Published June 8, 2009

Dealing with the Madoff fiasco aftermath

By OH BOON PING

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COUNTERPARTY risks and the case for transparency on product issuers have assumed greater prominence in the financial planning landscape after the Madoff fiasco.

Mr Bennetts: 'Regulators will be looking at financial products and examine if the manufacturers deliver on what they promise.'

But this could exert greater pressure on smaller outfits who are often not well-equipped to meet the customers' disclosure demands.

'Basically, the big players will get bigger, and the small will get smaller,' said Robert Bennetts who heads the Professional Investment Advisory group of companies.

Professional Investment Advisory is an Australia-based fund distribution house that advises on some A$21 billion (S$24.26 billion) worth of investments. The group also has businesses here, as well as in New Zealand, Hong Kong and China.

Indeed, Mr Bennetts sees an industry movement to hold the product issuers responsible for product risks and performance. 'Regulators will be looking at financial products and examine if the manufacturers deliver on what they promise.' Some of the information that may need to be disclosed in future includes the track record of the issuers, and the way the product is structured.

Besides that, questions have also been raised about the quality of independent research and 'the extent to which they can be depended upon' for investment advice.

Mr Bennetts added: 'We have a situation where the regulators say we should not rely solely on information from external research houses.'

'But who do we rely on then? That is an issue that still needs to be worked out.'

However, he emphasised the point that independent research houses still play an important role in aiding financial planners to tailor the portfolios for the clients' needs.

In terms of market outlook, the financial advisory group recommends some exposure to the equities as the economy appears to be picking up.

Also, he believes that the US housing market has regained some semblance of normalcy as 'housing prices have returned to 2002 levels'.

'Also, the 30-year loan rates have been locked in at 5 per cent, while confidence is returning to the markets.'

As market conditions look set to improve by August or September this year, Mr Bennetts reckons that there is room for a one-third allocation to equities, a third to property and a third to fixed income in Australia.