Stockbrokers MonthlyMeMbership � ilearning � events � education � policy & regulatory issues

april 2014 � www.stockbrokers.org.au

FOFA. the uncertainty continues.

p. 2 stockbrokers Monthly | March 2014

contents

stockbrokers association of australia ltd ABN 91 089 767 706

(address) Level 6, 56 Pitt Street, Sydney NSW 2000 | PO Box R1461, Royal Exchange NSW 1225 (tel) +61 2 8080 3200 (fax) +61 2 8080 3299 (email) info@stockbrokers.org.au

www.stockbrokers.org.au

inside...3 Welcome

5 committee news

6 stockbrokers association welcomes coalition’s plans for FoFa but uncertainty

continues

7 t+2 settlement likely 2016

7 Financial system inquiry

7 asic seeks action on bad apples

7 asic Mda changes on hold

7 access to and use of share registers

8 Fos consultation on Fees

8 Fos independent review released

8 asic consultation on record Keeping for advice (cp214)

9 asic consultation on updating training requirements under rg 146 (cp212)

and removal of the training register (cp215)

9 privacy act reform

9 g20 common reporting standard – reporting of tax information

11 aMl update – draft new rules on customer due diligence

11 treasury consults on enhanced reporting by stockbrokers

12 a Message from asic...

13 Know yourself. Know your client.

15 super snippets: Managing risk for retireest

16 accreditation & training calendar

Disclaimer: This Newsletter is provided solely for the information of members of the stockbrokers association. it does not constitute advice. The stockbrokers association nor any of its officers or agents accepts no liability or responsibility for the accuracy, reliability or completeness of any information contained in the Newsletter, and readers should rely on their own enquiries and analysis in making any decision or taking any action that affects them.

www.stockbrokers.org.au p. 3

Whether you’re accessing course details from your mobile phone, looking at our latest events on your tablet or completing one of our ilearning courses on your computer at home or work, the site was designed to be both atheistically appealing and easy to use.

The website includes the following new features:

99 Powerful new ways to sift through our wide range of services and capabilities

99 instantly identify which of our workshops are suitable for you by your industry role

99 interactive events and workshop calendar

99 social media sharing abilities (for your facebook, twitter and linkedin!)

We invite you to explore the site for yourself and welcome any feedback or comments. enjoy!

2014 annual stockbrokers conference

The 2014 annual stockbrokers conference will be held at the crown Promenade melbourne on 29 & 30 may 2014. We are looking forward to presenting an outstanding program – speakers are listed below.

Visit the stockbrokers association website at www.stockbrokers.org.au/conference to register online at early Bird

rates (early Bird discount is valid until Friday 25 april). conference delegates will receive up to 18.5 cPD hours for attending the conference and group discounts are also available. if you are interested in being a sponsor or an exhibitor, please contact lillian Khoury at lkhoury@stockbrokers.org.au for further information.

Know yourself. Know your client – introducing our new performance improvement for advisers Workshop

Did you know that your individual personality type is reflected in how you trade?

Would you like to understand more about how your own behaviour can be changed and enhanced to make better investment decisions and earn greater returns?

This half day workshop is for advisers who wish to take their performance to a new high and create their own performance strategy to achieve greater success. Using the latest research and principles of neuroscience, this workshop provides solid strategies for advisers to make better investment decisions earn greater returns and foster more productive client relationships.

The face-to-face interactive workshop involves a mix of presentation, case-study based discussion and work-shopping strategies to achieve improved

performance. There will be a requirement to complete a 30 minute Prism Profiling inventory prior to attending the workshop.

The workshop will be held in sydney on Thursday 10 april.

For further details or to register, please visit our website or click here

stockbrokers association client Monies lunchtime seminar

Find out what the client monies regime in australia and abroad is all about. Presented by PWc, this one hour lunchtime session will provide insights into the client monies regime in australia, explain asic ‘s current areas of focus around client monies, identify typical challenges faced by peers in the market and demonstrate the regime using a deep dive example.

melbourne: Wednesday 30 april

sydney: Thursday 1 may

Brisbane: Wednesday 7 may

For further details or to register, please visit our website or click here

David W Horsfield msaamanaging Director & ceO

Key SpeaKerS include:

elmer Funke Kuppermanaging Director & chief executive OfficerasX limited

andrew pennchief Financial OfficerTelstra

elana rubinDirectorNaB Wealth / mlc & mirvac Group limited

peter Harris aOchairmanProductivity commission

John Fildeschief executive Officerchi-X australia

peter BirtlesGroup managing Director & chief executive Officersuper retail Group limited

Greg Medcraftchairmanasic

Mark Steinertmanaging Director & chief executive Officerstockland

Maurice l newman acchairmanPrime minister’s Business advisory council

The Hon Bernie ripoll Mp shadow minister for Financial services & superannuation

Mark Mcinneschief executive OfficerPremier investments Group

Barry lewisFinancial services Partnerelix-irr

Mahendra Siregarchairmanindonesia investment coordinating Board

Sam MostynNon-executive DirectorVirgin australia, Transurban Group & citibank australia

new look Website...after months of hard work, the stockbrokers association is excited to reveal our new website. With its fresh look and streamlined navigation, we built this site with our members in mind.

From the Ceo’s DeSK...

unveiling our

new look Website...

powerful new ways to sift through our wide range of services and capabilities

new, interactive Workshop calendar!

instantly identify which of our workshops are suitable for you by your industry role

social media sharing abilities (for your facebook, twitter and LinkedIn!)

1.

2.

3.

