SMSF fraud protection is needed

I agree with the self-funded super industry association's (SPAA) assessment of the need to protect SMSF members who are subject to fraud through no fault of their own.
As the self-managed super sector continues to grow it is being increasingly targeted by all sorts of intermediaries, service and investment providers. Any instance of opportunism that arises when a relatively new "market" starts to bloom brings with it the risk that some of those attempting to profit in the process may not be as honest as others.
We all know the script, SMSF is the fastest growing super sector. More people are taking control and becoming trustees of their own super funds. Surely they deserve some protection from fraud. It is just a matter of how that protection is funded.
According to SPAA, APRA regulated large funds are required to pay a levy to fund compensation in the event of fraud. Surely some sort of mechanism can be put in place, such as an affordably levy for SMSFs that have exposure to service and investment providers which may leave them vulnerable to fraud.
I would think that the Federal Government may have some duty of care to the members of all super funds to protect the nation's forced, that is compulsory, retirement savings, from crooks. We're all forced to lock up 9% of our salaries for our entire working lives (soon to be 12%). Super is now our largest asset after our homes in most cases, surely there needs to be adequate protections in place to prevent it from being subject to fraud. Maybe some sort of government guarantee up to a specified threshold or perhaps some sort of universal insurance scheme is needed. Isn't that just common sense?

Japanese devastation another u-turn for world economy

By Jackie Pearson
We are days, if not weeks, away from grasping the enormity of human losses from the Japanese earthquake and tsunami but already number crunches are looking at the potential economic and investment consequences.
Comparisons are already being made with the enormous 1995 Kobe earthquake but the consequences of the 11 March catastrophe appear to be far more extensive with major impacts on road networks, power plants and infrastructure. The instability of up to 11 nuclear reactors adds a whole new layer of uncertainty and frailty to this unfolding situation.
As an event this Sendai tragedy has a traumatic and emotional power similar to 9-11, although the context is completely different. This is bigger than any man-made disaster, any media commentary and any economist's forecasts. This has the feeling of a history-changing event.
The one thing that is sure is that Japan's already fragile economy will remain so for at least the short to medium term. The enormity of the search and rescue operation, let alone the salvage and rebuild strategies will put huge stress on the domestic economy and on Japan's allies around the world who are already coping with their own weak domestic economic situations and their pledges to offer support to other unstable regions and countries.
Our hearts are with the people of Japan. Our heads say it is just a little bit too early to be looking at the investment pros and cons.

Shorten must not let planners dodge reforms

By Jackie Pearson

According to a recent Crikey report, the Financial Planning Association has distributed  kits to members so they can lobby their local Federal MPs to oppose reforms slated to outlaw trail commissions and give planners a fiduciary duty.

Bill Shorten, now minister for superannuation and financial products, needs to stand up to the planners and ensure the proposed 2012 changes do become law. Here are just some of the reasons why the Australian financial planning industry needs to be cleaned up.

1.       We have compulsory superannuation. This is a forced savings regime under which a substantial percentage of our earnings gets locked away until we reach retirement age. Most of the funds in our super accounts are invested in growth assets, such as shares, that also carry high short-term investment risks. The majority of the trained, qualified and licensed financial planners we can go to for advice about our super are paid upfront and ongoing trail commissions by the fund managers they recommend. Upfront commissions have been cleaned up to some extent in recent years and investors increasingly understand the importance of paying for advice on a fee-for-service basis to ensure it is unbiased but trail commissions remain. And many planners receive trails for doing absolutely no work for the client, year after year. It’s a rort that should be stopped.

2.       We have compulsory superannuation. I’ve said it before and I will say it again. This is a forced savings regime and as such surely the people who are supposed to be license to provide unbiased advice about our super and other investments should have, as a minimum, a fiduciary duty to act in the best interests of their client. Financial planners market themselves as professionals and experts but they don’t seem to want any of the responsibilities that come with those titles.

3.       We have compulsory superannuation. Financial products and services are complex and Australian consumers are forced to rely on disclosure as their only real protection from fraud and misrepresentation. I am talking about the types of misrepresentation that resulted in battlers losing their houses because they followed the advice of licensed advisers at Storm Financial. But I am also talking about the fact that if an independent audit was conducted of the number of people who currently have their superannuation invested in options that are appropriate for their life stage, risk profile etc I would be very surprised if even 50% of our current superannuation nest-egg is invested appropriately. Some may say this is due to the fact that not enough super fund members seek out good financial advice but I am certain that many advisers are still making inappropriate and commission-driven superannuation recommendations.

And then we have the rise and rise of self-managed superannuation. It seems the funds management industry and its intermediaries (financial planners) have decided, during the past couple of years, that they can’t make self-managed super go away. Their solution is to climb on board the engine and get it revved up. Suddenly advisers are espousing self-managed super as an excellent way to gain control of your retirement savings. The trouble is it is the advisers gaining control and the self-managed, diy, independent nature of self-managed super is increasingly becoming a misnomer.

