. Or even about the many industry veterans reconnecting for the annual conference. It was about an industry settling in itself after several years of intense regulatory reform, post-GFC turmoil and the resultant upheaval.

Change really now is a constant. But the sense now is that with both sides of Government committing to stability in super we may in fact get what we are promised - predictability.

You can find a link to the official media coverage here, courtesy of the good folk at Financial Standard.

Day Two at the FSC Annual Conference: a call for higher retirement age

Will we outlive our money?

As Reg the goldfish (@RegTheFSCMascot) headed for a quiet corner of the tank this morning (too many bubbles last night) John Brogden, Financial Services Council CEO, called for a higher preservation age.

With no magic policy wand to wave in order to make our national savings gap disappear, what are the practical opportunities available to us? 

Increase the preservation age, argued Brogden, on the basis of Rice Warner research. And consider other reforms: putting GST back on the agenda (to be broadened or increased) and reform of state taxes - cited as the most distortionary in the Australian economy.

Economic reform to support financial services and superannuation

Tax reform decreases pressure on Government to use superannuation as a honey pot for funding, argued Brogden. Such reforms, such as the abolition of state taxes, promise direct and indirect benefits to the financial services industry, said the FSC chief.

Arguing that the economic power of superannuation will eclipse that of banking, Brogden called for economic reform that will support a stronger industry.

Marking his third year as FSC CEO he also referred to the industry's greater ability to influence the economy in which we invest - and the likelihood that superannuation as a sector will become more significant to the economy and individuals than banking.

The Johnson report featured in Brogden's remarks - increasing withholding tax creates sovereign risk he argued, and government must look to the Johnson review as a priority.

Longevity risk - aka how to pay for us all living longer?

Brogden told assembled financial services industry delegates that Australian life expectancy has increased from 55 to well over 80, while the age pension age has only moved two years - from 65 to 67. 

There is, as a result, a huge savings gap as people live longer.

So increasing the preservation age in Australia to 62 (from 60) would increase retirement savings by $400bn. Expect more policy development and research as the FSC mulls impact of increasing preservation age.

Cited as the single most effective way to address the longevity risk, Brogden advocated increased work place participation by older workers - ensure older workers stay in the workforce. And thus reduce longevity risk - the very real danger of outliving our retirement savings.

Day One of the Financial Services Council Annual Conference

When MC Tracey Spicer took to the stage to introduce the regulators panel the conference mascot, Reg(ulator?) the goldfish headed for the exit. After all how could he compete with APRA and ASIC representatives?

I'm not sure if Reg (much discussed on Twitter #fscmascot) felt unloved or in fear of a looming lack of oxygen as the four regulatory representatives filled the air with warnings to the audience of wealth management and financial services executives.

Reg may have been followed by delegates were it not for some quite frank comments from the panel.

For anyone who missed it, here are a few of the things on the regulatory hit list this year.

For insurers, APRA's list includes governance in group life schemes, disability and mortality claims experiences, and direct life business - for the latter, concerns around the quality of risk and marketing. Specifics included poor data in pricing and poor tendering processes in group life. In direct life, the spotlight is on discontinuance rates and the potential for reputational damage. Boards of direct businesses are well advised to take note.

ASIC talked about FoFA and a continued focus on consumer protections.

So what advice did the regulators give the industry?

1. Start at the top - governance has to come right from leadership down. Perhaps, if we go back to Reg the goldfish, we'd paraphrase as "fish rots from the head". The suggestion was that regulators will be sniffing around management teams in insurance as a result.
2. There's an enormous amount of change, and regulators don't underestimate its impact. So talk to the supervisors, understand what they want and provide feedback about their guidance based on your own experience - don't lose the opportunity to have input.
3. Think about the long term outcome we want from the changes we're making. By all means implement change but don't lose sight of the longer term outcomes the regulatory channels aim to achieve for all stakeholders.
4. Engage with the regulator - either directly or through your industry association - it will improve the guidance you get back.
5. Finally, while we're going through change stop perhaps to have a closer look at what you think is "business as usual" or standard practice. Otherwise you may get a regulatory wake-up call.

And finally? Watch what happened to the reputation of the banking industry in the UK. We haven't seen that in Australia. Expect a touch time ahead in terms of reputation if we don't support regulatory change.

The price is right

With the background of a 4% fall on Wall Street and a falling local share market as he kicks off the last day of the FSC Conference, US author of 'Myth of a Rational Market' Justin Fox picked a timely day to discuss whether the markets are driven by rational investors or panicked decisions of a few.

To answer the question Justin takes us on a (not so random) walk through the history of financial thought from Irving Fisher (who in 1928 tipped the market would keep rising - oops) to Harry Markowitz (variance and correlation in asset allocation) and Bill Sharpe (coined the concept of beta).

Eugene Farma wrapped up much of the thinking of the time with the efficient market hypothesis stating that the market did a pretty good job given that even smart, professional money managers, with access to alot of information, fail to beat the market.

The explanation - it's hard for these professional managers to beat the market as they are usually managing other people's money and it is usually the moment that there is an opportunity in the market that is the hardest time to get others to invest.