4.

unveiling our

...visit www.stockbrokers.org.au

www.stockbrokers.org.au p. 5

coMMittees

11th Annual Stockbrokers Charity Golf Day Wednesday 28 May 2014 | Eynesbury Golf, Eynesbury

visit www.stockbrokers.org.au for further information

committee news recent meetings of stockbrokers association committees, Working Groups and advisory Panels, and major issues discussed:

institutional broking committee Meeting, tuesday 18 March 2014

chair: scott Webster msaa, UBs australia

− G20 automatic exchange of information

− aUsTrac enhanced customer Due Diligence

− aTO enhanced reporting of client data

− asic insider Trading enforcement

− asX mFund

retail broking committee Meeting, Wednesday 19 March 2014

chair: David Horsfield msaa, stockbrokers association of australia

− FOFa ‘streamlining’ – submission 19 Feb&Fsi

− asic cP212 – Update to rG146 Training requirements

− review of Professional standards – asst Treasurer Feb 14

− senate inquiry into asic – asic submissions on ref checking and extending ar register to employee advisers

− asX T+2 settlement consultation Paper 25 Feb

asX t+2 settlement Members Forum, Wednesday 19 March 2014

chair: Doug clark msaa, stockbrokers association of australia

derivatives sub-committee Meeting, Wednesday 26 March 2014

chair: Peter Tardent msaa, commonwealth securities

− eTO crossing rules − strike listing / de-listing policy

− New products being examined − XJO expiry issues

p. 6 stockbrokers Monthly | March 2014

stockbrokers association Welcomes coalition’s plans for FoFa but uncertainty continues

in late march, the Governnment announced a delay to the introduction of the FOFa streamlining amendments that it released in January. These amendments aim to improve the operation of FOFa, including:

− restoring the accountants’ certificate expiry period to 2 years (from 6 months previously)

− extending the stamping Fee exemption to investment entities like lics

− removing the opt-in requirements

− removing the annual fee disclosure requirements for pre-1 July 2013 clients

− removing the ‘catch-all’ provision from the best interests duty i.e. the obligation to take any other step that would be regarded as being in the client’s best interests (s961B(2)(g))

− explicitly allowing for the provision of scaled advice

− exempting general advice from the ban on conflicted remuneration, and

− broadening the existing grandfathering provisions for the ban on conflicted remuneration.

most of the changes were flagged in the election campaign and were consistent

with previous submissions by the association. We were particularly pleased to see the proposed restoration of the 2 year period for accountants’ certificates, which was the subject of intense lobbying by the association to asic and the assistant Treasurer in January this year.

We are confident that the removal of the ‘catch-all’ from the best interests duty which has captured the interest of many commentators recently, will not detract from the effectiveness of the best

interests duty. The best interests duty in section 961B remains a detailed and robust obligation to ensure that personal advice is suitable for the particular client. The ‘catch-all’ was only one of seven listed obligations in the best interests duty. moreover, investor protection is strengthened by the obligation to give appropriate advice (s961G), and to ensure that the interests of the client are paramount (s961J). accordingly, commentary that the removal of the ‘catch-all’ has somehow removed

We were particularly pleased to see the proposed restoration of the 2 year period for Accountants’ certificates, which was the subject of intense lobbying by the Association to ASIC and the Assistant Treasurer in January this year.

policy & regulation

policy & regulatory issues

www.stockbrokers.org.au p. 7

PoliCy & regulatioN

the best interests duty, or that it is substantially reduced, is way off-beam.

The delay to the introduction of the streamlining amendments has exacerbated uncertainty as to implementation. asic’s attitude to enforcement, pending the introduction of the new changes is also uncertain. For example, will members be required to lodge breach reports for non-compliance with requirements that will be removed if the streamlining amendments proceed? We are seeking clarification and will advise members as soon as possible.

t+2 settlement likely 2016

asX has released a consultation Paper on proposals to reduce the settlement period for cash equities from T+3 to T+2. This follows offshore developments, including Hong Kong and others which already have T+2 settlement, and the move by the eU to T+2 settlement on 1 January 2015. in march, we held a member Forum for discussion of the proposals with asX representatives, ahead of written comments in april. it seems likely that T+2 settlement will be introduced in australia in Q1 2016.

Financial system inquiry

in November, the Government announced the Financial system inquiry. The inquiry, to be chaired by David murray aO, will be a wide-ranging review of the australian financial system, including:

− developments since the last inquiry in 1997, and the GFc;

− the philosophy, principles and objectives underpinning the system and its regulation;

− opportunities and challenges likely to drive change; and

− changes in sourcing and distribution of capital.

The inquiry’s terms of reference have now been finalized, and its final report on conclusions and policy options is due November 2014. The inquiry will present the opportunity to raise important issues that have not been dealt with recently, like the wholesale/retail definitions under the corporations act, cost recovery, and level

playing fields in securities regulation. The association looks forward to contributing to the inquiry and assisting in its deliberations this year.

asic seeks action on bad apples

members will recall that since the early 2000’s, the association has sought law reform to provide a more effective means of reference checking new employees, to stop the movement of Bad apples around the industry. The model we have sought was along the lines of the Us system which provides for compulsory reporting of certain matters of misconduct on termination, and which also protects participants in both making and relying upon such reports in good faith.

recently, in its main submission to the

Senate Economics Committee Inquiry into the performance of the Australian Securities and Investments Commission October 2013 (submission 45), asic called for the following measures to catch Bad apples:

581 Mandated reference checking could be achieved by introducing a legislative requirement for licensees to:

(a) conduct reference checks on prospective employees

(b) provide honest and full feedback when asked to provide a reference, and

(c) have in place appropriate policies and procedures for maintaining accurate and comprehensive employment records.