There are some true experts in this area: Dixon Advisory, Cavendish etc but there are many claiming to be experts who have very little real expertise in the area. This is another reason why we urgently need reforms to ensure financial planners do have a fiduciary duty to their clients and that trail commissions are abolished.

Perhaps consumers who’ve had poor experiences with financial planners should be lobbying their local Federal members of parliament to counter-balance the FPA campaign. It only takes a few minutes to write a letter outlining how you feel about your treatment by a planner. Perhaps we should also be writing to Mr Shorten, the whole of cabinet and relevant opposition, independent and Greens MPs too. The difficulty with consumer issues, irrespective of which major party is in power, is that the industry’s lobbying manages to drown out any voice of reason representing the consumer.

The bottom line, however, is that if we have a compulsory retirement savings regime in the form of superannuation, the government should put adequate protections in place to ensure those savings are protected.

Nothing but self-managed super?

By Jacquelene Pearson
I just realised it must be two years or more since I've been commissioned to write a superannuation article on anything other than self-managed super.
I used to be asked regularly to write about industry super funds, whether they were better than retail or wholesale offerings. Over the years I've written heaps of stories on super fees, super advice, how to select the right investment option, how to kick start, clean up and push forward your retirement savings.
Not recently, the only topic commissioning editors have been interested in for the past couple of years has been self-managed super.
According to SPAA, the SMSF sector's professional association, self-managed super is the fastest growing sector with $292.9 billion under management, "equating close to a third of Australia's $1.23 trillion superannuation industry."
Recent research indicates the sector is expected to continue its strong growth trajectory with one in 10 respondents in a recent survey who don't already run their own super fund indicating they intend to look at setting up an SMSF within the next two years.
Russell Investments managing director of intermediaries, Patricia Curtin calls these investors "coach-seekers". She says they make up 30% of the population but only one in five currently have an SMSF.
Wow! What a fantastic new market for all those intermediaries currently setting themselves up as SMSF specialists and experts.
The danger is that DIY super will be hijacked and turned into something very "off-the-shelf" unnecessarily expensive and providing far less autonomy and control to the trustee than it was ever designed to give. What a pitty that would be.
DIY purists usually don't have a financial planner, or if they do, it's been a strictly fee-for-service arrangement for a very long time. They have time on their hands and a high level of financial knowledge and investment experience. They take a daily interest in the markets and the management of their SMSF portfolio.
They may have help with the administration and compliance side of their fund's operations but they would very rarely abdicate power over investment selection and management to anyone, financial planner, platform operator etc. And they have high account balances, particularly in comparison with amounts held in industry super accounts, for example.
So as the SMSF sector winds up to cater for increasing demand for self-managed funds and as the big publishers write more and more stories about how popular the sector is, investors need to be increasingly wary. Be wary that it is really the right option for you. Be wary of any intermediary promising to make it easy and do your research before you decide to DIY.

Get off the money rollercoaster in 2011

The Reserve Bank looks set to keep its official cash rate at 4.75% at its February Board Meeting today. That's good news if you're already struggling under the weight of hefty home loan repayments and your Christmas credit card bill.
But why sit with your fingers and toes crossed each month waiting to see what the RBA and banks do with rates. Why not make 2011 the year you get proactive about your personal finances? Get off the rollercoaster and join the quiet revolution.
Yep, revolution. It seems Australians are spending less on their credit cards for the first time in decades and we're starting to save more.
The nineties and moughties fashions of living from month to month on your home equity and credit card seems to now be old hat. So what are the first steps you can take to take better control of your financial future?
The first step is to review your current financial position. If you don't know exactly what you spend each month then how can you possibly know if your current situation is sustainable. Here's an exercise to try. Keep all your receipts, for everything, for one month. At the end of the month add up exactly what you've spent on groceries, coffee, movie tickets, train tickets, clothes, medicine, petrol, pets, etc etc etc.
This will give you an excellent snapshot of whether you are currently living within or hbeyond your means.

BEWARE THE FAIR TRADING SCAM

By Jackie Pearson

Another banking scam to look out for is called the Office of Fair Trading Scam. It works like this.

The caller tells you they are from your bank and explains that your bank has been over-charging you for years. The reason for the call is that they need to verify your personal information so they can organise for the Office of Fair Trading, which has supposedly prosecuted your bank for over-charging, to provide you with a refund.

Before you can get that refund, the person calling says they need to issue you with a unique security code and to do that they will need to verify your account details.

The person then proceeds to read you the first four digits of your credit or debit card number and then asks you to verify the remaining 12 digits of the number. This is an easy trap to fall into because, well, who doesn't want their bank to pay them a refund for over-charging.

What most consumers don't know is that the first four digits of your credit or debit card are the same for every card issued by your bank. Those four digits are like the card BSB number.

