Are ETFs for you?

Have you thought of using Exchange Traded Funds?

Or wondered what they are?

A new report, compiled by the Australian Securities and Investments Commission, might help, either way.

ASIC says ETFs  can provide a convenient and low-cost way for investors to diversify and receive returns close to the performance of market indexes or other assets.

Its report says this can often be done with lower fees than traditional managed funds.

“ But while standard, ‘physical’ ETFs generally invest in the underlying investments they are designed to track, ‘synthetic’ ETFs also use derivatives, such as swap agreements, to achieve similar outcomes,” ASIC says.

“Benefits to investors of synthetic ETFs may include access to new and varied asset classes and low performance ‘tracking error’,” it adds.

“ Downsides include increased complexity and counterparty risk,” ASIC said.

Still puzzled?

Try the MoneySmart website.

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We’re tightening the tax net: Swan

Wayne Swan told business leaders today that he is planning to make Australia’ tax system “more robust.”

The Treasurer also declared that he will be looking for extra savings in his May budget and that there will be very little room for new spending.

But he said getting the budget back into surplus is “an economic imperative in a turbulent new global economic era.”

Addressing a Business Economists’ breakfast in Sydney, Mr Swan noted that a number of recent court decisions had gone against the Tax Office.

He said this had “exposed weakness” in parts of Australia’s tax law.

“We’re looking at these to see where we can make the tax system more robust, more sensitive to complex transactions, and better at deterring people from tax avoidance,” Mr Swan said.

The Treasurer said producing a surplus, in this year’s Federal budget, would require strict discipline.

But that would ensure that fiscal strategy would not be adding to price pressures as the economy strengthens.

“Returning to surplus provides more flexibility for the Reserve Bank to respond to any further developments in the global economy,” Mr Swan said.

“Maintaining our credible fiscal policy also sends a strong message of confidence to investors across the world in uncertain times. “

Mr Swan also warned a new oil shock might be among the challenges that the Reserve Bank would have to face.

He said, too, that the global financial crisis had hit all of Australia’s tax collections.

“The tax to GDP ratio fell 4.2 percentage points to 20 per cent, Mr Swan said.

“Collections, particularly related to company profits, have been lower than expected,” he added.

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“Life on Struggle Street” – the ABS reports

More than one Australian in five is poor – and their incomes are still  falling further behind the rest of the community.

This is shown in figures the Bureau of Statistics has just released.

Co-incidentally these figures, reflecting the extent of poverty in Australia, were published on the eve of the annual conference of the Australian Council of Social Service.

ACOSS has been arguing vigorously for higher pensions and allowances.

In a report entitled Life on Struggle Street, the Bureau reported that 4.9 million Australians – 22.6 per cent of the population – live in low income households.

That is an average of 2.9 people, living in households with incomes of no more than $465 a week.

That was less than half of the average – of $1,033 a week – for other Australians.

And the poor are still falling further behind.

The Bureau reported that., after adjusting for inflation, the incomes of poor families had risen by 21 per cent between 2003-04 and 2009-10.

The rest, though, had enjoyed an average rise of 27 per cent, over the same time.

Inequalities in wealth, though, are even sharper.

The average wealth of low income families was just $53,000.

For the rest, the average was almost 10 times greater, at $509,800.

Technically, though, the poor are not getting poorer.

The Bureau reports that, after adjustment for inflation, the average level of their wealth had remained flat, in the six years to 2009-10.

Relatively, though, the poor were, indeed, worse off.

Over the same time, the average wealth of other Australians had risen by 29 per cent.

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Australia’s banks warned on profits:RBA

Australia’s big banks should not chase profits by taking on more risk.

That blunt warning has come from the Reserve Bank, which says bank profits in Australia are already “robust.”

However, in its regular stability review, the Reserve also warns of possible problems ahead.

“The large banks have continued to record robust profits, generating returns on equity that have been broadly in line with long-run averages,” it said.

“ However, the slow credit growth environment could constrain the pace of their future profit growth,” the Reserve added.

“ It would therefore be unhelpful if banks were to chase unrealistic profit expectations by taking on more risk,” it warned.

It spoke of three ways in which that might happen.

These were:-

*…lowering credit standards

*…expanding too quickly into new or unfamiliar markets and

*   by pursuing cost cutting in a way that weakens their risk management capabilities.

The Reserve said, though, that Australia’s banking system remains in “a relatively strong position.”

“The larger banks are in a better position than a few years ago to cope with the tighter funding conditions given the improvements they have made to their funding, liquidity and capital positions over recent years,” it said.

“ Their wholesale funding task is also more manageable, with deposit growth continuing to outpace growth in credit by a wide margin.

“The improved conditions in global bank funding markets this year have enabled the larger banks to significantly step up their bond issuance, including through their newly established covered bond programs.

“ Bond spreads remain wider than in the middle of last year, though, which has resulted in some loan repricing recently.”

More at www.rba.gov.au

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New study exposes poor advice on retirement

The financial advice you get, to help you plan for retirement, will be very important for your future.

Yet a study, just completed, suggests that most of the professional advice, available in Australia, is “adequate” at best.