While falling short of a full Us-style reporting mechanism, the mandatory nature of the asic proposals should improve the standard and effectiveness

of reference checking, provided that they also include legal protections for participants acting in good faith.

asic Mda changes on hold

asic has informed us that it is deferring implementation of the proposed changes to its policy on managed discretionary accounts (mDas), pending the outcome of the Government’s Financial System Inquiry and the further amendments to FOFa. asic’s proposals were set out in Consultation Paper 200 Managed discretionary accounts: Update to RG 179 (cP 200) dated march 2013, on which the association commented in may 2013. asic had indicated that the final changes would be announced in april 2014, but this date is now deferred. asic will advise a new timetable in due course.

asic has also noted that sunset

provisions mean that in 2016, in the absence of any intervention by asic, the relief in asic Class Order [CO 04/194] Managed discretionary accounts will cease to have effect. This would have a substantial impact because mDas would then be regulated in the same way as other registered managed investment schemes.

access to and use of share registers

One of the unintended consequences of the 2010 amendments to the corporations act to restrict unsolicited off-market share offers was to restrict stockbrokers from accessing registers to send research reports to shareholders, while allowing shadow brokers to do so. We have recently renewed our lobbying

the reference checking model we have sought was along the lines of the us system which provides for compulsory reporting of certain matters of misconduct on termination, and which also protects participants in both making and relying upon such reports in good faith.

p. 8 stockbrokers Monthly | March 2014

with canberra on this point, and are hopeful of some progress on it this year.

Fos consultation on Fees

in late 2013, FOs consulted on changes to its fees (effective 1 July 2014):

− increase the member levy to between $330 and $25,000 per firm (currently $225 - $11,000 per firm)

− increase the Dispute Fees by a moderate amount (as set out in annexure a to the consultation Paper – about 10%)

− introduce a new category of ‘complex Plus’ disputes whose dispute fees are significantly higher (20-40%) than the current ‘complex’ category

− increase the weighting of the member levy and User charge as a proportion of total revenue from the current level of 16%, to 25-30% to reduce volatility in funding; and

− introduce indexation of fees.

in our submission in December, noting that the growth in FOs was not due to complaints against stockbrokers and that it is difficult to determine the precise effect of the increases, we also made the following points:

− Filing Fees: FOs should revisit the introduction of filing fees for complainants

− Better Classification of Complaints: complaints should be better classified at the start or ‘Triaged’ under a transparent range of criteria; and

− Fees for vexatious claims: if a complaint is dismissed as vexatious, the member fees should be reduced or waived.

in response to the consultation, FOs has recently announced a number of changes, including delaying introduction to 1 July 2015 under phased arrangements, which were outlined in a confidential briefing paper to members in march.

Fos independent review released

in march, FOs released the report of the independent review by Cameron Ralph Navigator, conducted as part

of asic’s requirements for external complaints resolution schemes. The review found that the merger of the five smaller eDr schemes to form FOs five years ago was complete and had been successful. However, it was critical of the processes and structures of FOs, and recommended a range of measures to build smaller, vertically integrated and more flexible teams.

Of the six Benchmarks for industry-based schemes against which FOs was assessed – accessibility, independence, fairness, accountability, efficiency and effectiveness – the review found that FOs had only partially met the required levels of efficiency, due mainly to failure to meet standards of timeliness. (The remaining five benchmarks had been met.) On the topic of efficiency, the reviewers stated that -

…these issues of timeliness and FOS process are limiting stakeholder ability to reasonably evaluate other aspects of FOS’s performance. From our discussions, we see that there is a level of frustration that is colouring stakeholder relationships with FOS. Despite FOS’s external engagement being widely seen as more professional and systematic, FOS is still perceived by some stakeholders as somewhat bureaucratic, defensive and unresponsive. (Independent Review page 7)

in response to the review, the FOs Board has announced a range of measures to address the issues raised.

asic consultation on record Keeping for advice (cp214)

in July 2013, asic released proposals for updating the record keeping requirements for licensees giving personal advice to retail clients, particularly in relation to records of compliance with the best

interests duty, on-going fee arrangements, and conflicted remuneration.

in cP214, asic proposes to change the relevant licence condition to require documents to be retained to substantiate compliance with the best interests duty, and the other new FOFa requirements to avoid conflicts of interests, fee disclosure statements, and conflicted remuneration (including records of why a particular benefit is not conflicted remuneration).

Following meetings with members and asic, in November 2013 we made a submission to asic on cP214 in which we raised the following points:

− while it is reasonable to expect that the pre-FOFa record requirements in relation to the duty to give appropriate advice would be updated for the post-FOFa duty to act in the client’s best interests, the rationale for the other changes was not made out;

− existing record-keeping, training and supervisory requirements are sufficient, and should not be replicated in the advice requirements;

− the changes will lead to administrative and costs burdens; and

− the apparent urgency of the changes is not justified.

stockbrokers’ superior management and supervision standards and excellent complaints record at FOs were also noted.

We argued that these matters, together with the new Government’s likely action on FOFa, should be taken into account in determining whether the proposals in cP214 should proceed. We await asic’s final position in this regard.

stockbrokers’ superior management and supervision standards and excellent complaints record at Fos were also noted.

policy & regulation

www.stockbrokers.org.au p. 9

asic consultation on updating training requirements under rg146 (cp212) and removal of the training register (cp215)

in June, asic released Consultation Paper CP212 with proposals to update rG146. in the Paper, asic proposes to retain the current training standards in rG146 as ‘base level’ standards, and to introduce two further regimes of training.

These further regimes are proposed to come into effect in 2015 and 2019 and are designed to increase generic knowledge requirements, specialist knowledge requirements in a range of product areas including securities and superannuation, and increase skill requirements for personal advice and educational level requirements.

asic has designated current requirements as ‘regime a’ with ‘regime B’ to commence on 1 January 2015 and ‘regime c’ effective 1 January 2019. asic cP212 proposes raising the educational level of advisers providing personal advice in 2015 from aQF level 5 (equivalent to a Diploma) to aQF level 6 (equivalent to an advanced Diploma or associate Degree) and in 2019 from aQF level 6 to aQF level 7 (equivalent to a Bachelor Degree).

asic’s previous cP153 consultation proposed a number of improvements including a national exam and knowledge update review. in cP212 asic states ‘It is important to note that if a national examination is implemented, it may replace any obligation to do a training course approved in writing for advisers…’.

in september 2012, asic placed its register of approved rG146 courses ‘under review’. in august 2013, asic released CP215 Assessment and approval of training courses. in this consultation Paper, asic proposes to:

− replace the rG146 training register with the requirement for financial advisers to complete a qualification that is approved by an authorised assessor;

− archive the rG146 register for the period up to 24 september 2012;

− provide further guidance on certification by authorised assessors; and

− remove recognition of foreign courses, with the exception of New Zealand.

