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Ph. 02 9290 5526
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Email. special.interest@charteredaccountants.com.au

Articles

1. Welcome
2. ASIC Update
3. Super Choice
4. Declining Birth Rate
5. Regional Updates
6. Disclaimer

1. Welcome

Our Plans-2005/6

Over the last twelve months the Institute has been grappling with the issue of what new strategies (if any at all) we should adopt to assist our members' successful participation in the discipline of financial planning. We have closely examined strategic alliances with other professional bodies; but have rejected these on the basis that our attributes as CA's would be at risk of dilution by so doing. We have looked at "throwing dollars" at advertising and marketing, but have concluded that even if the funding were to be consistently forthcoming (which is highly unlikely), evidence from other professional bodies which have adopted this strategy suggests that it has a short term "feel good" factor, but doesn't work in the long run.

In recent months, we have decided upon a more focussed strategy built on promoting the particular attributes of CA's, which we believe distinguish us in the marketplace. These attributes include our independence, our high level of educational standards, our technical competence, our ability to look at the "big picture" of our clients' affairs, our reputation for ethical dealings, and, as a result, our "most trusted adviser" status. We are not making the ridiculous claim that all of our members are perfect and that they will act impeccably at all times; nor are we arrogantly suggesting that other (non-CA) financial advisers do not possess some or all of these attributes.

What we are claiming is that these attributes are so embedded and reinforced in Chartered Accountants as a professional group that the public can be confident that a CA will offer financial planning advice in a professional, independent and ethical manner. In other words, we are claiming that our members can be trusted. It's as simple as that.

It doesn't sound like much; but in financial planning, it's everything.

Since its inception some twenty years ago, the financial planning industry has had a reputation for saying one thing and doing another. There's been a lot of TALK about the importance of looking after the financial affairs of clients; and then not acting in that way, because of the imperative to sell a product in order to "put food on the table". In plain language, that’s called hypocrisy, born of necessity, and in the context of an industry which one regulator has described as “structurally corrupt”. Hypocrisy is the major reason why the financial planning industry is not trusted; and is held in such low esteem by the public in general, and by other CA's in particular.

The Institute's job is to promote to the public that our members can be trusted when it comes to seeking financial planning advice, because of the attributes which we possess as a profession. As part of that promotion process we intend to reinvent the term "financial planning" by continually reminding the public (and our members) that "financial planning" is not fundamentally about the investment of dollars in managed funds. Rather, it is a comprehensive service in which professional advice about structures, taxation, estate planning, insurance, and wealth creation are all brought together in a coherent plan of action.

This may not appear to be a revolutionary proposition. It's been around since "Adam was a boy". The revolutionary aspect of the proposition is our claim that CA's actually mean it, and are uniquely equipped to deliver on it; whereas for the bulk (not all) of the financial planning industry, it's just something they need to say to make a sale.

Our strategy will be anchored in this single "trust" proposition. The promotion of the strategy will not be expensive and colourful, because it doesn't need to be; and to be frank, if it were to be turned into an expensive promotional auction, the Institute would not emerge as the winner. We intend to focus on the delivery of a range of key objectives, including improvement in the quality of our newsletters and communications, regular media appearances, high quality thought leadership papers and excellent professional development events (to name some). All of these initiatives will be designed to promote our basic proposition; that CA-Financial Planning Specialists can be trusted, in a industry that is very short on that attribute.

As a tangible first step, we have appointed a full time Manager, Hugh Elvy, whose role it will be to help us to deliver on our objectives nationally. Hugh has had many years of experience in the financial services industry, especially in the area of professional training. We welcome him on board and look forward to benefiting from his considerable expertise. Over the next few months Hugh will be travelling around Australia with a view to explaining the strategy in greater depth to our members.

