Buried in the fine print in Budget 2018 was $10.6 million for ASIC and $2.7 million for APRA to assist in their Royal Commission work. Notably, $4.7 million goes to ASIC in 2019-2020, but the Commission's final report is due in February 2019. The extra work will continue for years.
When I started working in wealth management as a consultant in 2001, I had previously spent two decades in banking. I thought funds management and financial advice would be a breeze compared with the complexity of bank balance sheets, capital adequacy and liquidity rules, lending and deposit policies and systems handling millions of payments a day.
In fact, the structure of wealth management is a complex and intriguing web. There are so many gatekeepers, with dealer groups, asset consultants, rating agencies, fund managers, regulators, industry associations, media groups, platforms and financial advisers, each with a power base and clients. The Royal Commission is only unraveling parts of it.
Which is why the calls for 'clean brooms' from outside wealth management to sweep through the industry are misplaced. Every time I see a person from another industry appointed to a board position in wealth management, I wonder what they know about the value chain and who pays the piper. The AMP head of advice told the Royal Commission he had not "turned his mind" to commission structures. How could the former Chair of AMP, previously a middle-level executive at investment bank ABN Amro, have understood thoroughly what was happening in the advice payment structure?
The regulator is watching incentives
It's a good time for public superannuation funds to follow the letter of the law, especially those who have just paid a fine. Last year, ASIC issued Report 529 on how super funds should deal with their members, including this instruction (page 30):
"In our view, the offering of gifts to influence a financial decision is not conducive to enhancing consumer trust and confidence in the superannuation industry ... ASIC has previously warned trustees about this issue and may take stronger regulatory action in future, including issuing stop orders. Law reform may be needed to ensure that account consolidation is appropriately managed."
This week's articles and Budget Special
Bernard Salt was correct that money saved by forgoing smashed avocado breakfasts and the like could eventually become a home deposit, and we look at how a low income earner can boost superannuation by 70% over time with some expenditure discipline.
Nobody waves a red flag in the middle of the street the day before markets peak, but Ashley Owen says US equities are at danger levels which in the past have delivered losses. The markets have been driven by US tech stocks, but Kim Catechis argues Asian tech companies are no longer catching up but leading the tech revolution.
On investing, Michael Roach uses factors to improve portfolio construction, while Adrian Harrington shows how technology is improving property management.
For SMSF trustees, Monica Rule explains segregated and unsegregated assets, and Mark Ellem describes when an investment property can be transferred into an SMSF.
In addition to the Cuffelinks articles published on Tuesday night during Scott Morrison's Budget Speech, the White Paper section is a Budget Special with commentary and videos from five sponsors, including Accurium, AMP Capital, nabtrade, SuperConcepts and Perpetual. The latest LIC Monthly Review from IIR is also attached below.
Graham Hand, Managing Editor
Edition 253 | 11 May 2018 | Editorial | Newsletter