Following roundtable meetings with asic and members, a submission to asic was made in October 2013, in which we supported a pause on the consideration of changes to training requirements, due to cost and time constraints, flawed rationale and uncertainty over other asic proposals, such as the National exam.

asic has recently indicated that it intends to proceed with most of its proposals. an industry roundtable with asic is expected to be held in march or april.

privacy act reform

On 12 march 2014, amendments to the Privacy Act 1988 (cth) came into effect. some of the significant amendments include:

− new powers for the commissioner, including civil penalty actions and enforceable undertakings;

− National Privacy Principles will be renamed the Australian Privacy Principles;

− new direct marketing provisions;

− new cloud & offshoring provisions (aPP8); and

− new credit reporting provisions and credit reporting code – these apply to traditional lenders and anyone who provides consumer credit or obtains credit reports.

g20 common reporting standard – reporting of tax information

The meeting of G20 Finance ministers held in sydney on 23 February 2014 endorsed the common reporting standard for exchange of taxation information.

Previously in the stockbrokers monthly, we reported on the moves by G20 nations to establish a standard for the sharing of taxation information between those nations who sign up to the standard.

The purpose is to prevent the growth of tax evasion by citizens using offshore arrangements. Hence, the crs has similar objectives to the Us FaTca regime, which is supposed to come into

effect on 1 July 2014 (although australia has still not signed an inter-Governmental agreement with respect to FaTca, and as a result the final details of the FaTca regime are not yet certain).

Details of the crs can be found on the australian Treasury website, together with information on how the crs compares to the latest version of the FaTca arrangements.

These arrangements will, if implemented, require entities such as stockbrokers to identify which of their clients are taxpayers of the various countries participating in the arrangement, and to report such information to the aTO for sharing internationally.

PoliCy & regulatioN

these arrangements will, if implemented, require entities such as stockbrokers to identify which of their clients are taxpayers of the various countries participating in the arrangement, and to report such information to the ato for sharing internationally.

Key SpeaKerS include:

elmer Funke Kuppermanaging Director & chief executive OfficerasX limited

andrew pennchief Financial OfficerTelstra

elana rubinDirectorNaB Wealth / mlc & mirvac Group limited

peter Harris aOchairmanProductivity commission

John Fildeschief executive Officerchi-X australia

peter BirtlesGroup managing Director & chief executive Officersuper retail Group limited

Greg Medcraftchairmanasic

Mark Steinertmanaging Director & chief executive Officerstockland

Maurice l newman acchairmanPrime minister’s Business advisory council

The Hon Bernie ripoll Mp shadow minister for Financial services & superannuation

Mark Mcinneschief executive OfficerPremier investments Group

Barry lewisFinancial services Partnerelix-irr

Mahendra Siregarchairmanindonesia investment coordinating Board

Sam MostynNon-executive Director

Virgin australia, Transurban

Group & citibank australia www.stockbrokers.org.au

REGISTER NOW! Visit www.stockbrokers.org.au/conference

Thursday 29 & Friday 30 May 2014 | Crown Promenade, Melbourne

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2014 Annual Stockbrokers ConferenceTRaNScENdING BOuNdaRIES. OuR EVOlVING MaRkET.

www.stockbrokers.org.au p. 11

aMl update – draft new rules on customer due diligence

members may recall that on 9 December, 2013 aUsTrac and the attorney General’s Department issued new Draft aml/cTF rules imposing additional customer due diligence obligations in relation to ascertaining the beneficial ownership of clients and the control of clients.

aUsTrac had consulted the market earlier in 2013 on current practices in these areas. The australian aml regime has received qualified assessments from the Financial action Task Force (FaTF) previously, because of deficiencies in the standards applied in these areas (among others). The stockbrokers association made a submission to aUsTrac in september 2013 as part of this consultation.

in order to ensure that australia is not assessed as a non-compliant country, and suffer adverse consequences that could flow from this, aUsTrac and the Government have proposed enhanced obligations in order to meet FaTF standards.

Key features of the proposed rules include:

− an aml/cTF program must consider beneficial ownership of a customer

− Beneficial ownership is defined as an individual who owns Or who controls the customer. a beneficial owner is someone who owns 25% or more of the customer. control is defined in very broad terms, including the ability to exercise control through the ability to determine decisions of the customer about financial or operational policies.

− requirements for aml/cTF programs in relation to Politically exposed Persons (PePs)

many members will already be considering beneficial ownership questions when identifying new clients. However, practices will vary throughout the industry. similarly, approaches to PePs are also likely to vary.

consideration of “control” of a client is

not widespread, and as the association noted in its previous submission, such an obligation would create a significant degree of practical difficulty.

The stockbrokers association lodged a further submission on the Draft rules on 24 January 2013 raising a number of issues, including some drafting anomalies and uncertainties. We also reiterated the considerable difficulties involved in indentifying and verifying those who “control” a client, given the very broad definition of that term, and referring in particular to the difficulties where overseas incorporated clients were concerned.

aUsTrac has now advised that some changes have been made to the proposed rules to deal with some of the industry concerns that were expressed, including the stockbrokers association’s feedback, and that the new rules are to take effect from 1 June 2014. Whilst this date is very near, aUsTrac has also issued a Draft supervisory Guide which will state, among other things, that it will not commence civil penalty proceedings against reporting entities prior to 1 January 2016 in respect of the new customer due diligence obligations (subject to certain conditions). This will effectively be an implementation period, subject to entities making appropriate progress towards substantive implementation.

treasury consults on enhanced reporting by stockbrokers

in last month’s stockbrokers monthly, we reported that the australian Taxation Office had met with the stockbrokers association to discuss on a preliminary basis a data matching project that has been assigned to the aTO. The project involves obtaining better data on transactions involving a range of asset classes, including securities, in order to assist the aTO to review the accuracy of tax reporting by taxpayers, including capital gains disclosure. This task was allocated to the aTO under this year’s budget, and has been endorsed by the new Federal Government.

