Zurich

How to solve a problem like TPD?

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Zurich introduces new assessment criteria as part of an innovative rethink of misunderstood cover.

An insurance purchase generally entails an expectation that when the ‘wheels fall off,’ financial loss is compensated by an equivalent claim payment.

Historically some total and permanent disability (TPD) contracts, have fallen short of this expectation as claimants are required to be injured to the extent they’re deemed unlikely to ever work again. This severity benchmark and occupational claim hurdle have contributed to recent media coverage around TPD claim denial rates and the frequently held misconception that you virtually have to be permanently hospitalised to claim against TPD. with such disconnect between financial loss and claim outcome, it is easy to see why some observers have questioned the value of TPD.

Contrary to the idea TPD claims are ‘pigs might fly’ type events, or life insurers might force a librarian to work as a truck driver, Australian life insurers pay hundreds of millions of dollars in TPD claims each year. In reality, we know TPD can be a vitally important part of the protection strategy and the financial assistance it provides changes lives, but with that said, it’s important to acknowledge that not all TPD contracts are created equal.

As part of its recent risk product overhaul, Zurich has re-engineered its TPD offering by adding a number of additional – non-occupation based  – assessment criteria to flagship Wealth Protection product.

Zurich’s medically based claims alternative that alleviates reliance on a client’s future ability to work is known as extended activities of daily living (Extended ADLs). To further improve the confidence around the TPD conversation and better align claim outcomes with client expectations, a partial and progressive payment system is also available through Zurich’s platinum TPD feature.

Extended ADLs – moving beyond the self-care definition

It’s critical to acknowledge that whilst most traditional TPD products include a form of ADL cover, Zurich’s approach is distinctly different.

The extended ADL framework captures a much broader range of assessment criteria’s and qualifying benchmark at claim time are considerably more lenient. For example, whilst traditionally ADLs centre around the claimant’s ability to self-care, Zurich’s approach expands the qualifying criteria to include an individual’s functional status across the following six categories:

  1. Self-care
  2. Communication
  3. Physical activity
  4. Sensory function
  5. Hand functions
  6. Advance functions.

So let’s look at the practical application and the benefits the extended ADL framework con deliver clients.

 

[via FINANCIAL STANDARD]

Exchange traded products

ETP demand grows, fees stable

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Exchange traded products (ETP) are charging fees disproportionately to the dramatic growth in assets and number of products available, according to Rainmaker data.
Between March 2013 and 2017, ETP funds under management quadrupled from $ 7.2 billion to $ 27.2 billion, while the number of products in the market doubled from 79 to 155.
EPT products have gained sufficient size to counteract the effect of lower fees on the original product and kept the overall weighted Management Expense Ratio (MER) the same, the quarterly ETP report said.
It found BlackRock, Vanguard, State Street, BetaShares, Magellan, Van Eck, Russell and ANZ ETFs comprise 98% of the market and among them, charge a wide range of MER of 0.18% per annum, followed by State Street at 0.25%. Magellan’s weighted MER is six times that of Vanguard’s across three of its actively managed ETPs.
What the data ultimately shows is there “is no correlation between a manager’s ability to gather assets and fees being charged.”
“The largest asset gatherers ran the gamut of fees structures and product types. What this does show, however, is that the Australian EPT market is continuing to evolve into the product offering the associated fee structure,” it said.
In the 12 months to March, ETP FUM rose 28% to $27 billion, with a marked shift to international equities and fixed interest assets classes.
International equity ETPs were the most active during the period with 72 products launched, followed by Australian equities with 46, fixed interest with 17 and commodities with 11.

[via FINANCIAL STANDARD]

AMP modifies insurance offering

AMP modifies insurance offering

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Newly-launched improvements to AMP’s life insurance offering are aiming to give advisers and customers greater flexibility and choice.
To ensure customers’ cover stays contemporary, AMP director of insurance proposition Greg Johnson said options can be added to existing AMP Elevate insurance plans, giving advisers the ability to alter a cover without the need to take out a new plan.
One of the new features includes linking members’ standard income protection plans in super to plans held outside superannuation.
This enables having an agreed value income insurance while most of the premium can be paid from the member’s super account.
In another improvement a new inbuilt ‘buy back’ feature allows customers to reinstate linked life insurance cover 12 Months a total permanent disability and death (TPD) claim without providing additional medical information.
Customers can also apply for TPD sum insured higher than their life insurance sum insured through their super.
This is especially important for people without dependents who may value higher TPD coverage over the need to leave a legacy behind, Johnson added.

