MAGAZINE OF CHOICE FOR AUSTRALIA’S WEALTH INDUSTRY
www.moneymanagement.com.au
Vol. 33 No 1 | February 14, 2018
ACTIVE MANAGEMENT
Are active managers regaining favour?
17
GLOBAL EQUITIES
Beyond our borders: the appeal of investing abroad in 2019
26
PRACTICE MANAGEMENT
Using business development plans to accelerate your practice growth
FPA urges Govt financial support for advisers pursuing degrees
SMSFs
BY MIKE TAYLOR
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Are SMSFs FASEA’s next frontier? AS the new educational requirements to give financial advice become clearer, an obvious next question is whether specialist advice will eventually come under FASEA’s remit. A recent suggestion from the Productivity Commission that planners advising on self-managed superannuation fund (SMSF) establishment complete specialist training echoed earlier cries from the Australian Securities and Investments Commission for the same, and many in the SMSF sector believe that this will eventually become a reality. The content of such training hasn’t been fleshed out, but heavyweights in the sector believe that the Productivity Commission’s recommendation should have extended beyond just establishment to the technical aspects of SMSFs. The form itself is also up for debate, with a postgraduate qualification sitting at the more intense end of possible accreditations with certification by an industry body at the other. The main benefit of such an accreditation is, as with most professional development, that it helps the client. Money Management interviewed advisers who had completed the SMSF Association’s SMSF Specialist Advisor training and heard that it had helped them improve investment strategies for their clients, as well as ensure compliance as it assisted them in keeping on top of the ever-changing SMSF regulatory space. When asked the difficulties of the course however, the familiar cries of time and money that often accompany discussions of FASEA’s regime were repeated.
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Full feature on page 14
FINANCIAL PLANNERS should be able to access Commonwealth support to achieve the education standards made necessary by the Financial Adviser Standards and Ethics Authority (FASEA) regime, according to the Financial Planning Association (FPA). The FPA used a pre-Budget submission filed with the Treasury to recommend that the Government review the support that is available to financial planners completing formal education mandated by FASEA and consider providing support through the Commonwealth Supported Places regime. The submission pointed out that all financial planners will be required to complete additional formal education to comply with the FASEA regime and the
additional costs this will impose on planners as they seek to complete additional study. “The FPA calls on the Government to ensure that, as it is implementing the new education and training standard, it also makes available support for planners to ensure these costs are manageable for small practices,” it said. “The Government may wish to consider whether Commonwealth Supported Places (CSPs) would be an appropriate mechanism to manage the costs being imposed on financial planners,” the submission said. “CSPs are already available for undergraduate courses, including the approved FASEA courses which will be the most common entry pathway for new financial planContinued on page 3
AFA points to grandfathering/ exam conflict THE Association of Financial Advisers (AFA) has pointed to a key conflict between the Government’s proposed date for ending grandfathered commissions and the deadline for completing the Financial Adviser Standards and Ethics Authority (FASEA) exam. In a communication to members on the implications flowing from the recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, the AFA said a recommendation to ban grandfathered commissions had become inevitable despite the arguments of the industry. However, the communication signed off by AFA chief executive, Phil Kewin pointed to the likelihood of significant problems with respect to the purchase of books of clients based on grandfathered commissions and has sought feedback from members on precisely Continued on page 3
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2 | Money Management February 14, 2019
Editorial
mike.taylor@moneymanagement.com.au
THE ROYAL COMMISSION SHOULD HAVE GONE LONGER, FURTHER
FE Money Management Pty Ltd Level 10 4 Martin Place, Sydney, 2000 Managing Director: Mika-John Southworth
The final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has identified some important issues but the complexity of the industry means it has overlooked or misidentified many others. GIVEN THE KEY issues which the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry did not traverse, the Commissioner, Kenneth Hayne, should have sought an extension from the Federal Government. Hayne explained his decision not to seek an extension on the basis that the issues he was dealing with were significantly grave and central to the health of the Australian economy and that he therefore needed to act promptly. What is more, he suggested that even an extended Royal Commission could not have provided a remedy for all of those who complained. Notwithstanding his reasoning, Hayne should have sought an extension because as important as his findings and recommendations appear to be, they fall well short of having provided thorough scrutiny of a highly complex industry and the timing of his final report falls far too close to the tumult of a Federal Election to allow for appropriately balanced consideration and rationally-
measured implementation. The final report of the Royal Commission is a story of hits and misses with many suggesting that the share prices of the major banks revealed a significant miss, while the focus on mortgage broker commissions revealed a significant but perhaps ill-directed hit. While few in the financial services industry will disagree with the Royal Commission’s criticisms of the past conduct of the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA), it is arguable that many will disagree with the light touch with which it dealt with industry superannuation funds. Equally, while a significant proportion of the financial planning community will continue to lament the seemingly inevitable end to grandfathered commissions in 2021, they might wonder why more was not said about the consequent impact on buyer of last resort arrangements. However, while Hayne’s final report is open to criticism, it should
be welcomed for the manner in which it clearly identified the reality that boards and senior executives, not planners alone, were the substantial progenitors of fee for no service and that it is they who should be identified and made to pay a price. The Commissioner stopped short of naming individual names, but made clear that he had passed information to ASIC and APRA for action. In turn, the chair of ASIC, James Shipton, said the Commissioner’s recommendations would be prioritised. The bottom line therefore seems likely to be that over the next 12 months ASIC is likely to announce a number of prosecutions against current and former senior executives and board members based on some of the more egregious issues dealt with by the Royal Commission, particularly fee for no service. It will then be up to the courts to decide, but many will question whether justice has really been served.