On 10 February 2014, Treasury has issued a Discussion Paper “Improving tax compliance – enhanced third party reporting, pre-filling and data matching” setting out more detail about the project, and seeking feedback from industry.

as regards securities transactions, the aTO has indicated that it is looking to obtain information from market participants on a periodic basis on share transactions on a client by client basis for the purposes of data matching with information provided in tax returns, including cGT information.

On 11 march 2014, the stockbrokers association lodged a submission with Treasury pointing out the complexity and cost of both the system changes needed to comply with such a reporting obligation regarding all client transactions, as well as the cost and administrative burden of providing the ongoing reports to aTO.

The association has also argued quite strongly that the potential for the new asic FasT surveillance program, the considerable cost of which is already being paid for by stockbrokers through the cost recovery levy, to provide as much of the information as possible about client trading that the aTO is asking for, should be explored as far as possible requiring the stockbroking industry to pay for yet another reporting system.

The Treasury is currently assessing responses to its Discussion Paper. We will keep members updated on this issue as it develops. n

SubmiSSionS members can view submissions at www.stockbrokers.org.au

Policy EnquiriES Doug clark mSAA, Policy Executive dclark@stockbrokers.org.au

Peter Stepek mESAA, Policy Executivepstepek@stockbrokers.org.au

PoliCy & regulatioN

p. 12 stockbrokers Monthly | March 2014

asic recently published report 386 ASIC supervision of markets and participants: July to December 2013 (report). The report summarises key operational statistics and outcomes of asic’s market and participant supervisory functions for the second half of 2013. it is asic’s seventh report since it took over responsibility for supervision of real-time trading on australia’s domestic licensed markets.

The report shows that a significant volume of enforcement and regulatory outcomes was achieved during the relevant period. asic produced 19,255 trading alerts, with 102 matters (up from 94) requiring further consideration. This resulted in a total of 31 referrals to enforcement (up from 25) for investigation, 14 of which related to possible insider trading (up from 8).

insider trading continues to be a strong focus for asic, in line with our market focused strategic priority of fair and efficient financial markets. We also achieved seven enforcement outcomes against individuals for insider trading activity.

There were seven infringement notices issued by the markets Disciplinary Panel, the forum for disciplinary action against participant and market operators for alleged breaches of the market integrity rules1. The seven infringement notices issued during the period resulted in $745,000 in penalties.

Other outcomes included:

− 16 risk-based assessment visits

− 73 surveillances

− 26 instances of pre-emptive supervision action.

asic commissioner cathie armour said the results were testament to the significant energy dedicated by asic, and in particular its market and Participant supervision team, to the supervision and surveillance of australia’s financial markets.

‘This report shows that our tailored financial markets surveillance continues to achieve strong results. These results are crucial to the further strengthening of investor confidence in the integrity of our markets,’ ms armour said.

new surveillance system

During the period, our new market surveillance system, mai (market analysis intelligence) commenced operation. The new system enables asic to better detect, investigate and prosecute trading breaches. Built and designed around algorithmic trading technology already used in financial markets, mai gives asic the ability to analyse trade data for patterns and relationships. it also allows asic to analyse very large data sets and monitor market activity—consistent with

the increased use of technology in day-to-day trading.

looking ahead

asic has observed an increased use of client facilitation accounts by market participants. as a result, we will be considering this area in closer detail, to ensure that such accounts do not impact on market integrity, and are transparent to clients. asic will also be looking at the manner in which information is handled between research analysts and listed companies. a number of matters have recently come to our attention that suggests that these practices could be improved.

as always, asic will continues to monitor trends and patterns, and consider areas that require further attention in an ever changing market. n

a Message from asic...

1 important regulatory information: Pursuant to subparagraph 7.2a.15(4)(b)(i) and (ii) of the corporations regulations 2001, compliance with an infringement notice is not an admission of guilt or liability, and none of the parties are taken to have contravened subsection 798H(1) of the corporations act.

insider trading continues to be a strong focus for asic, in line with our market focused strategic priority of fair and efficient financial markets.

policy & regulation

www.stockbrokers.org.au p. 13

education

did you know that your individual personality type is reflected in how you trade?

Would you like to understand more about how your own behaviour can be changed and enhanced to make better investment decisions and earn greater returns for your clients? Well with our new PERFORMANCE IMPROVEMENT FOR ADVISERS WORKSHOP, now you can!

This month we chatted with the course Presenter, Investment Author and Derivatives Specialist Adviser Wai-Yee...

1. How did you get interested in this subject?

i have always been fascinated by the brain. How it affects our thinking, how much of it is affected by who we are and particularly the emotional brain, does it and how does it affect us? as investors, are we affected by emotions and as advisers are we aware of our clients’ emotions when dealing with their money and them entrusting their money to us?

another main driver for me was piqued through the behaviour of clients and observing their decision making process. some struggle while others consistently make better investment decisions. What differentiate one from another, is it personality, how they think or experience or a combination of all? These questions and enquiries started off a journey of research, discovery and self-study.

2. Why did you develop the course?

Just as i have personally experienced, i knew it would be very beneficial for advisers to have an additional tool to “know your client”. The facts and data we obtain from clients often are insufficient information for advisers to know the “real” client and the larger question is, do clients know who they are and what they want?

as advisers, when we begin to more deeply understand how we think and how emotions can affect our decision making process and the different effects of clients’ personality type, it helps us to then provide more targeted advice and advice that are suitable for the specific client. advisers can learn to work with the client, complementing their areas of weakness,

pulling them when need be or giving them a nudge when that’s what they need to make the appropriate decision.

clients may not know what they want, but if the adviser does, then the whole process of investing and advising can be more fulfilling for both. Being able to understand the client better, helps to strengthen a client/adviser relationship and delivers value to clients beyond just numbers and returns but an overall sense of security and trust.

