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Cuffelinks Newsletter Edition 263

  •   20 July 2018

When Round 5 of the Financial Services Royal Commission starts on 6 August, superannuation will be the next punching bag. No doubt questionable behaviour will be uncovered on insider deals, fee disclosures and inadequate expertise. The recent Productivity Commission Report criticising the super industry will look like the entree before this main meal.   

The Commission will show the system can be improved, but let's hope it does not increase disengagement with super and undermine the need to save for a long retirement. Our super system is ranked third in the world in the Melbourne Mercer Global Pension Index, and this ASFA Media Release (yes, of course the Association of Superannuation Funds of Australia has a vested interest view) is a reminder of the system's strengths. It includes:

"An increasing number of retirees now have significant private income above the age pension, meaning they achieve a comfortable standard of living in retirement, rather than just getting by." 

As ASFA notes, the system is sustainable and superannuation will become increasingly relied upon as budget constraints limit age pensions. I was reminded of the affordability issue by this chart sent by a friend who lives in Illinois in the US. Little wonder he asked if I want to buy his farm.

Since 1987, promises on state-run pensions in Illinois have risen from US$18 billion to US$208 billion, a rise of over 1,000% when the state's revenues are up 236% and inflation only 111%. The state will not be able to meet the payments. For all its flaws and generosity in parts, Australia's predominantly direct contribution system makes it more affordable and sustainable.

Similarly this week, the International Monetary Fund warned governments to increase their savings to guard against an economic downturn, and our own Reserve Bank said high debt levels create vulnerability to economic shocks. Nobody knows when a day of reckoning will occur, and Vinay Kolhatkar writes about the deteriorating finances of governments around the world. Hamish Douglass of Magellan makes his latest global macro update in Additional Features below.

In other articles, Ben Preston gives a good illustration of why categorising investors into 'value' and 'growth' camps is not meaningful, while Graham Horrocks provides his tips for managing the $1.6 million pension Transfer Balance Cap. Donal Griffin looks inside a fascinating legal case where a carer inherited an estate against the wishes of a will and the deceased's family.

Focus on managed accounts

Managed accounts (different from managed funds) are winning market share in the advice space, but it's worth checking whether they are appropriate for you as a client. They usually involve a platform fee plus an investment management fee on top of the cost of financial advice, so understand the full cost. Three articles delve deeper into this success story: Toby Potter gives four reasons why managed accounts are growing quickly, Damien Klassen offers a list of items to check and Shannon Bernasconi shows why they are increasingly popular with financial advisers. 

Continuing our series on managing the tricky outlook for 2018/2019, UBS Asset Managementexperts explain their tactical asset allocation decisions and why it's time to think differently. 

The latest BetaShares half-yearly review of Exchange Traded Funds is also attached below, showing which asset classes are winning in this rapidly-growing segment, and we have the updated hybrid, bond and LIC reports. 

Graham Hand, Managing Editor


Edition 263 | 20 Jul 2018 | Editorial | Newsletter



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