Tel: 0455 553 775 mika-john.southworth@moneymanagement.com.au Managing Editor/Editorial Director: Mike Taylor Tel: 0438 789 214 mike.taylor@moneymanagement.com.au Associate Editor - Research: Oksana Patron Tel: 0439 137 814 oksana.patron@moneymanagement.com.au Features Journalist: Hannah Wootton Tel: 0438 957 266 hannah.wootton@moneymanagement.com.au Journalist: Anastasia Santoreneos Tel: 0438 836 560 anastasia.santoreneos@moneymanagement.com.au Events Executive: Candace Qi Tel: 0439 355 561 candace.qi@financialexpress.net ADVERTISING Sales Director: Craig Pecar Tel: 0438 905 121 craig.pecar@moneymanagement.com.au Account Manager: Ben Lloyd Tel: 0438 941 577 ben.lloyd@moneymanagement.com.au Account Manager: Amy Barnett Tel: 0438 879 685 amy.barnett@financialexpress.net PRODUCTION Graphic Design: Henry Blazhevskyi
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Money Management is printed by Bluestar Print, Silverwater NSW. Published fortnightly. Subscription rates: 1 year A$244 plus GST. Overseas prices apply. All Money Management material is copyright. Reproduction in whole or in part is not allowed without written
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permission from the editor. © 2019. Supplied images © 2019 iStock by Getty Images. Opinions expressed in Money Management are not necessarily those of Money Management or FE Money Management Pty Ltd.
WHAT’S ON Policy Briefing: Regulatory and Tax Update on the CCIV Regime
Policy Briefing: RG97 Regime Update
Spotlight on Insurance Inside Super
SMSF Discussion Group
20 Feb Sydney, NSW Fsc.org.au/event-list/
25 Feb Melbourne, VIC Fsc.org.au/event-list/
25 Feb Sydney, NSW Superannuation.asn.au
26 Feb Melbourne, VIC Superannuation.asn.au
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7/02/2019 3:25:33 PM
February 14, 2019 Money Management | 3
News
Pendal takes 100% of Regnan BY MIKE TAYLOR
PENDAL Group has taken full control of financial services governance and research firm, Regnan. The asset manager, which was a co-founder of Regnan, told the Australian Securities Exchange (ASX) that it would be acquiring the remaining 50 per cent stake in Regnan bringing its ownership to 100 per cent with the other co-founder, Commonwealth Superannuation Corporation ceasing to be a shareholder.
It said that making Regnan part of Pendal would enhance Regnan’s capability and service proposition by enabling it to leverage the fundamental insights of a highly-regarded investment management organisation across equities, fixed income and multiasset portfolios. Commenting on the transaction, Pendal chief executive, Richard Brandweiner said full ownership would allow the firm to further supports its clients on their journey to fully embed ESG into their frameworks.
