Letters 09/11 – Commissions debate

I refer to Anthony Starkins’ views with respect to the outlawing of commissions (Money Management 26 October).

Starkin's contribution to the current debate is questionable. I am always slightly suspicious of those who espouse ethical considerations as a reason for change. Perhaps Starkins comments say more about him, than they say about the financial planning industry.

The merchant bank/investment house background Starkins refers to has a long history of dealing with conflict of interest. Chinese walls are sometimes made of paper and the fees charged by institutional advisers have been known to boarder on the obscene. Wasn't it in Singapore that Nick Lesson was able to survive for considerably more than a minute?

Most financial planners of my acquaintance would not be induced to recommend a particular investment by the offer of a free holiday. In fact, the use of such an inducement would normally result in the relevant prospectus being consigned to the rubbish bin.

The real question is one of disclosure and whether or not the client is receiving value for his dollar. If Starkins feels that he might succumb to the inducements of an unethical fund manager, then let him charge fees.

For those of us who feel that we have the necessary strength of character to reject such inducements, let us be free to choose how we are paid for our services - be it fees or commissions. Provided, of course, we operate in an informed marketplace.

Bruce Spender CFP

Principal

Macey Investment Services

The bricks and mortar of property syndicates

The coverage by Money Management of industry affairs has, in my view, always adopted a bipartisan and balanced approach so I was disappointed by the recentAdviser Feedbacksection (Money Management, 26.10.2000) dealing with property syndicate usage by planners.

I am quite happy to declare that I am a keen supporter of the products, and indeed have spoken about them publicly in a few places. The industry didn't get to the size it has without any advisers supporting them, as your article might leave unsuspecting readers to imply. Nor has the soon to be operational Australian Property Exchange (APX) just popped up from nowhere. This is a genuine effort by property dedicated investment houses to get property back on the investment map. More about that later.

Some of the comments made by your respondents do not hold water in my view.

Without tackling them on a one by one basis some of the points made do need to be challenged.

The assertion by James Doogue that syndicates are left with "higher risk developments and properties" is simply untrue, for the large part. A good example of this is an MCS syndicate of a couple of years back that purchased five Coles Myer properties in four states at a time when Coles Myer was divesting itself of many of its property assets.

I understand that retail is the most attractive of all property assets and what better tenant could you have than Coles Myer? James may well argue that such a syndicate lacks diversification because it is only exposed to retail property. I would say that MCS has developed its expertise as a retail property manager and therein lies a further strength. It's not unlike an adviser choosing Colonial First State as a specialist equities manager.

I suggest that many of the major syndicators have as a key premise of their investment strategy that tenants should be listed public companies and/or national retail groups. It is not uncommon to see syndicates with 70 per cent, and more, of the tenancies so delineated. For me, this is a major requirement before agreeing to support any new syndicate - the strength of the tenants.

Property syndicates have many of the characteristics of a direct property investment and liquidity, or lack of it more correctly, is one of those. In significant portfolios, one can generally afford to have some element of it in a less liquid position, but obviously you would not mix a syndicate with an annuity and long-term debenture. For retirees, the attractive and often tax-effective income stream from a syndicate is sufficient reason to give up some liquidity in the portfolio.

The development of the Exempt Property Market and the APX go a fair way to meeting the issue of emergency liquidity for investors, but in my experience if investors are properly sold the investments initially, there is little to be concerned about.

The so-called dangers that Kevin Bailey refers to are inherent in any investment - part of the risk versus return trade off as I recall. Yes, I agree that property values may have fallen at the sale point but this is also true for that parcel of shares that you might want to sell as well. Investors have the option to extend the life of the syndicate if there is the threat of a loss and would be guided by the manager in this matter.

The lack of research is not really true Kevin. The standard of research coming out of IPR on the syndicates they cover is of a very high standard making it fairly easy for an adviser to compare the various offerings in the marketplace.

Like James and Kevin, Moneyplan is an active user of master funds. This has not stopped us using syndicates and wearing the reporting function outside the master fund service. Given that property is usually a passive investment category there is no onerous reporting required to clients. There is no more time spent on reviewing syndicates that any other investment, probably less time in fact.

At a recent meeting of advisers I attended, the discussion was about syndicates and the conversation turned ultimately to asset allocation. Many of us could remember the days when property made up the lion's share of a portfolio and when life office statutory funds had 20-25 per cent exposure to the sector. We used to see property as a stable component in a client's portfolio but recognise that that changed forever in 1990, and could happen again. Nevertheless we asked, "Why has property been relegated to such a minor component in the asset mix today?"

Most of the research houses have a range of five to 10 per cent, which is a huge reduction from the past. I have not noticed any such drop in the levels of home ownership or in direct property investment by investors. This research dictum is at odds with our great love affair with property.

One wonders what advisers and investors will do if sharemarkets tumble again, as they are prone to do every so often. Will they once again seek out the so-called safe haven of property?

Peter Dunn

Director

Moneyplan Australia

I am writing in regards to your recent story about banning commission (Money Management 26/10/00). Please excusethe language, but I never have read so much "crap" in all my life.

I do notremember where, but somebody rightly said recently that some clientswould find it hard to pay an additional $2,000 planning fee on top of theirinvestment. It would be easier to have it withdrawn from the investment, iecommission.

<I>Gerry Porter

Director

Securepac Financial Group