Instalments - Not as challenging as once thought

Instalments are fast becoming a product of choice for many financial planners.  In a recent ASX Financial Planner Research study, it was found that 39% of respondents stated that instalments were included in their Recommended List and 22% of respondents were actively using them in client portfolios.  This is a remarkable result considering that the instalment market was first developed in 1997.  Today there are over 1,000 instalments listed on ASX  (most covering the top 100 stocks) compared to around 50 instalments issued at the end of 1998.  In July 2004, instalment turnover was close to $200 million. 

Common issues faced by financial planners in the past included a) difficulty in finding instalments on Recommended Lists due to limited education and awareness of these products and b) instalments were considered to be too administratively intensive and therefore too difficult to deal with.  Over the past couple of years in particular, instalments have come a long way.   

Firstly, as ASX’s Financial Planner Market Research demonstrates, instalments are finding their way on to more and more Recommended Lists.  For this to happen, there had to be a better understanding and awareness of these products by both financial planners and retail investors.  The adviser being licenced to advise on listed products goes without saying.  These days, advisers have access to many reputable courses on listed products including ASX’s Listed Products Accreditation Course.  There is also a huge amount of information available on instalments on the ASX website and warrant issuer websites including pricing, strategies, tax papers, enewsletter updates, comprehensive online courses and educational seminars.

Secondly, instalments have become far less complicated to deal with in recent times.  As with most investments, the challenge is, of course, always around tax time.   How much pre-paid interest can you claim? What is the nature of any distribution income (company dividends, trust distributions, franking, foreign sourced income, etc…)? If your dividends have been re-invested (self-funding instalments), do you claim this as income? 

In recent times, warrant issuers have been able to make this process easier for both the client and the adviser.  Investors now have access to tax statements that provide explanations of ‘what goes where’ in their tax return (even catering for Individual Tax payers and Self Managed Superannuation Funds sections) – effectively taking away the research and analysis that the client or advisor would otherwise have to do.  There are tax guides available for the investors looking for the latest comprehensive analysis of taxation issues.  Some warrant issuers also have interest deductibility calculators if your clients wish to do the work themselves.  The best bet is to talk to the warrant issuers about what information they can provide to make your job easier.

Managed funds, cash and property tend to form part of the standard offering these days while listed products, such as instalments, are providing planners with an opportunity to ‘add value’ to their clients’ portfolios.  This ties in with the general shift towards fee for service.  According to ASX’s Financial Planner research findings, it is anticipated that in the future the main source of fees will shift from ‘up front commissions’ (down from 29% to 14%) toward ‘fee for service’ (up from 21% to 36%). The ‘value add’ can be demonstrated by instalments being able to address a range of investment strategies such as:
· Income
· Leveraging
· Diversification
· Extraction of cash from existing shareholdings 
This combined with the increased simplification of dealing with instalments will enhance the positioning of instalments as a popular investment tool in portfolios going forward.

For general information on instalments visit www.asx.com.au/warrants.  You will also find a list of warrant issuers with contact details and website addresses.  You can also request a free warrants information pack by calling 131 279.