Are More Practices Going Independent

Paragem tips scales for small planners

Friday, 20 February 2009 12:55pm

Small-size planning groups keen to cut their licensing and admin costs without sacrificing their independence and quality of service are driving the demand for the ‘shared services' model, said Paragem's managing director Ian Knox.

Knox said some planning groups are taking a different approach to stay ahead of the pack even as the market continues to bite.

For example, Paragem has set up a new service, Paragem Wholesale AFSL, which allows advisers the option to share a ‘non-aligned licence'.

This means that they don't have to shoulder the full cost of keeping the business compliant but, more importantly, they can tap into Paragem's business, which allows them to provide advice without potential conflicts-of-interest normally associated with planning groups that are part of bigger firms that also manufacture investment products.

An additional feature of the group's licensing facility is that, as part of the planning firm's contractual agreement with Paragem, all volume-based bonuses provided by select platform groups go directly to the clients.

"We've undertaken agreements with a couple of platforms, Macquarie and Avanteos, where all volume rebates attributable to Paragem has to go to the client. This is about fostering and developing steps towards where the market is heading, which is advice-based activities," he said.

Knox added that the scale advantage they provide also extends to Professional Indemnity (PI) insurance costs for each licensee. By negotiating PI insurance for one or more licensees, provided they are all high-quality businesses, the annual PI costs would come down too, he said.

In separate news, Knox said that in contrast to the doom-and-gloom stories about planning groups struggling in the current climate, Paragem saw a spike in business activity in the two months to January, when they lodged more than 20 new AFSL applications.

"This implies these practices are leaving networks to establish and run their own affairs, in many instances they actually receive a financial boost as their running costs are lower," he said.

The regulators fiddled while we got burnt

The regulators fiddled while we got burnt
Ian Verrender
January 8, 2009
Forget the 1980s. That was just a warm-up for the main act. These are the dying days of the real decade of greed. And there is no greater example than in the recent trading in Babcock & Brown shares.

The past couple of days has seen some wild gyrations in the share price of a company that clearly has no future. Even John Cleese at his Monty Pythonesque best would have difficulty arguing that it was just resting or "pining for the fiords".

This is a dead company, gone to meet its maker. So who in their right mind would bother buying shares in a company that was a dead cert to collapse? And particularly on the very day the corporation announced it had "negative net assets"?

The answer? A hedge fund that finally was calling in a short selling position. A what position, I hear you ask.
About a year ago, an unnamed international hedge fund sold shares in Babcock & Brown around the $18 mark. In fact, it sold about $400 million worth of Babcock & Brown shares. That's right, it banked $400 million.

The slight technical hitch is that it didn't actually own the shares it sold. Instead, it borrowed them, presumably from some dumb insurance company or superannuation fund for a nominal fee.

This week, that very same hedge fund figured it would maximise its gain by closing out its position. That means it had to buy them back. And it is that buying that has pushed up the share price.

The shares it sold for $18 - which it didn't even own - this week were bought back for an average price of 40c, delivering an enormous profit to the hedge fund. And it relieved its debt by delivering back those shares it borrowed. Forget the fact they are almost worthless.

Due to the appalling lack of disclosure rules on our sharemarket, we will never know the identity of the hedge fund.
More importantly, for those people who have their money tied up in the super fund or insurance group that lent this stock out a year ago, we will never discover the identity of the schmuck who earnt a couple of thousand dollars commission while he watched close to half a billion dollars of his clients' investment almost totally evaporate.

Like just about everyone in businesss these days, managed investment funds have discovered new and interesting ways of masking these types of transactions. A mixing pot suddenly emerges in which the very bad deals become blended with great ones. And if the overall result is negative, this year we have the best example ever as to why your super funds have shrunk. Haven't you heard of the global financial crisis and the global recession?

The meltdown in stock and debt markets has provided an easy excuse behind which almost every incompetent player now can hide.

Take a look at Babcock's recent trading. On New Year's Eve, Babcock shares were trading at 15.5c. Yesterday they hit a 46c peak before closing 15 per cent lower at 32.5c.

The official line from the company is that the price spike followed a decision by its banking syndicate to give the company enough leeway to conduct its own liquidation rather than have administrators or receivers appointed.

That means no forced sales. That means creditors will end up with a bigger proportion of the bad debts repaid, which is terrific news for creditors.