[via FINANCIAL STANDARD]

Education key in combating elderly financial abuse

Education key in combating elder financial abuse

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Financial advice practices will be able to equip staff with greater knowledge and understanding around identifying and preventing elder financial abuse through a selection of new education and training materials.
Protecting Seniors Wealth has launched a range of resources including presentations, training courses, and publications to create awareness and assist in developing strategies to deal with senior and elder financial abuse efficiently.
The company believes financial planners are in a unique position to assist in protection seniors and their wealth as they assist in the management of their finances and so should incorporate this sort of training into their business plains, promoting trust and building on their business’ reputation.
“Seniors and elders are prime targets, they hold the largest share of wealth and often need assistance dealing with unwanted financial predictors, and the focus is on the seriousness of this issue – rapid increases, how seniors are impacted how much money and assets are being stolen.” Protecting Seniors Wealth chief executive Anne McGowan
“its motivational and provides opportunity to relate in terms of possible loss of their own clients and funds, providing strategic insight and knowledge for assisting to be money gatekeepers.”
McGowan believes the findings of the Australian law reform commission’s inquiry into Elder Abuse will indicate the need for more education, with the new resources working toward fulfilling the need.
“The disturbing consequences of this form of abuse are so profound that when financial perpetrators take senior elders money and assets, they often also take the funds they need for their lifestyle and age care, along with their dignity and the inheritance they plan to leave loved ones, resulting in the final insult – inheritance being stolen or taken as well,” McGowan said.
Resources from Protecting Seniors Wealth can also be tailored for CPD accreditation.
Separately, the Australian Tax Office (ATO) is reminding Australians to stop and think before giving their personal details or hard earned money to scammers this tax time.
Assistant Commissioner Kath Anderson said 48,084 scams were reported to the ATO between July and October last year.
“we have already seen a Five-fold increase during the tax time period,” Anderson said.
“Already this year, the ATO has registered over 17,067 scam reports. Of these, 113 Australians handed over $1.5 Million to fraudsters with about 2500 providing some form of personal information including tax file numbers.”

[via FINANCIAL STANDARD]

Value of advice still unclear: IOOF

Value of advice still unclear: IOOF

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Australians are still dissuaded by the cost of seeking financial advice, despite those that receive financial advice being 21% more likely to have greater peace of mind.
IOOF believes the benefits of advice must outweigh the cost in order for clients to value it with not everyone needing it to produce tangible financial benefits.
“Simply put, clients value advice provided it meets a particular need. . . For some, value comes from those intangible benefits, such as sleeping better at night, while for others value lies in the more tangible benefits, such as tax minimisation, above average returns or low fees,” IOOF group general manager, wealth management Renato Mota said.
Mota believes financial planners need to demonstrate their value more when it comes to fee discussions and allow clients to determine what constitutes ‘value’.
“rather than leading with the vague and intangible term ‘value, when the vague and intangible term ‘value’ when discussing fees, it will be more useful to provide the full list of services you offer and clearly show why your fees are a fair reflection of those services,” Mota said.
“If you include intangible benefits of advice, such as counseling against destructive client behavior, as part of your conversation with clients, it’s important to be specific on how this is a service which adds value to their portfolio.”
Mota reinforced the undeniable appeal of low fees too, saying it’s inevitable that some clients will view cost as the yardstick of value and there are simple ways to reduce fees.
IOOF encourages planner to consider improved passive investments delivering returns above traditional benchmark indices at a lower cost. It also highlights fee aggregation as a great way for clients to limit the number of administration fees paid.
“As investors become more cautious about their spending, having a clear link between fees charged and the service which provides value will become more important. For some clients finding a way to offer lower fees will be crucial, but it should be remembered – cheaper financial advice doesn’t make it better, it’s just cheaper.” Mota said.

[via FINANCIAL STANDARD]

Super funds return 2.9%

Super funds return 2.9%

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Superannuation funds have returned an average of 2.9% for the 12 months to 30th June as measured by the SelectingSuper workplace default option MySuper Index, propped up by property and fixed income.

The SelectingSuper workplace default option MySuper Index showed a negative 0.9% monthly return in June.

However, combined with the positive return in the period March to May, the rolling 12-month performance for the 2015-16 financial year was a positive 2.9%.

The monthly fall in superannuation performance in June was driven by a fall in both Australian and international equities. The negative return for super funds in the latest month comes at the end of a period of relatively volatile returns in the first six months of the 2016 calendar year.

The positive 2.9% performance for funds in the 2015-16 financial year, although lower than prior years, was nearly 2% above inflation for the period.

The performance over multi-year time periods benefits from the positive impact of high returns in the years 2013-15. Reflecting this, three-year rolling MySuper returns are 8.3%pa and five-year returns are 8.1%pa. The longer term 10-year return is a more modest 5.2%pa although this period incorporates the full effect of the GFC and is overlaid by a lower inflation environment.

On an annual basis, Australian equities, often the largest asset class in many balanced funds, positively contributed a 0.6% return as the market has progressively drifted down since early 2015. The contribution of international equities has been a positive 0.4%, although this impact has been muted by many funds through hedging inbuilt within their portfolios.

Property has continued to provide a significant positive impact on fund investment outcomes with the listed property sector having a positive 24.5% return in the 12-months to end June. To further highlight the positive impact buffering that property has had on superannuation returns, the three-year average return to June 2016 from listed property is 18.5%.

