The latest edition of our fortnightly email newsletter was sent to subscribers on the 17th of June.  This edition looked at income distributions from managed funds, provided a summary of the movements in markets over the past fortnight and looked at Warren Buffett's bet with a Fund of Hedge Funds manager.  If you would like to be added to the mailing list please click the following link to be taken to the sign up page - The Financial Fortnight That Was Sign Up Page.

The latest edition also contained the following Market Update:

Market Indices

Since our previous edition, Australian and global sharemarkets along with listed property have all experienced negative movements.  The S&P ASX200 Index has fallen 4.89% from the 30^th May to the 13^th of June.  It is now down 12.98% from the same time last year and down 15.17% for the calendar year (2008) so far.  The MSCI World - ex Australia, a measure of the global market, has fallen 3.43% over the same period.  The index is down 12.67% from the same time last year and down 9.17% for the calendar year so far.

Emerging markets have also experienced negative movement with the MSCI Emerging Markets Index falling 6.43% since the 30^th of May.  It is up 7.11% from the same time last year but down 9.85% for the calendar year so far.

Property trusts have also fallen since the 30^th of May with the S&P ASX 200 A-Reit Index (formerly known as the Property Trust Index) falling by 6.52%.  The index is down 38.36% from the same time last year and also down 28.59% for the calendar year so far..  The S&P/Citigroup Global Real Estate Investment Trust (REIT) Index, a measure of the global property market, has fallen 4.16% over the same period.  It is down 20.47% from the same time last year and down 6.24% for the calendar year so far.

Exchange Rates

As of 4pm the 13^th of June, the value of the Australian dollar has fallen against major benchmarks for the fortnight.  It has fallen against the US Dollar since the 30^th of May by 1.64% at .9402.   It is up 11.77% from the same time last year and up 6.65% for the calendar year so far.  Since May30^th the Aussie has also fallen 0.69% against the Trade Weighted Index now at 72.3.  This puts it up by5.39% since the same time last year and up 5.24% for the calendar year so far.  (The Trade Weighted Index measures The Australian dollar against a basket of foreign currencies.)

General News

Since our last edition the RBA board has decided to keep official interest rtes at 7.25%.  In the brief statement released with the announcement of the decision the RBA suggested that they believe inflation is likely to remain relatively high but it should decline over time provided demand evolves as expected.  Therefore the current stance on monetary policy remains appropriate for the time being.

Statistics coming out of the Australian Bureau of Statistics over the past fortnight have seen the official unemployment rate remaining steady at 4.3% as of the end of May.  However, the participation rate fell to 65.2% and employment fell by 19,700 jobs.  The ABS has also released their latest estimation of Australia's population suggesting it has grown to 21,181,000, a rise of 1.7% for 2007.  Finally, they have also released the latest economic growth figures up to the end of the March quarter with the economy growing by 0.6% in the March quarter and a total of 3.6% through the year ending 31^st March 2008.

In today's podcast, Scott Keefer looks at the looming end of financial year distributions to be made to investors by managed funds.  He highlights the tax ineffectiveness of many of these distributions.

Please click the following link to be taken to this podcast - The problem of distributions from actively managed funds.

A transcriptof the podcast follows:

Scott Keefer

Over the weekend we have included two new features on our website.

The first provides users with the ability to send a link to family, friends or colleagues of a particular page on the website.  On the right hand margin of each page you can find a "Send page to a friend" link.  By clicking on this link and adding your email details and the details of the recipient you can send them a simple link to the relevant page.

The second feature allows users to provide feedback on the usefulness (or otherwise) of our website.  In the right hand corner of every page of our site there is a dark blue "feedback" button.  By clicking on this button, users have the ability of submitting an idea as to how our site can be improved, voting on ideas that other users have proposed or emailing a specific comment.

By submitting an idea, you enable other users to view your idea and add their vote if they think it is worthwhile.  By casting your vote you are telling us whether you think the ideas are worthy and which ideas should be implemented first.  Where possible, the ideas which receive the greatest amount of votes will be actioned first.

You will also be able to view the current top user suggestions towards the bottom of the left margin on each page of our website.  Click on the "Cast your votes" link to vote for the best alternatives.

Clicking on either option will take you to our User Voice website - http://acleardirection.uservoice.com/ - where all the details of the ideas can be found.

We are committed to building  the very best financial services website and we can only achieve that with your help so please take up the opportunity to provide us with your feedback!!

Many thanks,
Scott Keefer

Most of the financial press over the last few days has concentrated on the sharp fall in share value of Babcock & Brown Limited (BNB) and its related entities.  Much of the commentary has turned to the underlying strategies of the B&B model and the huge levels of debt involved.  Some blame has been placed at the feet of those nasty hedge funds and short selling but it would appear, as has been the case with the other major casualties so far this year, that the real story is about the level of debt being carried by the organisation and in Babcock's case the debt involved with the entities from which it draws its impressive fees.

