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.