Daryl Corpe

Daryl has been the Chairman of our Committee for several years, until recently when he decided to concentrate on his accounting practice in "God's Country", otherwise known as Bundaberg. On behalf of all our members, I sincerely thank Daryl for his major contribution to the National Financial Planning Committee. Daryl has been Chairman throughout our formative years and during our process of reflection on just where we should be positioned as CA's in financial planning.

The plans outlined herein are the result of the evolutionary process of thinking initiated by Daryl. His own accounting practice is an excellent example of where we would like financial planning to be; that is, redefined as a comprehensive advisory service, and repositioned as a central plank of what CA's do, rather than as a product selling exercise on the margin. Daryl intends to continue his service on the Committee, and we look froward to his wise counsel.

Robert M.C.Brown, B.Ec., FCA-Financial Planning Specialist
Chairman, ICAA National Financial Planning Committee

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2. ASIC Update

ASIC Update We will be meeting with ASIC in mid June to liaise with them on a wide range of issues. Should you have any issues you would like the Institute to raise with ASIC please forward the details through to business_practice@icaa.org.au

ASIC - Shadow Shopping

As you maybe aware with the introduction of superannuation choice ASIC will be conducting a national shadow shopping survey using 300 consumers. The ASIC survey will cover the full range of superannuation advice, namely:

• all financial advisers, including banks, financial planners and accountants

• advice on retail funds, industry funds, corporate funds and self-managed super funds; and

• all states and territories.

The shadow shopping survey will monitor the advice that financial advisers give their clients around the start of superannuation choice in July 2005.

As we receive more detail we will forward this information onto members.

APS 12 Statement of Financial Advisory Service Standards

Thank you to all the members who provided feedback and comments in regards to APS 12 Statement of Financial Advisory Service Standards. This feedback has been collated and a meeting of the Steering committee is being held this week.

Further details and updates will be provided when they come to hand.

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3. Super Choice

If you have been living on Mars for the last 12 months you would be completely unaware that the Super Choice regime officially starts on 1 July.

At a superficial level choice is merely about directing Super Guarantee contributions to the fund with the employee’s preferred super fund.

But at a deeper level choice also involves the potential to transfer existing account balances from current super arrangements to an employee’s preferred super fund. (The government has recently announced – in mid-March 2005 – that it will remove the requirement that account balances cannot be transferred out a fund if an employer had made contributions within the previous six months.)

For financial planners thinking of getting into this market it is necessary to know how to ‘attack’ it.

Here is our four step process:

1. Understand industrial relations

In the initial instance Choice is governed by the industrial relations rules that governs an employee’s employment.

Choice is not available to employees who are

a. employed under a Federal or State Enterprise Bargaining Agreement

b. employed under an Australian Workplace Agreement or Certified Agreement

c. employed under a State Award (more on these people later in this article)

d. employed by Federal and State Governments (however not all public servants are covered by this exemption) as long as these arrangements specifically deal with super contributions in the appropriate fashion.

An employer has to decide whether they are going to allow employees to choose where contributions should be made or whether they will take steps to remove this ability for employees and try and take steps to remove this flexibility.

If an employer wants to abandon choice then broad employment issues covering industrial relations and employment conditions will be involved in an employer’s decision-making process. Most financial planners are unlikely to be of much assistance whilst this is being decided. So here in lies the first risk for a planner – raise the issue and then lose control.

At the end of this process you should have a good idea of which employees are eligible for super choice and which aren’t.

2. Help the employer understand their choice obligations

Most employers will not find choice easy to administer. Not only will they have industrial relations and employment conditions problems but they will also have to review their current super arrangements.

Many employers will have a super fund which has been put into place a number of years ago (in some cases more than 20 years ago) and this particular fund may no longer be appropriate.

Planners should be helping with this step. For example an important planning step here is to consider what the possible fund expenses may be if most of the people with high account balances move their super balances to another fund. What if the employer’s fund is an older style super fund and very high charges apply if it is moved to another arrangement?

Is the current arrangement suitable to become that employer’s default fund? Should the same default fund apply for all employees?