The fall in shareholder value is a intersting point of discussion, especially for holders of these investments, but of greater interest to us has been how the expert advisers - the financial analysts - prepared their clients for and protectedthem against the fall of B&B share prices.  We took a look at the analyst recommendations provided by E*Trade, a well known online trading provider, as of the 13^th of June (Friday). To our astonishment (not really) we found that of the eight analyst opinions, 1 was a strong buy, 3 were moderate buys and 4 held hold opinions.  The analysts included - UBS, Credit Suisse, Merrill Lynch, Deutsche Bank, Wilson HTM, Baillieu Stockbroking, Citigroup and ABN Amro.  Overall a fairly positive view of Babcock.  If you were an investor and subscribed to this analysis you would most probably still be invested.  BNB has fallen from $11.16 at close of trade on the 6th of June and was valued at $5.25 at close of trade on the 13th, a 53% fall in value.

What this points out is that the experts, with all their research efforts, and capabilities, have not been able to predict this significant collapse in shareholder value.  It provides more anecdotal evidence of the failure of an active investment approach based on supposed expert advice.

For more details on why and how an active approach to investing is not a good strategy take a look at two pages on our website - Active Managers Underperform and Our Research Based Approach - Active Fund Managers Underperform.

Regards,

Scott Keefer

The Fortune magazine's website, based in the US, has published an article discussing a recent wager between Warren Buffet and a fund of hedge funds manager - Protégé Partners LLC - Buffett's big bet.

The actual bet is phrased:

"Over a ten-year period commencing on January 1, 2008, and ending on December 31, 2017, the S & P 500 will outperform a portfolio of funds of hedge funds, when performance is measured on a basis net of fees, costs and expenses."

Protégé has placed its bet on five funds of hedge funds, specifically the averaged returns that those vehicles deliver net of all fees, costs and expenses.  Buffet on the other hand has bet on the returns from Vanguard's low-cost S&P 500 index fund.

The arguments for each are nicely summarised on the Long Bets site - Bet 362 - www.longbets.org/362

Buffet's argument is predictable:

"A lot of very smart people set out to do better than average in securities markets. Call them active investors.

Their opposites, passive investors, will by definition do about average. In aggregate their positions will more or less approximate those of an index fund. Therefore the balance of the universe 'the active investors' must do about average as well. However, these investors will incur far greater costs. So, on balance, their aggregate results after these costs will be worse than those of the passive investors.

Costs skyrocket when large annual fees, large performance fees, and active trading costs are all added to the active investor's equation. Funds of hedge funds accentuate this cost problem because their fees are superimposed on the large fees charged by the hedge funds in which the funds of funds are invested.

The 2^nd article in Wednesday's Australian Financial Review Portfolio Liftout that was of interest provided advice to readers about seeking advice from the right planner - Take counsel, wiser the better.

In terms of our business, it provided a neat summary of some of the offerings of other financial planning firms but more importantly for those who are seeking to find the right financial planner it provided a range of alternatives and benchmarks to consider.

An early suggestion from the authors that I wanted to address is the proposition that "few planners want to deal with people who have less than $20,000 to invest".  At A Clear Direction we are keen to work with clients across the whole spectrum.  We are equally excited to work with wealth accumulators, those just starting their climb to financial independence, as we are with working with those who have reached the peak and are enjoying the view!!  We structure our business to ensure that we appropriately look after all clients

(Let me jump off my soap box and get back to the topic.)

The article outlines a range of financial advice offerings from an accountant, a financial services firm owned by major financial institutions, a stock broking firm, an independent planning firm, a private bank, a firm who services members of the industry and public sector superannuation funds and a major retail bank financial planner.

So what were the differences?

The major differences tended to be around what type of clients were targeted by each group including the type of advice they were mainly giving and how each was remunerated.  It was also clear to see the investment preference of each of the options.  The following table provides a brief summary of these 3 criteria.

There are obviously some clear differences between the alternatives including some clear biases in terms of investment preferences.

So how do we summarise ourselves on these three issues?

Target Market

Our target market is anyone who can see the benefit of investing according to our scientifically based investment approach with as little as a couple of thousand of dollars to invest or millions.

Focus of Advice

We cover the full range of financial advice services focussing first on strategy and structural issues before turning our attention to investment advice.  Our passion is having ongoing relationships with clients in assisting them to build and maintain highly effective investment portfolios within and outside of superannuation.

One area that we do refer clients to other sources is with regards personal insurances.  We see this as a very specialist area of advice.  However we continue to work closely with our preferred insurance advisor to make sure clients are being well looked after.