FPA urges Govt financial support for advisers pursuing degrees Continued from page 1 ners in the future.” “Many existing advisers often did not have available to them financial planning specific undergraduate courses when they entered the profession. They are now required to complete postgraduate courses as an equivalent. It would be equitable for the same support that is available to undergraduate financial planning students to also be available to postgraduate students.” Elsewhere in its submission, the FPA also repeated its long-standing call for the tax deductibility of initial financial advice and for financial planners to have a greater ability to interact with agencies such as Centrelink and the Department of Veterans Affairs. It also sought Government backing for the Tax Practitioners Board to allow financial planners to apply for ABNs and TFNs on behalf clients wishing to establish selfmanaged superannuation.
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Responsibility lies with management: EY BY HANNAH WOOTTON
ROYAL Commissioner Kenneth Hayne’s emphasis on culture in his final report signals clearly that responsibility for misconduct lies with the senior management and boards of the entities involved, an executive at Ernst & Young (EY) has said. Hayne’s suggestions that criminal action be pursued for some misconduct in the industry, combined with a $51.5 million boost in funding for the Commonwealth Director of Public Prosecutions and the Federal Court to pursue criminal misconduct by financial institutions late last year, suggest that the law could take a similar stance. “Hayne’s comments around culture sent a clear message to boards that responsibility for misconduct lies with the entities concerned and those who manage them; their boards and senior management,” EY Oceania financial services leader, Graeme McKenzie, said. “Management and boards need to consider that, while they are busy planning for and executing these changes, they also need to communicate more actively, often and openly with both regulators and shareholders.” He also warned that financial institutions should expect increased enforcement from the ‘twin peaks’ of the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA). Hayne’s report recommended enhanced enforcement powers for those bodies as well as a new oversight body to hold the regulators themselves accountable. The report did not recommend many dramatic legal changes but did seek to improve adherence to existing law by removing exclusions, suggesting using remuneration to direct conduct, improving accountability, and strengthening the regulators. McKenzie also recommended that institutions be proactive in implementing the changes the final report would bring in, especially around the ceasing of hawking and cross-selling of products and services.
AFA points to grandfathering/ exam conflict Continued from page 1 how big the problem might. “We are very conscious that a number of members will have recently purchased businesses and client books that included grandfathered commission clients and as a result they will be particularly disadvantaged by this proposal,” it said “We seek information from you to assist us in our advocacy on this issue. We believe that this 1 January 2021 timeframe is problematic, particularly in the context that the end of 2020 is also the deadline for advisers to pass the FASEA exam,” the AFA communication said. “The Royal Commission report
has disputed the issue of this being a breach of the constitution, through the acquisition of property rights on other than just terms, which is an issue that we will address as part of the consultation,” the AFA said. On the question of life/risk commissions, the AFA noted the Government’s view that the Life Insurance Famework (LIF) changes should be allowed to play out and that the Australian Securities and Investments Commission should consider further reductions in the caps at that time. “We will have more to say about that a little later,” it said.
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4 | Money Management February 14, 2019
News
FASEA makes small exam concessions BY MIKE TAYLOR
THE Financial Adviser Standards and Ethics Authority (FASEA) has allowed some concessions with respect to the financial adviser exam. Releasing the legislative instrument and explanatory statement for its examination standard, the authority revealed that it had reduced the reading time for the exam to 15 minutes within a total 3.5 hours sitting period. It said it had also clarified that exam content under the topic of Financial Adviser Regulatory and Legal Requirements would cover the Tax Agents Services Act only and not the broader requirements of the Tax Practitioners Board. It said that it had also noted that it would consider the addition of further exam centres in 2020 for relevant providers sitting the exam in regional areas depending on adviser interest and availability of facilities.