Further there are basic administration issues for employers. They must issue the choice form to employees by a certain date and employees must respond within a certain time. Employees can initiate choice off their own bat but employers are only required to action one choice request per annum. Will an employer follow this limitation or allow employees to choose as often as they like?

Does the default fund have the right level of death insurance? Or can the fund fall into the transitional provisions and when is it appropriate to review this?

3. Which employees should be targeted for financial planning services?

Just because an employee is eligible for choice doesn’t mean it is viable to do business with them especially given the cost of providing advice.

Therefore planners will need a good idea of how they can cover all necessary bases. For example if the following employee might be a good target - $250,000 of employer super and annual contributions of $5,000, as well as potentially life insurance needs, income protection, non-super investments and refinanced mortgages.

The following employees might not be a good target - $2,000 of employer super, annual contributions of $2,000, can’t afford insurance or non-super investments and doesn’t own their home. How will advice be provided to this person economically especially if they come looking for it?

4. Communicate and compare

It is essential to communicate with employees on a regular basis. How will this occur?

For further information in regards to superannuation Choice, refer to the ICAA web site:

http://www.icaa.org.au/services/

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4. Declining Birth Rate

The world is getting older.

This statement is not new and is a matter of fact.

The dramtic decreases in mortality and the equally dramatic decreases in the fertility rate, which are the twin reasons for a rapid increase in average ages – has never happened before in the recorded history of mankind – about 4,000 years.

There is another aspect to the decline in the fertility rate which must also be stated. The decline is occurring in every nation throughout the world.

During the great depression, Australia’s fertility rate fell to 2.25 births per woman. Even during World War II this rate was always well above replacement level – that is, above 2.1 children per woman. Between 1945 and 1970 the fertility rate hovered around the 3.0 children mark.

From 1970 onwards the birth rate went into free fall – where it has remained ever since. The Australian Bureau of Statistics shows calculates the current birth rate at 1.75.

Although Australia’s fertility rate has collapsed over the last 35 years, her population has been increasing thanks to immigration.

There is an assumption that Australia’s fertility rate will not increase to any significant extent over the next 40+ years and there is an assumption that Australia will still have strong positive immigration.

The majority of Australia’s recent immigrants have come from developing countries. Recent studies have shown that these same developing countries populations will also decline over the next forty years. For example in 1970s women in developing countries averaged six children. Today the figure is 2.7. Will Australia be able to find enough people willing to migrate especially as other similar developed countries will also be seeking migrants?

Two key questions emerge - what has caused this dramatic fall in fertility and what are the implications for the economy because of the aging population?

There are lots of theories about why the fertility rate has fallen.

A recent study in the US found that there is almost perfect correlation between declining illiteracy and falling fertility.

As economies modernise, more and more jobs cease to have a significant physical component and as women suffer no disadvantage in knowledge-based jobs they are able to take a greater role in the workforce.

But the ability for women to remain for long periods in the work force is governed by access to contraception because contraceptive technology makes it possible to efficiently control fertility within marriage.

Certainly within Australia contraception is widely available. In effect motherhood is now a choice. Once motherhood becomes a choice, it become less frequent. This is clearly shown in the decline in Australia’s fertility rate from 1970 onwards when the contraceptive pill became widely available.

As work increasingly becomes an option for women, having children not only means heavy expenses but also the loss of income that a mother might have gained through work.

There are other reasons for a decline in the fertility rate which must also be considered. A recent study by Professor Sue Richardson of the National Institute of Labor Studies shows that the decline in fertility has affected all socio-economic levels but it is very severe in males at the bottom because they are least likely to be in the labour force which leads to singleness.

Professor Peter Saunders of the Centre for Independent Studies believes that one major reason for the declining birth rate is the nervousness which most women feel. “Fifty years ago [in Australia] women and men would make a mutually advantageous cooperation deal - the man promises to work for a lifetime to keep them both and the woman promises to make a home and raise his children. But now the woman knows there is nothing to hold the man to his side of the bargain. He can up and leave, so she is in an extremely insecure position if she chooses to have children and put her career on hold.”