Fees

We realise that the costs of advice and investment management is extremely important.  We have built our business to minimise unnecessary costs without compromising the service any client of a financial services firm should expect.  This allows us to offer a very competitive fee structure.

Our fees are capped at $4,400 per annum with the most any client will pay is 0.55% on funds under management.  This fee reduces for clients with more than $500,000 of assets under management.  We generally do not charge upfront fees unless requested by clients.

Apologies for what might seem a bit of a sales pitch but we are certain that we have an approach that is valid for anyone looking for relevant financial and investment advice.

Please be in contact if you would like to know more.

Have a great weekend.

Regards,

Scott Keefer

The latest edition of our fortnightly email newsletter was sent to subscribers on the 3rd of June.  This edition looked at franking credits, provided a summary of the movements in markets over the past fortnight and looked at the golden rules of investing.  If you would like to be added to the mailing list please click the following link to be taken to the sign up page - The Financial Fortnight That Was Sign Up Page.

The latest edition also contained the following Market Update:

Market Indices

Since our previous edition, Australian and global sharemarkets have both experienced negative movements.  The S&P ASX200 Index has fallen 4.66% from the 16^th to the 30^th of May.  It is now down 9.43% from the same time last year and down 10.81% for the calendar year (2008) so far.  The MSCI World - ex Australia, a measure of the global market, has fallen 1.81% over the same period.  The index is down 10.45% from the same time last year and down 5.95% for the calendar year so far.

Emerging markets have also experienced negative movement with the MSCI Emerging Markets Index falling 2.83% since the 16^th of May.  It is up 16.68% from the same time last year but down 3.66% for the calendar year so far.

Property trusts have also fallen since the 16^th of May with the S&P ASX 200 A-Reit Index (formerly known as the Property Trust Index) falling by 5.19%.  The index is down 33.36% from the same time last year and also down 23.61% for the calendar year so far..  The S&P/Citigroup Global Real Estate Investment Trust (REIT) Index, a measure of the global property market, has fallen 3.19% over the same period.  It is down 20.20% from the same time last year and down 2.17% for the calendar year so far.

Exchange Rates

As of 4pm the 30^th of May, the value of the Australian dollar has risen against major benchmarks for the fortnight.  It has risen against the US Dollar since the 16^th of May being up 1.16% at .9559.   It is up 16.74% from the same time last year and up 8.43% for the calendar year so far.  Since May16^th the Aussie has also risen 0.83% against the Trade Weighted Index now at 72.8.  This puts it up by9.31% since the same time last year and up 5.97% for the calendar year so far.  (The Trade Weighted Index measures The Australian dollar against a basket of foreign currencies.)

General News

Since our last edition the Australian Bureau of Statistics has released a range of interesting data.  For the month of April, retail trade figures have reduced by 0.2%.  This was worse than analyst expectations of a 0.2% rise.

They have also released the latest business indicator data up to the end of March 2008 with a 2.2% increase in company gross operating profits for the first quarter of 2008 compared to the December 2007 quarter and up 7% over the year.  News reports suggest that economists were expecting gross operating profits to rise by 1.0 per cent in the quarter.

Wednesday's Australian Financial Review Portfolio Liftout was badged as "A Guide to Good Advice".  It provided some interesting reading of which I want to comment on two articles over the next few days of blogs.

The first looked at 10 questions to ask when choosing a financial planner.  I thought it would be a good exercise for us to answer these questions and be right up front with any potential or even current clients.  So here goes.

1.                   Can I see your Financial Services Guide?

The article highlights that providing an FSG is a legal requirement.

Our FSG is available to clients during their first meeting together with us.  If we are unable to meet face to face we will provide a copy with our first mail out of information.

2.         How long have you been a financial planner?

The article suggests the more experience the better.

Our principal financial planner, Scott Francis has been working in the industry for over 5 years.  I have been working in the industry for 1 ½ years and worked with Scott in planning the business.  We meet together with clients where possible and always work together on each client's strategy to ensure we are providing the most applicable guidance and advice.

3.         What do you specialise in?

The article suggests that you look for a financial planner that is suited to your particular circumstances.

We cover all areas of the financial planning process from wealth accumulators to retirees.  From initial financial planning strategy to the placement and monitoring of investments.  One area that we do refer clients to other sources is with regards personal insurances.  We see this as a very specialised area.  However we continue to work closely with our preferred insurance advisor to make sure clients are being well looked after.

4.         What kinds of clients do you mostly see?

The article suggests that you should find out about the types of people a planner advises and that they are in tune with your lifestyle.