Ending grandfathering will alter the flow of $ billions THE ending of grandfathered commission arrangements and fee for no service could see billions of dollars moving back into superannuation fund member accounts, according to a new analysis released by specialist research house, Dexx&r. In an analysis made available to Money Management, Dexx&r chief executive, Mark Kachor suggested the impact of bringing an end to grandfathering could be far more significant than had been appreciated by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. He said that based on data pertaining to the last six months, the ending of grandfathering could result in a one-time payment of $1.75 billion to member accounts. What is more, Kachor said the Dexx&r analysis was based on the reality of the six largest players in the field – AMP Limited, BT/Westpac, ANZ/OnePath, Commonwealth Bank/CFS, IOOF and MLC/NAB. He said the analysis was undertaken by first identifying the size of funds under management (FUM) at June 2018 that related to FUM in-force as at June 2013, with each product with more than $800 million in FUM as at June 30 2013 held
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by each of the six largest administrators in these market segments (AMP, BT/Westpac, ANZ/ OnePath, CBA/CFS, IOOF and MLC/NAB) being used in the analysis. “Our analysis shows that there was a total of $189 billion in FUM held in pre-Future of Financial Advice (FOFA) Personal and Employer Super funds as at June 2018. This represents 57.5 per cent of total Personal and Employer Super FUM in force at June 2018,” he said. Kachor said that Dexx&r had developed both a low and high estimate of the overall impact of the removal of grandfathered commissions with the low estimate based on an assumption of 15 per cent of June 30, 2018, FUM relating to pre-FOFA Personal Super and 40 per cent of employer Super and equated to $1.75 billion. He said the higher estimate was based on 50 per cent of Personal Super and 40 per cent employer super and equated to a one-time payout to members of $3.7 billion. Further, he said that under such a scenario, an additional $1.1 billion would flow to member accounts each year following the reduction in ongoing fee for no services charges and the removal of grandfathered commissions.
Synchron signals lobbying effort on risk commissions RISK-FOCUSED financial planning dealer group, Synchron has welcomed the fact that the final report of the Royal Commission did not recommend an end to vertically-integrated advice businesses, with its principal Don Trapnell claiming such structures help, rather than hinder clients. However, Trapnell signalled that he believes the industry should be lobbying with respect to the status of life/ risk commissions when the Life Insurance Framework (LIF) is reviewed in 2022. Responding to the Royal Commission, Trapnell said two recommendations - the review of life insurance commissions in 2022 and the removal of grandfathered commissions in January 2021 were causing advisers some concern. “There was always going to be a review of life insurance in 2022, it was part of the Life Insurance Framework,” he said. “The only difference is that Commissioner Hayne has said we should look at life insurance commissions with a view to bringing them down to zero, unless there is a commercial reason not to. “ “There is a very obvious commercial reason not to and we will be talking to the Government to explain the Dutch experience whereby commissions on life insurance were removed with serious negative consequences for the consumer and the economy,” Trapnell said. “Surely it must occur to the Government that the Dutch market is the only market in the world that has removed commissions on life insurance.” Trapnell said the recommendation to ban grandfathered pre-FoFA investment commissions was likely to worry affected advisers, who would need support to deal with the change. “One way of looking at it though, is to realise that advisers selling books of clients that were generating grandfathered commissions were receiving about two times revenue,” he said. “January 1, 2021 is two years away, so the recommendation means advisers with these books will receive two times revenue, therefore the net effect is zero.”
7/02/2019 1:01:57 PM
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6 | Money Management February 14, 2019
News
Big industry fund cautious on no-advice environment BY MIKE TAYLOR
AUSTRALIA’S largest industry superannuation fund, AustralianSuper has expressed concern that the Government is looking to legislate to pave the way for superannuation funds to offer complex post-retirement products without the provision of personal advice. In a submission filed with the Senate Economics Legislation Committee, AustralianSuper said it believed the Government should complete its promised retirement income framework before proceeding to put in place the means testing and other arrangements for new post-retirement products. It said that as a superannuation trustee, it had concerns about the operation of the means-testing rules and the need for a consumer to understand that they were entering a long-term trade-off for means testing purposes. “AustralianSuper as a fiduciary is concerned as to the application of these rules
to new [comprehensive income in retirement] CIPR products which are designed to be offered by superannuation trustees to their members without personal advice,” it said. “Traditionally, these types of products have been sold to customers directly not through the fiduciary overlay of superannuation. A higher duty is owed by superannuation trustees as fiduciaries than applies under contract law,” the AustralianSuper submission said. The submission was at odds with those of the Financial Services Council (FSC), Challenger and Mercer, all of which have urged the Senate Committee to promptly pass the Social Services and other Legislation Amendments (Supporting Retirement Incomes) Bill 2018 which was intended to put in place the underpinnings for the development of new types of retirement income products. However, AustralianSuper said it did not believe it was the right time to impose means test treatment on limited types of retirement income products based on current products in
ASIC penalises Commonwealth FP for failing to meet EU terms BY ANASTASIA SANTORENEOS
COMMONWEALTH Financial Planning Limited (CFPL) has been forced to stop charging fees for ongoing services and not enter any new ongoing service arrangements after failing to meet its obligations under an enforceable undertaking (EU), which commenced in April 2018. CFPL failed to provide the Australian Securities and Investments Commission (ASIC) with an attestation and with an acceptable Final Report from an independent expert, both of which were required under the EU. On 31 January, Ernst & Young issued its second report under the EU, which identified further concerns regarding CFPL’s remediation program and its compliance systems and processes. It said there remained a ‘heavy reliance’ on manual control, which ‘have a higher inherent risk of failure due to human error or being overidden’. CBA’s accountable person also provided a written update to ASIC on the remediation program and work being done in relation to CFPL’s systems, process and controls, but given EY’s report, the corporate regulator did not consider the notification to meet its requirements under the EU for an acceptable attestation. The requirement under the EU to stop charging or receiving ongoing fees was therefore triggered, and the regulator has since been informed by CFPL that it is now in the process of transitioning its ongoing service model to one where customers are only charged fees after the relevant services have been provided.
