FoFA's twists and turns continue: ASIC's focus on fee disclosure.
Last week's Hedge Clippings jumped the gun by claiming that the much discussed changes to FoFA had become a reality. The real lesson in reality is that at the current time nothing coming out of Canberra can be guaranteed, except perhaps more of the same. As a result the reality is uncertainty, and this uncertainty is only a benefit to the opposition, and the collection of senators in the new Parliament who will control the country's (and the government's) destiny until the next election.
That may come sooner than later.
As we said last week there has been plenty of rhetoric regarding FoFA, and from our reading of the legislation (for the technically minded the Select Legislative Instrument No. 102, 2014) a fair deal of scaremongering along with it. The Explanatory Statement issued by the authority of the Treasurer which accompanied SLI No 102, 2014 ran to nearly 60 pages, or approximately 3 times the length of the actual Select Legislative Instrument, which probably says something in itself.
If the Explanatory Statement from the Treasurer is taken at face value it would appear that, as far as the issue of conflicted remuneration for General Advice is concerned, the proposed situation is pretty clear: In order for benefits to be paid to an individual in relation to General Advice to NOT be considered as conflicted remuneration, a suite of five conditions all need to be met, one of which is that payments commonly known as commissions cannot be paid on products sold as a result of General Advice (see pages 6-8 of the statement).
Not being a lawyer may well mean that I have got the wrong end of the stick on this issue, and FoFA deals with a range of other issues in addition to conflicted remuneration, including definitions between wholesale and retail clients, the need for clients to renew their ongoing fee arrangements (opt in), best interest duties and a range of other issues. As previously stated it sounds as if there are some large and competing interests at play here between the large product issuers and distributors, and the non-for-profit superannuation industry.
Added to which are of course the competing interests of a government that is struggling to win many friends, or take many tricks, either inside or outside of Parliament.
It doesn't help of course that the Commonwealth Bank's compliance woes and failures are also currently front and centre in the media. There were certainly deficiencies in the law when some CBA financial advisers ran riot, but the main issues would seem to have been effective compliance controls at nearly all levels of management.
Changing tack only slightly, this week ASIC also released Report 398 covering Fee and cost disclosure in the superannuation and managed investment product sector. This has only just hit Hedge Clippings' desk so maybe we will park a detailed analysis to another time. Suffice to say that fees and their disclosure will always remain a contentious issue, especially in an industry where asset values are guaranteed to increase dramatically over the next two decades without any corresponding reduction in fees in sight.
Specific results received this week include the following PERFORMANCE and NEWS UPDATES:
Morphic Global Opportunities Fund returned 1.07% during June, ahead of the global equity index at 0.46%, and financial year performance of 20.81%.
Performance for the Monash Absolute Investment Fund 2014 financial year was 23%.
Optimal Australia Absolute Trust returned +0.63% in June against the ASX200 which fell -1.5% with the fund's low concentration and risk controls mitigating losses on long positions, while shorts significantly outperformed.
Slightly ahead of the index at -1.5%, Bennelong Kardinia Absolute Return Fund returned -0.66% for June.
Bennelong Alpha 200 Fund returned 0.32% in a weak market (ASX 200 Accum - 1.5%).
In a difficult month for the ASX The Paragon Fund returned 4.9% bringing 12 month performance to 30.0%.
14-15 August in Sydney: Alternative Investments Conference - Investigating the rise and rise of non-traditional high yield and low risk investment products, strategies and allocation in an era of prolonged volatility and low returns.
If you would like your Event listed in our calendar, please contact us.
And now for something completely different, Ray Jessel, an 84 year old contestant on America's Got Talent may lament his lack of size in certain areas, but makes up for it ... elsewhere.
On that note, I hope you have a safe and happy weekend.
Best wishes,
Chris
CEO, AUSTRALIAN FUND MONITORS
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