We have a wide range of clients ranging from university students to professionals, people in their twenties to people well into retirement, people living in all states and territories (except the Northern Territory but we want to rectify this!).  We have clients that require planning for wealth accumulation, tax, income distribution, retirement, estate and social security needs.

5.         How do you charge for your services?

The article suggests that a planner should be able to provide an estimate of the cost of advice and options for paying.  It is a legal requirement to let a client know all the costs and sources of potential income.

We are upfront with the potential costs likely to be incurred by clients.  Our website contains a clear description of our fee for service model - Portfolio Management Service & Fees.

Some key points:

-          any initial meeting is free of cost - this gives potential clients a chance to see whether we are the planners they want to engage with in the future without costing them a cent,

-          we do not accept commissions from financial products or any other provider.  There is one cash account that we use for clients that passes on a commission.  We rebate this in full back to clients every quarter, even if the amount is less than $1.  It is extremely important to us that we are independent from any actual or potential bias,

-          the maximum annual cost for any client is $4,400 (including GST), the equivalent of 20 hours of work.

-          we base our fees on funds under advice, the maximum fee that we charge is 0.55% of funds under management.  This percentage fee reduces to 0.2% for every dollar over $500,000 on which we manage for clients.

-          There are definitely no entry or exit fees involved with any strategy we recommend to clients apart from the normal brokerage / transaction costs involved with buying and selling assets

6.         Will I receive written advice?

The article confirms that by law a financial planner must provide a written statement of advice if personal financial advice has been given.

We provide such Statements of Advice (SOAs)

7.         How often will you review my advice and what will it cost?

The article suggests that every plan needs to be reviewed.

There are three main levels of review that we perform for clients:

LEVEL 1:  Regular portfolio reviews - this includes:

• A comprehensive face-to-face or conference call review of your entire financial situation at the end of each year.
• Individualised portfolio reviews throughout the year

These portfolio reviews are generally about keeping you on track, and checking your progress over time.  For instance we will be complete a review based on income by August after the major income payments have been received in portfolios.

LEVEL 2:  Contact from time to time - we recognise that financial questions pop up all through the year, and you are always free to get in touch to discuss this.  There is no extra cost involved with this contact.

LEVEL 3:  Portfolio Maintenance - we regularly review and monitor your portfolio, and take responsibility for administration issues such as cash transfers, asset allocation, pension payments and regular investments.  Not just every 3 or 6 months but as issues arise.

8.         How will any issues with the planner's strategy be resolved?

The article suggests that you should be asking your planner at the beginning of the relationship what happens if you choose not to follow their advice and what happens when you want to terminate.

We generally do not charge initial up front planning fees as we see this as a possible impediment for clients should they wish to exit our service at a later date.  i.e. sometimes when you pay for something up front you feel like you have to get your money's worth.  It also means that there is no initial cost for providing the advice so if a client does not want to follow through there is no cost.

9.         Who authorises you to give advice and are you licensed?

The article suggests that you should check who owns the financial planning business as this may influence the advice that they can or do give.  For instance, financial planning firms owned by major financial institutions will be more likely to recommend the products of this institution, also known as ownership bias.

Our business is privately owned by Scott Francis and myself.  We have no ownership biases.  Our business is licensed through FYG Planners, a group of 20 or so like minded financial planning practices.  Scott is an authorised representative of FYG (No. 283723) and FYG is a registered Australian Financial Services Licensee (No. 224543) I am also in the process of registering to become an authorized representative of FYG.

10.       How does the planner keep up to date with everything?

The article suggests that it is important to hear how a planner keeps abreast of issues in the industry.

Both Scott Francis and I are tertiary trained.  Scott has a Masters of Financial Planning, Masters of Commerce and MBA and is studying towards a Phd at the University of Queensland.  I have a Masters of Financial Planning and Bachelor of Commerce and plan to undertake further studies in Finance in the near future.

We both undertake regular professional development through attending seminars, completing professional development modules offered by Kaplan and keeping abreast of media.  We convey this knowledge to clients through regular contact including research notes and publication of our Quarterly Directions Newsletter.

I hope this provides a clear response to the 10 suggested questions outlined by the AFR article.  If you would like to discuss any point in more detail please be in contact.

Regards,

Scott Keefer

In his latest article written for Alan Kohler's Eureka Report, Scott looks at the new Macquarie MQ Gateway investment product.

He looks at the three main components of the product - a swap, a put option and a deposit - and concludes that the product is very complex and not one he would be recommending.

Click on the following link to read Scott's article - Gateway: Enter with caution

In today's podcast, Scott Keefer outlines what investors should be looking at when determining changes to their superannuation fund.

He suggests that the key factors are asset allocation, fees, insurance coverage and quality and investment philosophy.

Please click the following link to be taken to this podcast - Time to check your super fund.