27 Mar 2015 - Hedge Clippings

Perception versus Reality

Shock horror in the life insurance sector this week with the suggestion that trailing commissions should be limited or banned, and that the overall level of sales payments to life agents should be curtailed.

Given the recent debate over the potential conflicts caused by commissions for sales of financial services and products, and the overall debate over FoFA, it is hardly surprising that the spotlight has finally fallen on life insurance. The problem is real, and the concept of providing a product or solution that is in the best interest of the client, as opposed to the advisor/sales person, equally real.

However, in the vast majority of cases advisors put their clients' best interests first, in spite of the high profile failures, which have dominated headlines over the past couple of years at the big end of town at CBA and NAB. These of course have tarnished the whole industry, and headlines in the media have only helped - along with some opportunistic comment from politicians of one persuasion or another - to create the perception that there's no such thing as independent when it comes to the provision of financial advice.

It doesn't take much for the perception of an industry to become the reality in many people's minds, and once that occurs only drastic action, or regulation, and the passage of time will change it.  

Elsewhere this week there are ongoing signs that although the search for yield in the current low to negative real interest rate environment will inevitably continue, the resulting stretched valuations in asset prices - equities and real estate in particular - are a cause for concern. The chairman of ANZ, David Gonski, was reported to be suggesting that the RBA should cease further rate cuts, while others have suggested that for the Australian banking sector things are about as good as they get.

Bank margins are being squeezed by low rates, and while asset growth outside the housing sector is low or limited, housing prices are overly stretched, and are being pressured further by population growth and the emphasis on lending for investment as opposed to owner occupiers. Investment in the mining and resources sector has fallen sharply (probably an understatement!) as a result of falling commodity prices, which in itself is not helping the government's budget woes.

Australia is not alone in facing structural problems, with the recent announcement that inflation in the UK is officially negative for the first time in history. We are certainly living in uncertain times, and the effects of 2008, and the reaction of central banks and QE since then, suggest that we are in uncharted waters.

Specific results received this week include the following PERFORMANCE UPDATES:

Avenir Value Fund rose 7.8% during February to bring the Fund's Annual Return since inception to 17.00% per annum.

The Bennelong Long Short Equity Fund performance in February was flat (0.05%) following a 3-month gain of 8.85%.

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn, Twitter