YOUR BANK SHOULD NEVER, EVER ASK YOU FOR PERSONAL DETAILS OVER THE PHONE. If any caller asks for your credit or debit card number or for the three-digit security card number on the bank of your card, THEY ARE NOT REALLY FROM YOUR BANK.

When I received one of these scam calls on my home phone recently I asked the caller to stay on the line while I called my bank on my mobile phone to verify that they were, in fact, a representative of the bank. Guess what, they hung up straight away!

So repeat after me: "I am sorry, I never give my account or card details to anyone over the phone, even if you say you are representing a charity or want to GIVE ME MONEY. If you want my personal and confidential banking information, send me your details in writing so I can verify them with my bank". If you say those words, even on occasions when you are convinced the call is legitimate, you will stay safe and free of nasty scams!

CUSTOMERS DRIVE COMPETITION

I must say I am finding the banking competition inquiry a bit too cosy and friendly. Not a great deal of hard questioning from our Senators to the bankers or non-bankers or consumer reps.
As someone who has written about banking and interest rates from the CONSUMER perspective for some time now, the Treasurer's "reform" package and ideas being recommended during the public hearings are classic deck chair re-arranging.
Competition between banks and non-banks, banks and mutual deposit-takers such as credit unions will not improve until consumers demand a better deal.
Initiatives to improve financial literacy in this country over the past 10 years have not garnered great outcomes. Many Australians still do not understand their mortgages, realise how interest is calculated on either their savings or credit contracts. They don't even keep track of what they are earning and spending. Until that changes, the banks can continue to get away with peddling complex, incomprehensible contracts that bind the uneducated customer to their brand for longer than necessary.
It will be customers that make the financial services marketplace truly competitive and while we are all slaves to our offset accounts and credit cards, the level of awareness and effort needed to drive a truly good deal, simply won't exist.

THIS WEEK'S NEWS YOU CAN USE

What's been happening in consumer financial services in the past seven days? Here are some stories, events, items and issues you may not have noticed.

• Small super funds doing better than big: the Financial Standard reported that all super fund returns have recovered to an average of 6.6% for the year ending October 2010 but the big funds are still "failing to fire". How does your fund's return compare with the industry average? We're very removed from our super in Australia but it is worth keeping an eye on, at least quarterly and talking to your fund if you're not happy with the bottom line. It's also worth checking your employer is paying what they should and that you have adequate insurance.
• The Tax Office will take a look at 10,000 self-managed super funds: one area that seems to be bringing SMSF trustees undone is the offering of financial support to fund members and their relatives. Unless such arrangements can be proven to be loans they are deemed to be early access to your super, which is illegal unless provided under very strict circumstances. If you're an SMSF trustee make sure you have a regular look at the ATO website, it has excellent SMSF information.
• All eyes on Asia: according to a report from Cerulli Associates: global emerging market funds domiciled in Europe are set to double between now and 2014 as more institutional investors take advantage of the rapid economic expansion of the Asian region. Stay tuned for future Truepenny posts on how to build safe exposure to the Asian boom.
• Early victories for Climate Advocacy Fund: Australian Ethical's Climate Advocacy Fund has scored some early victories since its launch earlier this year. Two resource companies, Aquila and Paladin have agreed to greater disclosure around their carbon emissions as a result of lobbying from the new fund, along with the Climate Institute. Stay tuned for more information about the Climate Advocacy Fund and other responsible investment opportunities.
• Rates on hold? The Reserve Bank is expected to keep interest rates on hold at its December board meeting although more rate rises are expected early in 2011. This is the bank's last opportunity to adjust rates before its February board meeting. So at least mortgagees have two months of certainty.

MOVE TO A MUTUAL

By Jackie Pearson

Abacus Australian Mutuals has today declared that the best way to improve competition in the Australian banking sector is to "empower consumers" and provide building societies and credit unions with fairer access to funding.
In terms of empowering consumers, yes, it is important that the current Senate Inquiry into banking competition does look at the impediments and complexities created by the big banks to make it extremely difficult for consumer to switch.
In particular it needs to take a hard look at mortgage exit penalties and the "bundling" of mortgages with an array of other products.
Abacus CEO Louise Petscher said the group's submission to the Senate Inquiry recommended the continuation of the government guarantee on deposits up to $1 million and the reinstatement of a flat fee wholesale guarantee to help non-banks compete with the big mortgage providers.
Meanwhile there is one definite way that we can all cement the position of credit unions and building societies as the fifth pillar of Australian banking.
We can take a serious look at the service, interest, fees and deals being offered by our local credit unions. We can compare those deals, closely, with the ones currently provided by the big four. In most instances (there are some inferior credit unions) you'll find the mutual down the road has more to offer than any of the big four.
So why not open an account with a mutual and gradually switch over all your direct credits and debits until you're at a point where you can tell your bank what you really think of it. And end the conversation with "goodbye".