But has everyone overlooked the basics? If there is not enough cash to repay the secured creditors in full, the share price should be, at best, zero because as we all know, shareholders stand last in line.

Share prices can't really go any lower than 0.1c (just look at the Macquarie-backed tollroad company Brisconnect) but B&B keeps on bouncing around even though it is in unofficial liquidation.

It is a year since it became obvious that something was horribly amiss on our sharemarkets. The dearth of information, the arrogance of the bullmarket high-flyers have been overshadowed only by the stupendous incompetence of our market regulators.

Where has the Australian Securities and Investment Commission been during the past year? Just think of the accounting irregularities, conflicts of interest, insider trading, fraud on a grand scale with stock lending and undisclosed short selling, the total absence of rigour in terms of enforcing disclosure. Even those involved are stunned that there has been precious little in the way of prosecutions or even investigation of their activities.

Maybe this year will be different. But don't bet on it.

Institutional advisers are increasingly flocking to independently-owned dealer groups, according to RIAA.

Advisers flock to independent firms

Increasing market trend

Victoria Papandrea

By Victoria Papandrea
Wed 10 Dec 2008

Institutional advisers are increasingly flocking to independently-owned dealer groups, according to RIAA.

There is an increasing trend for institutional advisers to pack up and join independent dealer groups, according to Risk and Investment Advisors Australia (RIAA).

RIAA has experienced an influx of institutional advisers flocking to join the independently-owned boutique dealer group over the past 12 months, RIAA managing director Grant Scalmer told InvestorDaily.

"With now around 85 per cent of dealer groups owned by institutions, a lot of advisers are looking for that dealer group where they are not owned and dictated to by institutions," he said.

Advisers that are currently looking to join RIAA or who have joined the group over the past year have predominantly come from dealer groups owned by large institutions, Scalmer said.

"In a couple of instances their colleagues or friends have joined us from big institutions and they are seriously unhappy where they are," he said.

"One of the groups that I spoke to recently has been with their existing dealer group for a long period of time and is now starting to question what sort of value they are getting from these dealer groups," he said.

Scalmer believes this is a big trend as now is the time when advisers are starting to look at the value they are getting from their dealer groups.

"They feel that they are paying these fees and not getting any help or assistance in running and managing their business," he said.

Downturn to spur resurgence in direct investing

Mike Taylor

Australian investors are more likely to go it alone and invest directly in a rebounding share market following a decline of trust in the funds management industry, according to research by financial services agencies Endgame Communications and Investment Trends.

The report identifies a significant trend towards more hands-on investing in the wake of the volatility.

Investment Trends principal Mark Johnston said perhaps the most worrying figure for the industry is the fact that 42 per cent of managed fund investors at least somewhat agree that their trust in fund managers has been damaged and they would prefer to invest directly going forward.

“We believe another significant surge in SMSF [self-managed super fund] establishment is likely to occur over the coming years, which would be consistent with the last bear market.”

Three in 10 investors were conducting their own investment research, stating their own Internet research had the most significant influence on their investment decisions, with daily newspapers being the second most significant influence.

Johnston said just a third of these clients said their planner was currently having the most influence on their investment decisions; many added “their own online research and the media are persuasive factors”.

Meanwhile, family and friends continued to influence 74 per cent of investors during the financial crisis.

The research shows a strong link between investor satisfaction with communication received from their fund manager and the propensity to switch funds, with investors less likely to abandon their provider if they are satisfied with the information they are receiving about their investment.

One in four investors using managed funds intended to switch or were considering switching all or part of their managed funds investments while almost one in five investors were considering switching super providers.

However, despite the deep concerns about the current climate, the vast majority of respondents recognise the importance of taking a long-term view, with 75 per cent of investors holding on to their investments during the crisis.

Johnston said there are also encouraging signs that investors are considering heading back into the market.

“Many are now on the hunt for bargains, with 52 per cent of SMSF investors planning to buy undervalued assets.

“Balancing this, there has been a large increase in the number of investors choosing to wait on the sidelines, with 42 per cent of SMSFs refusing to invest new money until the volatility subsides.”

High-net-worth clients want control

High-net-worth clients want control

Mike Taylor

Australian high-net-worth clients want to retain a fair degree of control over both their wealth and the manner in which it is invested, according to new research released this week by Brisbane-based firm Goodman Private Wealth Advisers.

