Sent: 21-04-2009 11:59:01
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A Number of Issues This Week
There are several interesting topics this week.
1. Last Friday, the ATO released a Taxpayer Alert about trading in SMSFs and Pre June '99 unit trusts.
Unsurprisingly these arrangements are more complicated than they appear. The ATO's purpose in issuing this document seems to be to alert some people to problems that can easily arise when great care and diligence is not exercised. There is a private market for these funds at present given the impending dead-line and these structures are more flexible than the so-called Instalment Warrant Security Trust. If you are approached about this topic make sure you get some good robust advice.
2. Modelling in financial plans.
In the most recent edition of The Weekend Australian contains the following quote, "It is very easy for the modeller to produce the predestined outcome before the model can be run. This is a common flaw in mathematical modelling. A model is not real. Models are not evidence. Models with simulations, projections and predictions prove nothing. All a model shows is something about the model itself and the modellers, normally their limitations. As the Talmud states: 'We do not see things as they are. We see them as we are." '
This is actually a quote from a book written by a University of Adelaide academic Ian Plimer about climate change research.
For my purposes here I'm not interested in the climate change issue.
In my view this quote could equally apply to financial planning because of the modelling that is typically done to produce financial plans.
3. The APRA's letter to trustees
Also last Friday, the APRA released the letter it had issued to super fund trustees it regulates
This issue of the valuation of unlisted assets in many large super funds is very much in the public domain. There have been stories floating around of at least one large fund having significant liquidity problems. Perhaps have some super funds have escaped liquidity problems because they have the regular cashflow generated by compulsory super.
In my view the other big issue which APRA raises in its letter is equity between members especially when rising asset values have been used to pay leaving member benefits and as a result remaining members incur a bigger loss to recover the higher valuations. It was this issue which undid many a life insurance capital guaranteed fund during the 1980s and 1990s.
4. If you're looking for a fascinating article to read about Iceland and its recent effective bankruptcy then go no further than this article from Vanity Fair: http://www.atcbiz.com.au/r.php?r=e81qejk
5. Finally the Catholic Archbishop of Denver Colorado gave a very interesting speech in February 2009 titled "What History Can Teach About Financial Crisis". You can read it here: http://www.atcbiz.com.au/r.php?r=b20myy8
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