Over the year ended June 2016, the fixed interest index return was a strong 7%, although, on average, fixed income portfolios within superannuation funds underperformed this index. Meanwhile, cash returned a modest 2.3% over the same period.

In net terms, this means funds with relatively high exposure to Australian equities and international equities underperformed in the 12 months to end April. Similarly funds with relatively larger holdings in property and potentially fixed interest outperformed in the period.

Regarding the market segments, the gap between not-for-profit (NFP) funds and retail funds within the Workplace sector continues. The 12-month return gap is now 120 basis points in favour of NFP funds. The long-term five-year segment gap is 30 basis points in favour of NFP funds.

[via the Financial Standard]

How super investment option fees vary

How super investment option fees vary

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Superannuation members who have selected an investment option other than their fund’s balanced option may be paying more in fees than they realise, according to research by Rainmaker.

The Researcher said investment management fees generally account for around half of the total fees paid by members.

However this is based on the average member who remains in the default investment option (around 40%) there is a range of members who elect to choose their own option, and for these members, the investment management fees vary significantly.

A review of the option specific fees across 30,000 individual investment option within Rainmaker superannuation database shows fees varied significantly by asset sector and by type of fund. the analysis also shows the fees for selected options were significantly higher than the fees for the default investment options within workplace funds.

The average investment management fee for workplace super is currently at 0.62%. However, once you step out of the MySuper default options, the comparative investment fee increases meaningfully.

The average fee for a diversified option is 0.84%, over 20 bps above the fee for the workplace default option.

Growth diversified options carry a slightly higher average of 0.87%.

The price of diversified options for retail superannuation funds is on average around 25 bps above diversified options for not-for-profit superannuation funds.

The range of investment fees is wider in respect to asset specific options. While cash and fixed interest options are, on average, below 0.5%, the average fees for equity options are 1.1%. Above these, options for alternative and hedged assets average 1.2% and 1.9% respectively.

[via FINANCIAL STANDARD]

Majority of Australians without financial plan

Majority of Australians without financial plan

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Baby boomers are more optimistic than their younger counterparts, with 51% of generation X fearing they won’t have enough money to retire compared to 40% of baby boomers, according to new research from Financial Planning Association of Australia (FPA).

The ‘Dare to Dream’ research concluded ahead of the 16th annual financial planning week revealed more than two in five Australians (63%) did not have a financial plan for their future and a quarter had sought financial advice from a professional or another contact when making financial decisions.

FPA chief executive, Dante De Gori said the research paper sought to uncover the top financial goals, hopes and dreams for Australians across all life stages while identifying the obstacles to seek professional advice.

“The findings of our Dare to Dream research show that as a nation, We are dreaming more than we did five years ago, but we often aren’t living to our full potential.This might be because of fear, apathy, or lack of planning. For financial planners, these are valuable insights into their client base,” De Gori said.

The research surveyed 1,016 Australians across baby boomers (1946 – 1964), generation X (1965 – 1979) and generation Y (1980 – 1994) and found the most common goal across all demographics was a financial one (34%). The top three aspirations among respondents were full financial freedom and independence (59%), a lifestyle of choice (58%) and pursue interests and hobbies (50%).

[via FINANCIAL STANDARD]

Shorten attacks government

Shorten attacks government’s retro super changes

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Federal Opposition Leader Bill Shorten used his budget reply speech to label the government’s superannuation changes as “retrospective” and reaffirm labor’s election policy on the $2 trillion industry.

The government announced a $500,000 lifetime cap will be applied to after-tax concessions on superannuation as part of the wider agenda to slow retirement savings being purely wealth accumulation for higher income Australians. The measure will include contributions backdated to 2007.

Shorten called out this retrospective view, yet also used his budget reply to accuse the government of pinching Labors superannuation ideas.

“Labor will gladly support our own clear and costed policy to close the unsustainably generous superannuation loopholes at the very top end. We welcome the fact that, three years after they voted to abolish Labor’s low-income superannuation contribution the Liberals have decided to keep it and simply rename it,” Shorten said.

He added the government was dangerously undermining super by claiming 4% of Australians in the super system will be affected by a budget change. He also took a shot at the government’s proposal to remove regulations that restrict people between 65 and 75 from making contributions to their superannuation.

“Labor will never apologise for standing up for Australians who go to work every day and want to come home safe, who rely on penalty rates to make ends meet, who do not want to be forced to work until they are 70,” Shorten said.

Shorten further announced a range of measures that would see $71 billion of “additional budget improvements over the decade.”

Labor still proposes a 25% tax cut for small businesses with a turnover of less than $2 million a year and delivering 50% renewable energy by 2030. It also backs its plans to “turbocharge” Infrastructure Australia with a new $10 billion funding facility, ” a concrete bank to get investment from the private sector, particularly big super funds, flowing into projects.” Labor says their infrastructure projects would add 26,000 jobs.

Labor is not supportive of budget measures that give the richest 3% of Australians another tax cut and reducing the marginal tax rate for individuals who earn more than $180,000 a year.

[via FINANCIAL STANDARD]