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News Bulletin : ADA News Bulletin August 2010
40 AUGUST 2010 John F Kennedy once said, "There is nothing more certain and unchanging than uncertainty and change." That certainly appears to be true in Australia. Since my last article, we have a new female Prime Minister, a looming election, a government back down on the controversial Resources Super Profits Tax and continued uncertainty about the sustainability of the global economic recovery. On top of this, the Government has proposed major changes to the regulations covering investing in Australia that will affect most Australian investors. All change creates opportunities. This month, I will discuss ways high income earners can take advantage of the regulations governing access to wholesale investments. This can be beneficial as it allows high income earners to consider investment opportunities that are not available to the average investor. Governments around the world have been struggling with new regulations to curb the perceived excess risk taking by banks whilst simultaneously trying not to upset the seemingly fragile global economic recovery. This is a tough balancing act. Whilst a globally coordinated effort is required, the recent meeting of the G20 in Toronto decided against a global bank tax. This would have negatively impacted our solid and reliable Australian banking system which did not require any government bailouts. Not all Australians escaped the GFC unscathed. A number of retail investors lost money by investing in aggressively promoted debt products of companies like Westpoint and MFS. As credit or debt products were state regulated they did not have the same rigorous investor protection regulations covering shares and managed funds. However, as many of the investors that lost money were retirees and poorly informed investors the Government launched a major inquiry into financial products and services including a special review of superannuation. These inquiries are known as the: • Parliamentary Joint Committee on Corporations and Financial Services which was headed by Bernie Ripoll and reported to Government in December 2009. • Review into the Governance, Efficiency, Structure and Operation of Australia's Superannuation System (the Cooper Review) submitted to Government on 30 June 2010. Chris Bowen, the Minister for Financial, Superannuation and Corporate Law, released the Government response to the Bernie Ripoll report on 26 April 2010 called The Future of Financial Advice. The following are highlights of the Government proposals which are due to become law on 1 July 2012: • Banning of commissions and volume based incentive payments in relation to the distribution and advice of retail investment products including managed investments, superannuation and margin loans. This should go a long way towards eliminating commission based bias inherent in some products. • The introduction of a statutory fiduciary duty which means that financial advisers must act in the best interests of their clients and place the best interests of their clients ahead of their own when providing personal advice to retail clients. • Payments for investment advice will be charged to the client by the adviser and no longer built into investment products which will make advice fees more transparent. Investors will be able to opt in to the advice and therefore can turn off these fees if they do not think the advice or service they are receiving represents value for money. • Charging percentage-based fees (known as assets under management fees) will only be charged on ungeared products or investment amounts and only if this is agreed to by the investor. This will discourage advisers from promoting excessive leverage as they will not be paid extra fees on the geared amounts. • Expanding the availability of low-cost 'simple advice' to provide more people with access to affordable financial advice. • Strengthening the powers of the Australian Securities and Investments Commission (ASIC) to act against unscrupulous operators. The Cooper Review of the superannuation system recommended the establishment of a MySuper default fund for those people that are disengaged or not interested in their superannuation fund. Not surprisingly, this is a significant number of Australians. The report proposes to have a low cost, low fee MySuper fund that will reduce fees by 40% and increase the retirement savings of the average worker by $40,000. Another key initiative of the Cooper Review is focused on improving the administrative efficiency of the superannuation system by utilizing tax file Compiled by Michael Lannon ACCESS TO WHOLESALE INVESTMENTS The high income earner investment advantage investment insight www.2020directinvest.com.au/ada | 1800 352 021 100% entry fee rebate on managed funds
ADA News Bulletin September 2010