The risk of litigation and class actions against planners will increase as clients become more knowledgeable about investing, warns industry doyen David Bleakley.
“Compliance is going to get harder and the risk of litigation against planners, together with class actions, will occur if they are too conservative in their advice,” he says.
“There could be claims for lost earnings and claims of not providing enough income due to advice decisions.”
Speaking at the recent Matrix conference in Ayers Rock, Bleakly said he sees legal actions as one of the factors that will affect the financial planning business in years to come.
With legislation such as CLERP 6 due soon, the industry will witness an explosion of new dealership groups set up by former life agents, he says.
“There will be a convergence of financial planners who have an investment advisory background, with life agents and brokers,” he says.
The legislation will also cause fund managers to re-think their distribution strategies, he says.
The changes ahead will cause another rise in education standards for planners, with CFP being the sole recognised practitioner designation from July 2003.
Advisers will want a share of any master fund/ wrap account they are contributing to in the future, Bleakley says.
“Tower is looking to sell its financial planning company to offer equity to advisers,” he says.
A challenge for advisers in the future will be the sophisticated investors who will not want to buy just products. “They will get their information on the Internet and make investments direct,” Bleakley says.
“For planners this will mean less reliance on retirees and more on wealth creation.”
He sees further opportunities for planners to sell more loan and risk products to counter this loss of traditional business.
There are further opportunities in corporate superannuation with investment and risk products for fund members.
“Provide specialist advice, outsource where possible, use technology to your advantage and develop recurring income streams,” is Bleakley’s advice for staying in business in the years ahead.
Margin lending up
The amount of money flowing into margin lending products over the next three years will continue to grown quickly, according to BT Margin Lending senior vice president Glenn Toohey. Toohey estimates that the amount of money in the margin lending market will double in the next three years from $6.8 billion in May. Shares and managed funds purchased using margin loans currently makes up about 0.9 per cent of the stock market, which he says may grow to about 1.8 per cent in three years time. This would also double the number of investors with margin loans from about 75,000 presently. Toohey says the margin lending industry in Australia rose 35 per cent last year and 200 per cent in the last three and a half years. In the US, margin loans account for about 1.25 per cent of share market capitalisation and the figure is on the rise.
York hits the flicks
York Capital has added an Adelaide cinema complex to its wholesale property fund which is sold through a number of master trusts. The Salisbury Cinema Complex was bought for $9.2 million from the developers and has a rental income of $1.1 million. Tenants at the complex include Hoyts, Village Roadshow, Employment National and Subway on long leases. The property was bought on a passing yield of 11 per cent. York Capital managing director Owen Lennie says the new property will complement the Victorian industrial investment already in the fund. The fund is one of the very few offering investors direct property through master funds and wrap accounts. It is on the preferred lists of Navigator, AustChoice, Freedom of Choice and Confidens master trusts.
Guild name change
Guild Commercial, the commercial arm of the Pharmacy Guild of Australia, is to change its name reflect the group’s financial service activities. Managing director Brian Benger says the name change for the financial services arm to Guild Insurance and Financial Services is a logical progression for the group. The name change comes as the group’s superannuation fund, Guild Super, reaches $100 million under management. The group has also announced two new members to the board with Ron Champion and Peter Littlejohn joining by the end of August. Champion is currently director of the Victorian Managed Insurance Authority and will step down from his current position as UniSuper chief executive in September to take up the Guild board role.
AUSMAQ fails NAB
National Australia Bank thought the Ausmaq electronic trading platform would “change the face of the financial planning industry”, before it signed an agreement to buy and develop the system, the court hearing the $50.6 billion law suit between the two companies has been told. According to court transcripts, NAB memorandums prepared by Ian Coulson, the bank’s then group manager of corporate strategy, says that “AUSMAQ will change the face of the financial planning industry and potentially the structure of the broader investment management and trading systems for all forms of investment”.
LPTs show the way
Australian equities got off to a dismal start to the new financial year after a huge rally in the last month of the previous financial year. The ASX 200 lost 1.8 per cent in July, according to Ausbil Dexia, dragged down by resource stocks. Listed property trusts were the shining light in July, rising 2.5 per cent. The rise caps off a great run from listed property trusts in the volatility which has hit world markets since April. In the four months since April, the listed property trust index has risen 8.6 per cent. International equity markets did not fare much better than the Australian bourse. The Nasdaq dropped 5 per cent over the month, while Asian markets were hit hard. Japan dropped 9 per cent, Korea 14 per cent and Thailand fell 12.6 per cent for the month. However, another drop in the Australian dollar and better results from the Dow and Europe gave the international index a rise of 0.8 per cent for the month.