3. Can you explain the relationship between trading and how the brain functions?

many of the traps we experience during trading are related to our emotions. Pulled by the lure of big profits (excitement motivated by a particular part of our emotional brain) resulting in detrimental habits like over-trading, taking excessively unnecessary risks, being overly confident and mar current judgment.

There are also those who are conditioned in their emotional brain for being overly fearful and may have a tendency to be overly anxious. clients who have a tendency to fear or be anxious may have difficulty in cutting losses, when they most need to do so. clients may be too fearful to jump in to good investment opportunities because of past negative experiences. an adviser who is able to balance up the emotional state of a client to assist the client to come to a balanced and neutral decision will be of high value to any clients. a client may be consistently missing out on opportunities or selling out to early or sitting on sideline earning low interest rates, whilst all they need is just a little word of confidence from the adviser, not more information or more numbers.

There are certain mindsets or assumptions we make that are limiting to an adviser. some of them are like not believing one can achieve superior returns or not accepting ones’ over-sight or mistakes and putting them down to the fault of the market. some of these mindsets could even be not believing in one’s own ability to win new clients, being overly pessimistic or self-conscious in one’s own ability. This is link to one’s personality but the understanding of the brain’s capability to evolve (through the natural process of neuroplasticity) helps the adviser create new healthier or more positive mindsets.

indecisiveness is another problem that many investors face. This can be understood from the perspective of how our brain works.

Once these traps or issues are examined, we are able to deal with them better and hence invest better.

4. Who would benefit from the course?

investors and advisers a like. anyone who deal with clients and those who are involved in investing, dealing with money. it’s a tool that everyone ready has, but some have not trained it, some have allowed it (emotional brain) to run their decision making process and some have come to not rely on their emotional cues due to the fear of making errors in judgment and have instead rely on just their cognitive brain. n

WANT TO REGISTER FOR THE COURSE? Please CLICK HERE or visit our website www.stockbrokers.org.au

Know yourself. Know your client.

policy & regulatory issues

STOCKBROKERS ASSOCIATION ‘CLIENT MONIES’ LUNCHTIME SEMINAR

9 Understand the Client Monies Regime in Australia and abroad

9 Hear ASIC ‘s current areas of focus around client monies

9 Learn about typical challenges faced by peers in the market

9 Find out more through a deep dive example

SEMINAR DETAILS

DATESMelbourne: Wednesday 30 AprilSydney: Thursday 1 MayBrisbane: Wednesday 7 May

TIME12:30pm – 1:30pm

CPD HOURS1 hour compliance

PRESENTERSDavid Cox, Partner, PwCDeanna Chesler, Director, PwCMicko O’Donnell, Partner, PWCPaul Collins, Director, PWC

Interested in what the Client Monies Regime in Australia and abroad is all about?

CONTaCT uS TOday! For further information please contact the Stockbrokers Association on 02 8080 3200 or visit www.stockbrokers.org.au

www.stockbrokers.org.au

www.stockbrokers.org.au p. 15

conventional wisdom has it that someone nearing retirement should take steps to preserve their capital once their income earning capacity ends. There are even some super funds that offer ‘lifestyle investing’ models where the asset allocation is made more defensive as the member gets older.

if you plan to cash out your super at retirement this makes absolute sense. But if you are taking your super as a pension – well you are still a long term investor - so why go defensive?

an alternative approach has been called goal or outcome based asset allocation and is best explained with an example. Jessica and craig are age 65. They each have $500,000 in a smsF.

They decide they both will take pensions of $30,000 a year from the fund. They invest as follows:

− $60,000 in cash ‘bucket’ to ensure they will be able to pay the pension for the first year. This bucket will receive distributions from all investments.

− $120,000 in term deposits and fixed interest assets. This will provide a stable reserve ‘bucket’ to top up the cash account when required. The income from these assets will be paid to the cash account.

− The balance of the fund ($820,000) will be invested in a diversified

‘bucket’ of growth assets – australian and overseas shares, managed funds, eFTs, property trusts and so on. The income from these assets will be paid to the cash account.

Pretty radical eh? This means 82% of their fund is in growth assets.

This approach is based on the client’s primary need – liquid and stable assets to make their pension payments. For this to work the clients need to understand that short term volatility is not important. even though they are in pension mode, they are still long term investors. One way to explain this is to say that some of their capital will be used to pay their pension when they are age 75, 76 ... and some when they are 85, 86 ...

This asset allocation works because:

− The cash bucket is topped up by distributions and always provides liquidity so there is never a need to redeem growth investments.

− The stable bucket of term deposits and fixed interest provides a back up to the cash account. if the client was nervous about prolonged downturns in the market they could increase this component to three (or more) times their annual income needs.

− The growth component will include assets that pay dividends and

distributions to top up the cash bucket. long term growth will provide protection against longevity risk – running out of money to pay the pension. The cash and stable buckets mean there will never be a need to redeem growth investments at short notice and potentially crystallise losses.

as with all strategies a periodic review of the portfolio is essential. The key question is ‘have your income needs changed?’ because that is the basis of the asset allocation. The cash and stable buckets would be rebalanced in a controlled way and profits taken from the growth portfolio as appropriate.

so is it really necessary to give the client a ‘risk profile’? n

our updated rG146 Superannuation course is highly recommended for anyone who advises on securities in self managed or other superannuation funds. Each month we publish a short article covering a current superannuation topic written by Peter Grace the author of our new course.

super snippets

Managing risk for retirees By Peter Grace

the key question is ‘have your income needs changed?’ because that is the basis of the asset allocation.