The Australian Securities and Investments Commission, which conducted the survey, concludes that the industry has room for improvement.

ASIC Commissioner Peter Kell said: “The results of ASIC’s shadow shopping research demonstrate that there is scope for significant improvement in the provision of good quality retirement advice in Australia.

“Our research found there are several areas where the financial advice industry needs to lift its game,” Mr Kell added.

ASIC’s research found that:

*      over a third of the advice examples were poor (39%)

*     there were only two examples of good quality advice (3%)

*      the majority of advice examples reviewed (58%) were adequate.
“Advisers are important gatekeepers who have a key role to play in helping consumers plan and manage their finances,” Mr Kell said.

“ This underlines the importance for the industry to remove conflicts of interest and improve overall professional standards to ensure that their client’s trust is not misplaced, “ he added. he said.

ASIC said said financial advisers need to provide realistic and client focused advice.

This should include discussion of people’s retirement prospects, including how long their money will last.

It said this topic should be fully discussed,”even if this can on occasion be a challenging conversation.”

“‘Too much poor advice provided to our shadow shoppers was overly product focused and not strategic enough to help clients develop a realistic and achievable plan for their retirement,” Mr Kell said.

He said people planning for retirement need to make the most of their financial resources, given their resources, and likely risks,

Want more information?

That’s available at moneysmart.gov.au.

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The cash rate still matters:RBA

The Reserve Bank’s decisions on interest rates still matter.

Many people started to doubt that, last month,  when Australia’s big four banks increased  the rates they charge on their home loans, even though the Reserve Bank had left its marker rate on hold then.

Despite that,  a senior Reserve Bank official declared today that its marker rate, known technically as the cash rate, is still a major factor in setting bank rates.

More than that, in fact.

Specifically, Guy Debelle, Assistant Governor (Financial Markets) of the Reserve Bank said: “movement in the level of the cash rate is still the primary determinant of the banks’ funding costs.”

Mr Debelle said that was because other interest rates, including those the banks, themselves, pay on term deposits, tend to move with the cash rate.

Mr Debelle added, though, that there are other factors, as well, such as risk weighting, that the commercial banks must  take  into account.

He acknowledged, too, that, ultimately, the banks would continue to make their own decisions about the rates they  charge on home – and other – loans.

Mr Debelle noted, though, that the link between the Reserve Bank’s marker interest rates – and Australia’s mortgage rates – are much closer than those between comparable rates in other countries, including the United States.

Speaking at a Morgan Stanley Macro Investors’ conference in Sydney, Mr Debelle said Australia’s banks now compete strongly for cash deposits.

So they now pay higher rates, themselves, on those deposits.

There had also been a marked move towards deposits, as a source of the funds the banks lend to their home loan customers.

Australia’s builders – and retailers – have been pressing the Reserve Bank to order another cut in interest rates, to help revive their depressed trade.

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We’d order a childcare review:Abbott

Tony Abbott says he would ask the Productivity Commission to conduct a complete review of child care arrangements in Australia.

The Opposition Leader says access to flexible and affordable child care is a key component of increasing choice, workforce participation and national productivity.

Mr Abbott also said that up to 70,000 Australian women cannot get jobs because they can’t find suitable child care.

“ In many cases, this occurs because the child care options available do not meet their particular needs,” Mr Abbott said.

“The Coalition regards access to adequate child care as an economic issue, not just a family one,” he added.

“Australia needs a child care system that is flexible, responsive and affordable,” Mr Abbott declared.

“If elected, an incoming Coalition Government would, as a priority, ask the Productivity Commission to consider ways that high quality child care can be delivered more flexibly to suit the individual circumstances of families,” he said.

Mr Abbott said a stronger, more flexible child care system would be an important complement to the Coalition’s paid parental leave scheme.

It would encourage more women to join Australia’s workforce.

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Protecting yourself against organised crime

On the latest estimates, organised crime is now  costing Australia between $10 and $15 billion a year.

So how can you protect yourself against it?

The Australian Crime Commission which produced those staggering estimates, also gives some pointers on staying safe.

The Commission says  that organised criminal networks are always on the lookout for profits.

It warns, too, that they “are flexible, innovative and resilient.”

Your security should be, too.

Our political leaders are trying to do their part.

As evidence, the Commission points out that Australian laws have been changed to:

- introduce new criminal offences targeting those involved in organised crime

- strengthening criminal asset confiscation and anti-money laundering provisions

- requiring people who have unexplained wealth to demonstrate that it was legally acquired

-enhancing money laundering, bribery and drug importation offences

- broadening access to telecommunications interception for the investigation of organised crime offences, and

-providing protection for undercover law enforcement officers who infiltrate criminal organisations.

The authorities have also spelt out their priorities for fighting organised crime.

These include targeting the production and sale of amphetamines, money laundering and identity crime.

Nothing, though, works as well as the precautions you can take yourself.

These should include:-

-           Locking all personal documents in a safe container when you are not using them

-           Keeping copies of key documents in a secure place.

-           Carrying only essential information

-           Destroying any personal information before you put it in a bin and

-            Using strong passwords on your accounts.

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