Another reason propounded for the drop in fertility is the increasing tax rates that apply to families. In her publication, Taxing the Family, Lucy Sullivan shows that for the first six decades, and part of the 7th decade, of the 20th century government policy ensured that the cost of raising children was taken into account when determining overall taxation levels.

By the mid 1980s families earning below average weekly earnings retained less income after tax than a families of equivalent size by Social Security benefits.

High effective marginal tax rates caused by the withdrawal of government benefits as income increase is a very hot political issue at present.

But has all this lead to a decline in the birth rate? Professor Ross Guest of Griffith’s University does not believe so. In fact he thinks that high taxation levels might actually reduce the financial impact of having a baby (and consequently increasing the incentive to have a child).

What is the long-term impact of this decline in fertility? Are we destined for economic stagnation or will we be able to solve this problem without much fuss? Should Australia be putting in place policies to encourage children?

These are all good questions – the Productivity Commission has been asked to work out the answer to these questions. Their final report into the economic impact of an aging Australia is due to be published in the near future.

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5. Regional Updates

NSW Financial Planning SIG Luncheons

Luncheons are held in NSW bi-monthly and are a great way for members to meet with other members as well as hear speakers from a wide variety of backgrounds.

The luncheons are held at the Institute’s Level 5 Conference Centre, Chartered Accountants House, 37 York Street, Sydney from 12.00pm to 2.00pm and attendees qualify for 1.5 CPE hour.

The NSW Steering Group is always seeking to provide relevant topics for these luncheons. Subscribers and Specialist of the NSW Chapter are invited to register their suggestions or feedback to susans@icaa.org.au

The meeting dates for the remainder of 2005 are:

• 27 May 2005 NSW Financial Planning Chapter Luncheon
  Speaker: Robert Brown
  Topic: "Super Choice"
  

• 24 June 2005 NSW Financial Planning Chapter Luncheon
  Speaker: Kevin Smith
  Topic: "Budget Update - its impact on the financial services industry"
  

• 26 August 2005 NSW Financial Planning Chapter Luncheon
  Speaker: TBC - from ASX
  Topic: "Direct equities in building a client's portfolio (where do equities fit into a client's portfolio)
  

• 28 October 2005 NSW Financial Planning Chapter Luncheon
  Speaker: Craig Dangar
  Topic: "Estate Planning and DIY"
  

• 2 December 2005 NSW Financial Planning Chapter Luncheon
  Speaker: TBC
  Topic: TBA
  

For more information and to reserve your place, please call Susan Smith on 02 9290 5679 or email susans@icaa.org.au

If you are interested in attending any of the above activities or would like to find out details of events that may be happening in your state please contact the following representatives at your regional office on the details listed below:

NSW & ACT– Susan Smith: Email – susans@icaa.org.au Telephone – 02 9290 5679
VIC & TAS – Kat Brennand: Email – brennand@icaa.org.au Telephone – 03 9641 7407
WA – Jessica Kapeli: Email – jessica@icaa.org.au Telephone – 08 9420 0411
SA – Peggy Miller: Email – peggy@icaa.org.au Telephone – 08 8231 5926
QLD – Hayley Rees: Email – hayleyr@icaa.org.au Telephone - 07 3233 6512

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6. Disclaimer

This newsletter is a publication of the Institute of Chartered Accountants in Australia. The copyright for all articles is reserved and such articles may not be reproduced in whole or in part without permission. Opinions of authors are their own and do not necessarily reflect policies of the ICAA or the Financial Planning Chapter.

The Financial Planning Chapter Newsletter is available by subscription for $66.00 annually (inclusive of GST).

For further information please contact:
Kylie Wilson
The Institute of Chartered Accountants in Australia
Email: business_practice@icaa.org.au