The research, undertaken by the Australian Centre for Philanthropy and Non-profit Studies (CPNS) at Queensland University of Technology (QUT), found that while high-net-worth investors were prepared to obtain the advice of specialists such as financial advisers, they nonetheless wanted to remain in control.

The study found that the personal and financial needs of high-net-worth individuals were complex and therefore needed to be met by a range of financial advisers and planners, private bankers, investment advisers, stockbrokers and tax and estate lawyers.

It found that while clients expected advisers’ financial and investment knowledge to be greater than their own, they also sought advisers who were genuinely interested in helping them and expressed a need for education to increase their own understanding and knowledge.

The broad findings of the research were that:

1. high-net-worth individuals like to take responsibility for their financial affairs and like to maintain control, although their level of involvement may drop as they age;

2. they do not want to be told what to do, preferring to obtain expert input and guidance for their own decision making;

3. high-net-worth individuals are looking for advisory services that:

* offer what they don’t know or can’t access quickly or cost-effectively;

* put client needs and circumstances first. Active listening, responsiveness, and taking the time necessary to build a strong relationship are all critical components;

* deliver value for money. They did not mind so much paying for great service, but the real value to them had to be very clear.

4. few were organised in their approach to charitable giving despite making donations and awareness of philanthropic options and benefits was low;

5. there was a need for wealth management advice and services from a family perspective, including intergenerational wealth preservation, ageing and aged care and philanthropy while maintaining family values and connections despite geographic spread; and

6. there was interest in the benefits of philanthropy to wealthy families as well as to the charities that needed funds.

Advisers Shy Away From Platforms

Advisers shy away from main platforms

Fees, poor support to blame

By Kate Kachor Mon 08 Sep 2008

A large number of financial advisers have stopped using one main platform in favour of many, new industry data has found.

A large proportion of financial planners have admitted to dropping given retail platforms in the last 12 months, new data from researcher Investment Trends has found.

Thirty per cent of advisers have stopped using a platform in the last year, according to the 2008 Planner Technology survey.

"There has been an increase, and fairly dramatic numbers of advisers, saying they have stopped using platform x. So 30 per cent have actually ceased using a platform in the last 12 months," Investment Trends principal Mark Johnston told delegates at the Wraps, Platforms and Masterfunds conference last week.

"There is also a bit of an increase in the number of planners saying they want to change their main platform, which is a pretty dramatic step."

The main reasons advisers cited for leaving platforms are poor service and support, slow turnaround time on transactions and fees, he said.

As well as exiting selected platforms, there has also been a substantial rebound of advisers who admitted to using a number of other platforms alongside one main platform, according to Johnston.

In terms of potential threats, a number of advisers believe financial planning software will start to displace platforms in the near future.

"Advisers can definitely envisage a world where the planning software becomes the dominant tool." Johnston said.

Meanwhile, the number of advisers wanting to change their planning application has not really changed in the last 12 months, the survey found.

SMAs are Not Enough

Interesting article highlighting the lack of clarity between SMAs / Platforms etc. It would appear that this has begun to be a war of words rather than of service levels to clients.

Limited investment choice

By Vishal Teckchandani
Mon 08 Sep 2008

Using SMAs alone to build client portfolios does not provide enough asset class diversification.

Using only separately managed accounts (SMAs) to build clients' portfolios does not provide enough asset class diversification, according to BT Financial Group (BT) head of product and wrap solutions Craig Lawrenson.

"One aspect that a platform has, that I believe SMAs do not currently have, is investment choice," Lawrenson said at the Wraps, Platforms and Masterfunds conference last week.

"I do not think at this stage, advisers are able to establish a well-diversified client portfolio entirely using SMAs."

While SMAs provide clients with superior tax solutions to managed funds due to the direct ownership of stocks, platforms could be useful for accessing other products including term deposits, alternative assets and structured products.

Lawrenson said platforms should house SMAs, and they can benefit customers together.

"I do not see the SMA... being an alternative to the platform, and being able to manage and adminster those assets," he said.

Lawrenson's comments came after the year-long credit crunch sent global stock markets into bear territory, sparking high demand for term deposits, capital protected instruments and other cash products.

The catalyst for takeovers of SMAs will come when platforms seek to become full-service providers, Lawrenson said.