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the market and in circumstances where future innovative products had not been developed, pending the retirement incomes framework being fully developed by Government.
Dishonest adviser faces decades in jail BY HANNAH WOOTTON
A former Adelaide financial adviser has pleaded guilty to 29 dishonesty offences committed when he was a planner, in a matter that the Commonwealth Department of Public Prosecutions has picked up following an investigation by the Australian Securities and Investments Commission (ASIC). The regulator alleged that James Gibbs, then a planner and director at James Gibbs Investments, stole approximately $4.88 million of funds that he was managing for his clients between 20 August, 2009 and 30 July, 2016.
Several of these clients had selfmanaged superannuation funds (SMSFs), which Gibbs was able to access via client bank accounts. It also alleged that from 25 June, 2012 to 30 July, 2016, Gibbs created and used false documents, such as banking documents and member statements. Gibbs would now face a maximum penalty of 10 years imprisonment for each offence committed before May 2012, and 15 years for each one after, when the matter appeared in the committal court at the end of this month. He pleaded guilty to all offences in the Adelaide Magistrates Court last Friday and was granted bail until his committal.
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8 | Money Management February 14, 2019
News
FPA hits back at ISA claims on adviser trust
BY MIKE TAYLOR
MANY ethical, well-qualified financial advisers risk becoming collateral damage in the after-effects of the Royal Commission if people continue to make ill-informed claims about the industry, according to Financial Planning Association (FPA) chief executive, Dante De Gori. Responding to an Industry Super Australia (ISA) submission to the Senate Economics Legislation Committee which claimed that conflicted financial advice remained an egregious problem, meaning that advisers could not always be trusted to deliver advice on
post-retirement products, De Gori described such claims as “irresponsible at best, and libellous at worst”. “The hard truth is that many ethical, wellqualified financial advisers risk becoming collateral damage in the after-effects of the Royal Commission into Banking and Financial Services if such ill-informed claims are left unchallenged,” he said. “I believe painting all financial advisers with the same dirty brush used to expose malpractice and unethical behaviour by some individuals and institutions is to the detriment of many truly good people, professionals, and our nation’s health and wellbeing.”
“So, on behalf of the 14,000+ professional financial advisers who work tirelessly and ethically as FPA members to fulfil their statutory obligation to act in their client’s best interests every day -- I say to my industry peers, and media, this is not the time for fear-mongering,” De Gori said. “Consumers need to know who they can trust with their money. Unless you’re recommending we all stash our money under a mattress for a rainy day, it’s deeply irresponsible to scare anyone away from considering a qualified financial adviser in these unstable economic times.” The FPA chief executive said the Royal Commission had revealed an underbelly of malpractice and toxic corporate culture with often unconscionable disregard for human impact. “We all heard how some people lost their homes, livelihoods, and retirement dreams due to some unethical advisers and outdated institutional practices,” he said. “My use of the adjective ‘some’ is intentional, and worth noting by ISA and anyone else who risks tarnishing an entire profession based on the abhorrent actions of some.” “There’s an army of ethical, professional, good financial advisers out there ready and equipped to provide informed advice in their clients’ best interests. Not ‘some’, not even ‘many’, but ‘most’ financial advisers are qualified and ready to help people achieve their clients’ money and life goals.” De Gori has called on ISA to withdraw and correct the claim “that it should not be assumed that financial advisers can be trusted”.