education

p. 16 stockbrokers Monthly | March 2014

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RE REFRESHER WORKSHOP – 4 CPD (ComPliAnCe)

This workshop provides a refresher on the requirements applicable to Res and reviews some of the main topics in the ASiC/ASX markets & ASX Clear (Clearing & Settlement) Re exams. intended as a refresher course for existing Res who have already passed the exams, this workshop could also be of interest to potential Res. Topics include Re management & Supervision Requirements (& ASiC Rm comparisons); Capital Adequacy, Records, Trust; Dealing & Client relations rules; Disciplinary Processes; Corporations Act requirements.

melB: Tues 29 Apr (9:30am – 1:30pm)SYD: Tues 24 Jun (9am – 1pm)

RE EXaM PREPaRaTION COuRSE – 10 CPD (ComPliAnCe)

This 2 x 3-hour intensive workshop (conducted over 2 days) covers the ASiC/ASX markets & ASX Clear (Clearing & Settlement) Re exam syllabus in detail, ensuring that candidates are well prepared for the exams and know what to expect on the day, with sample questions and a practice exam.

SYD: mon 5 & Tues 6 may (9am – 12pm)melB: Wed 11 & Thurs 12 Jun (9:30am – 12:30pm)

RE EXaM PREPaRaTION ‘SHORT COuRSE’ – 4 CPD (ComPliAnCe)

This 4-hour intensive workshop is a condensed version of the Stockbrokers Association 2-day Re exam Preparation Workshop. it covers the ASiC/ASX markets & ASX Clear (Clearing & Settlement) Re exam syllabus in detail, with 7 subject areas and 2 assessments during class time.

melB: mon 28 Apr (9:30am – 1:30pm)SYD: mon 23 Jun (9am – 1pm)

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INTROduCTION TO dERIVaTIVES – 4CPD

This half-day workshop is ideal preparation for the Professional Stockbrokers Program Derivatives Accreditation (and for ASX ADA1 exam candidates).

SYD: Fri 2 may (9am – 1:30pm)melB: Wed 18 Jun (9am – 1:30pm)

INTROduCTION TO STOCKBROKING – 2.5CPD

ideal for those returning to, and for newcomers to the industry, back office, auxiliary and support personnel, this workshop covers the operation of financial markets, financial products, taxation, broking operations, regulation and an explanation of common acronyms & jargon.

SYD: Wed 30 Apr (9am – 12pm)melB: Wed 4 Jun (9:30am – 12:30pm)

INTROduCTION TO OPTIONS – 2CPD

This 2-hour workshop covers options pricing, basic strategies and the mechanics of trading equity options on the ASX. This workshop is suitable for industry participants, including client advisers and back office staff, who have no previous options experience and who wish to acquire some understanding of options trading.

melB: Wed 7 may (9:30am – 11:30am)SYD: Thurs 5 Jun (9am – 11am)

INTROduCTION TO WaRRaNTS – 2 CPD

This workshop covers the main types of warrants traded on the ASX, with particular focus on equity trading warrants and instalments. Basic warrant pricing is discussed and the role of the warrant issuer is explained. ideal for those who wish to acquire some basic knowledge about the Australian warrants market.

melB: Tues 13 may (9am – 11am)SYD: Thurs 12 Jun (9am – 11am)

INTROduCTION TO CONTRaCTS FOR dIFFERENCE (CFd) – 3 CPd

This 3-hour workshop focuses on the class of derivatives known as Contracts for Difference (CFDs). in Australia, they are traded both directly with CFD providers and, since late 2007, on the ASX. This workshop covers the different types of CFDs, their uses, risks and potential rewards.

SYD: Wed 2 April (9am – 12pm)melB: Wed 4 Jun (9am – 12pm)SYD: Tues 17 Jun (9am – 12pm)

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CORE 1 (RG146) PREPaRaTORy WORKSHOP – 3 CPd (COMPlIaNCE)

Are you undertaking the Professional Stockbrokers Program Core 1 (RG146) Securities & managed investments Accreditation Assessment? Then this half-day workshop is ideal for you. learn the syllabus in detail and key areas to focus on for your studies. industry expert presenters and small class size for personal tuition. The Professional Stockbrokers Program Core 1 (RG146) Securities & managed investments Accreditation meets ASiC RG146 requirements in generic and specialist knowledge and skills in Securities and managed investments.

melB: Wed 2 Apr (9:30am – 1pm)SYD: Thurs 3 Apr (9:30am – 1pm)

accreditation & training april, May & June

www.stockbrokers.org.au p. 17

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MaRKET MaNIPulaTION aNd OTHER PROHIBITEd CONduCT WORKSHOP – 4 CPd (COMPlIaNCE) This half-day workshop will cover an in-depth examination of what constitutes market manipulation and other prohibited market conduct. The workshop will involve a mix of presentation and scenario-based discussion. it is designed to suit the needs of market professionals, both front and back office, including: Sales staff/client representatives; Proprietary Traders; DTRs; investment banking; Settlement staff; and Compliance & legal.

SYD: Tues 13 may (9am – 12pm)melB: Thurs 19 Jun (1:30pm – 4:30pm)

INSIdER TRadING WORKSHOP – 4 CPd (COMPlIaNCE) This workshop provides a thorough analysis of insider Trading. Topics include: elements of insider trading; statutory defences; insider trading and continuous disclosure; front running; dealing with rumours; management of confidential information; how to protect yourself, including Chinese walls, internal processes; and consequences of insider trading breaches. The Workshop is designed for sales staff/client representatives; proprietary traders; research analysts; investment banking; compliance and legal; and regulatory staff.

melB: Wed 14 may (1:30pm – 4:30pm)SYD: Wed 11 Jun (9am – 12pm)

dMa, alGORITHMIC TRadING & HIGH FREQuENCy WORKSHOP – 2 CPd (COMPlIaNCE) Are you confused by all the talk about Algorithmic Trading, High Frequency Trading and the ‘May 6 Flash Crash’? Rapid technological advances and market changes overseas have radically changed the nature and appearance of on-market trading and these same changes are quickly unfolding in Australia as well. This two-hour workshop looks at the growing trend of electronic trading, including Automated order Processing (or Direct market Access), Algorithmic Trading and High Frequency Trading. The workshop will focus on: The regulatory obligations that apply to brokers who use AoP for clients or for proprietary trading; The types of algorithmic trading and High Frequency trading strategies that are being used overseas, and increasingly in Australia; and, Potential dangers, such as the “may 6 Flash Crash”, market manipulation and disorderly markets.