Does the efficient market hypothesis hold up? Yes it is still very hard to beat the market but not necessarily because the market is rational or right but for a host of reasons.

So what financial markets theories didn't hold up?

• The price is right - we don't know!
• We can value risk
• Financial markets are stable
• Corporations should do what markets say - share price should drive decisions. 

What next for global markets? In the words of J.P. Morgan (the man not the company) - it will fluctuate!

Now back to the "carnage" of todays market - rational or not? 


Guest blogger Paul Cheal is attending the Financial Services Council annual conference on the Gold Coast, along with BlueChip Communication's Carden Calder and Bruce Madden 

Myth of a rational market: Day Three at the FSC

A walk through investing history with Justin Fox (Harvard Business Review Editorial Director) wound up with this: it's really hard to beat the markets.

The index managers may well have been cheering as Fox took delegates through generations of investment thinking.

On the way from Markowitz to Sharpe HBR's Fox says some ideas have stood the test of time, while others have proven to be myths - and less than helpful to investment performance.

So which ideas stand up, post GFC?

1. There is a trade off between risk and return
2. There is merit in diversifying
3. Black Scholes (looking at volatility) works

The myths are these:

1. The price is right
2. Risk can always be quantified
3. Risk is equivalent to historical volatility
4. Financial markets are inherently stable
5. Corporations should do what what markets say they should

Fox defends the value of thinking for ourselves. Many a listed company CEO will be glad to hear it - setting a course they judge to be the right one, rather than leading by the judgement of analysts.

FSC Day Three: Talking Heads

Today's breakfast was well attended - no doubt thanks to the Financial Services Council's sensibly late 9am start. Even the majority of last night's hard partying delegates fronted up for the FSC's Talking Heads session with the ABC's Leigh Sales, MP David Bradbury and Senator David Bushby.

Employer default funds, My Super and more were on the menu.

Why, asked Leigh Sales, is My Super going through Parliament before the Productivity Commission has done it's job? Because we can't wait forever, was the response from David Bradbury. And besides, the Productivity Commission's "to do" list is long enough already.

Does the super industry have blood on it's hands given older investors lost so much of the value of their investments during the GFC, asked Leigh Sales, paraphrasing the Future Fund's Paul Costello.

Those investors who did do well said Senator David Bushby may well have been lucky, rather than clever.

Questions from the floor canvassed whether new, regulated, remuneration arrangements might create new forms of conflicted remuneration, and addressed the role of financial planners in addressing financial literacy.

In response to the latter, said Senator Bushby, not everybody will end up with the expertise needed to make fully informed financial decisions - so the role of planners may become more important than ever.

David Bradbury cited school programs and the governments' Money Smart website, as well as the opportunity to seek advice when it's needed.

Could the government spend part of the Financial Literacy budget advocating people seek financial advice asked the FSC's Brogden? Probably not, or at least not yet responded Bradbury. Basic budgeting is a far higher priority for now.

Who thinks financial planning should be an industry? Or a profession?

The Financial Planning Association's (FPA) Mark Rantall kicked of his remarks with this question in an afternoon session at this week's Financial Services Council Conference.

Session attendees unanimously agreed it's a profession we're after, not a "financial planning industry".

Second only to medicine, said Rantall, is the importance of a strong financial planning profession. If you have your health, and your finances in order, you're in good shape he reasoned.

Key elements of a profession, says Rantall, include professional membership, rules around conduct, and accountability. On that note, from 2013 entry standards to the FPA will step up another notch.

Proof points supporting higher standards in these areas include the fact that recent research showed higher ethical reasoning among CFPs than other advisers.

Build it and they will come? Having built the framework for a profession, Rantall believes they (being planners) will come.

Rantall was clear on this: the FPA is, and will remain, the central professional body for financial advisers.

Colonial First State CEO Brian Bissaker focused on policy settings. The key reforms he reminded attendees of included:

- Increased fiduciary duty

- Ban on commissions and volume rebates

- Ban on soft dollar remuneration

- Increased training and minimum standards

- Increased ethical requirements

- Scaled advice changes

- Stronger Super

- New accountants licensing regime

A long and hard road but a journey worth taking, says Bissaker. In the heat of the debates Bissaker is concerned the totality of change might be missed. In particular he called out opt-in as being potentially a bridge too far at a time of great overall change in financial services.

Bissaker railed against government setting pricing mechanisms for planning, or any other professional service.

Community standards are increasing said Bissaker, and the risk of reputational damage looms large as a result.

Adviser versus adviser columns in media are not helpful he says. A more professional tone would be appropriate - suggesting advisers think about the greater good (overall reputation) and leave adversarial approaches in media at the door.

The end of the journey, according to Bissaker, will be when all universities offer financial planning degrees as part of their commerce faculty.

For up to the minute news from FSC sessions follow us on twitter: @carden @p_cheal @BlueChip_Comm

BlueChip Communication Group's Paul Cheal, Bruce Madden and Carden Calder are attending the Financial Services Council annual conference on the Gold Coast