PeRTH: Tues 1 Apr (9am – 11am)

a day IN THE lIFE OF a TRadE WORKSHOP – 2 CPd (COMPlIaNCE)This 2.5 hour short ‘course in operations’ focuses on the evolution of share and derivative trades from order placement through to execution to settlement (and later exercise/expiry where relevant) and reporting requirements. Designed for new or unfamiliar starters in the industry or markets, this workshop provides a comprehensive overview of the market and operational process. it provides an excellent foundation for retail desk assistants and would suit as a refresher for experienced staff as well as those staff in auxiliary and rotating roles: legal, iT, HR and other supporting roles associated with stockbroking.. There is no assumed knowledge for participants of this workshop.

SYD: Thurs 22 may (9am – 11:30am )melB: Thurs 5 Jun (2pm – 4:30pm)

PERFORMaNCE IMPROVEMENT FOR adVISERS WORKSHOP – 3.5 CPdDid you know that your individual personality type is reflected in how you trade? Would you like tounderstand more about how your own behaviour can be changed and enhanced to make better investment decisions and earn greater returns? Using the latest research and principles of neuroscience, this half day workshop is for advisers who wish to take their performance to a new high and create their own performance strategy to achieve greater success. it also provides solid strategies to foster more productive client relationships.

SYD: Thurs 10 Apr (11am – 2:30pm)

EXCHaNGE TRadEd FuNdS – 1 CPdThis seminar is aimed at making a broker’s life easier and informing brokers on: how eTFs work, how to explain them to clients, and to highlight the business and investment benefits of using eTFs in clients’ portfolios.

Key topics covered are: eTFs – the mechanics and how they work; benefits of eTFs and how you can use eTFs in your business; and how eTFs can complement other strategies in your portfolio construction process.

BRiS: Thurs 8 may (12:30pm – 1:30pm)SYD: Wed 18 Jun (12:30pm – 1:30pm)

For further information visit www.stockbrokers.org.au

CONTaCT uS TOday! For further information please contact the Stockbrokers Association on 02 8080 3200 or education@stockbrokers.org.au

Did you know that your individual personality

type is reflected in how you trade?

Would you like to understand more about how your own behaviour can be changed and enhanced to make better investment decisions and earn greater returns for your clients?

KNOW YOURSELF. KNOW YOUR CLIENT.

Using the latest research and principles of neuroscience, this half day workshop is for advisers who wish to take their performance to a new high.

Advisers will learn how to create their own performance strategy to make better investment decisions, earn more profitable returns, foster more productive client relationships and achieve greater success.

PRESENTERS

– Wai-Yee - Investment Author and a Derivatives Specialist Adviser

– Tiffany Gray – Director, PRISM Brain Mapping Australia

All candidates receive a free copy of ‘NeuroInvesting Build a New Investing Brain’ by Wai-Yee Chen

Performance Improvement for Advisers3.5 CPD Hours

“Everyone’s (view) is coloured or biased in some way, and that is reflected in how they trade. (The trick is) learning how to make sure your trading is not affected by the negative stories your brain is telling you”.

WAi-Yee, CoURSe PReSenTeR

www.stockbrokers.org.au

www.stockbrokers.org.au p. 19

education

Performance Improvement for Advisers3.5 CPD Hours

For more info visit investing.commsecadviserservices.com.au/brokers

From cash management to margin loans, CommSec Adviser

Services offers brokers a broader range of products and services

than ever before. With exceptional, one-to-one service from

our dedicated team of relationship managers, you’ll have

everything you need to deliver the best possible

service to your clients.

To fi nd out what the CommSec Adviser Services team

can do for your business, contact our National Sales

Manager directly:

MARTY JOHNSTON 0417 288 960

PROTECTING RELATIONSHIPSWe’ve built trusted relationships with thousands of advisers and a number of large fi nancial institutions, working with them to provide products and services to 485,000 of their clients.

AWARD-WINNING MARGIN LOANSCommSec Margin Loan – Winner of multiple awards in 2013, including Money Magazine’s Margin Lender of the Year for the fourth year running, Smart Investor Blue Ribbon Award, Canstar Outstanding Value Award and the Stockies Margin Lender of the Year Award.

50BPS GUARANTEEWith Commonwealth Bank’s Accelerator Cash Account, you’ll earn 50bps above the RBA cash rate, guaranteed until 30 June 2014.1

Whilst borrowing to invest can multiply your investment returns, it may also multiply your losses if the value of your investment falls and this may result in the value of your security being insuffi cient to repay your margin loan. This information is directed to AFSL Advisers only and does not take into account the objectives, fi nancial situation or needs of any investor. CommSec Adviser Services is a brand of Commonwealth Bank of Australia (CBA) ABN 48 123 123 124, AFSL and Australian credit licence 234945 who is the provider of the Accelerator Cash Account (ACA) and CommSec Margin Loan (CML). ACA investors should consider the General Information Statement and Terms & Conditions and CML investors should consider the Product Disclosure Statement and Terms & Conditions available from investing.commsecadviserservices.com.au/brokers before deciding if the products are appropriate for them. Fees and charges apply.1Assuming commission is not being paid. This interest rate is only available to accounts opened in the name of an Individual, SMSF and Family Trust. For other rates please contact us to discuss.

WE GO TO GREAT LENGTHS FOR BROKERS TOO

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