Advisers can’t be trusted says ISA JUST days before the final report of the Royal Commission was released, Industry Super Australia (ISA) told a key parliamentary committee that it should not be assumed that financial advisers can be trusted to give superannuation fund members advice on selecting post retirement products. In a submission to the Senate Economics Legislation Committee, ISA pointed to both the Royal Commission interim report and the recent findings of the Productivity Commission to argue that it should not be
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assumed that retirees will be able to rely on financial advice in making their post-retirement product selections. It stated: “In short, the current financial advice regime cannot be relied upon to protect consumers”. “It might be argued that retirees will be able to make effective choices between different pooled products after 1 July 2019 by utilising financial advice,” the ISA submission said but then pointed to the Productivity Commission’s recent final inquiry report which
it said “provides support for the view that the current regulatory framework for financial advice cannot be relied upon to connect retirees to the best income products”. “It observes that: ‘Despite the Future of Financial Advice reforms, conflicted financial advice remains an egregious problem (especially within vertically integrated organisations)’,” the submission said. The ISA submission said the interim findings of the Royal Commission had also “highlighted a number of recurring
problems with advice provided by advisors employed or franchised by for-profit product providers”. “In particular the Royal Commission found that the routine provision of advice that was in the best interests of the advisor and product provider – rather than the client,” it said. “FOFA has proven ineffectual partly because it does not actually require advisers to act on the best interests of their clients, permitting advisers to recommend in-house products when other products may be more appropriate.”
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10 | Money Management February 14, 2019
The Royal Commission
Hayne nails who got most from fees for no service BY MIKE TAYLOR
THE Australian Securities and Investments Commission (ASIC) has acknowledged that serious matters have been referred to it by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and said they would be dealt with as a priority. The chair of ASIC, James Shipton used a statement reacting to the Royal Commission findings to state, however, that it would not be commenting on actual or potential investigations. The regulator also acknowledged the Royal Commission’s strong criticism of its past performance and claimed this accorded with its “change agenda” which included the adoption of a “why not litigate” enforcement stance. The Royal Commission stopped short of specifically naming executives, but the Commissioner, Kenneth Hayne, made clear in its final report that he believed serious charges should flow from conduct within the banks and AMP Limited around fees for no service. Hayne noted that until the Royal Commission
was established, “ASIC and the relevant entities approached the fees for no service conduct as if it called, at most, for the entity to repay what it had taken, together with some compensation for the client not having had the use of the money”. “That is, the conduct was treated as if it was no more than a series of inadvertent slips brought about by some want of care in record keeping. It is necessary to keep steadily in mind that entities took money (a lot of money) from their customers for nothing. The conduct was so widespread that seeing it as no more than careless must be challenged,” the Commissioner said. Hayne also signalled that the fee for no service issue extended to companies which had not appeared before the Royal Commission and stated: “there is a real question whether, contrary to section 1041G of the Corporations Act, the licensee, in the course of carrying on a financial services business in this jurisdiction, engaged in dishonest conduct in relation to a financial product or financial service. Section 1311(1) of the Corporations Act makes that contravention an offence”.
“There is no doubt that money was taken from clients. Nor is there any basis for doubting that, when taken, the taker did not intend to return it to the client. If there was no adviser linked to the client, the money taken was applied by the taker to its own use. (I say the money was applied by the taker to its own use on the basis that the total of the amounts deducted exceeded the total amount paid out to advisers. The excess was constituted by the fees charged but not remitted.) “If the client had died and the taker had been told and had recorded that the client had died, there could be no ongoing service given and the taker’s records showed that there could be none given. I consider that it is open to a jury to conclude, beyond reasonable doubt, that, in either of the cases described, the taker, in the course of its carrying on a financial services business in this jurisdiction engaged in conduct in relation to a financial service that was dishonest according to the standards of ordinary people and that the conduct was known by the taker to be dishonest according to the standards of ordinary people.”
Hayne throws ANZ/IOOF super transaction into doubt
Hayne holds boards and senior management responsible
THE likelihood that ANZ will complete the sale of its superannuation business to IOOF has been thrown into further doubt by the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. The final report specifically referenced the transaction between IOOF and ANZ in the context of referring IOOF actions with respect to its IOOF Investment Management business and its handling of an anomaly with respect to the Questor superannuation fund entity. Completion of the superannuation transaction was already in doubt as a result of action commenced against IOOF by the Australian Prudential Regulation Authority (APRA). The Commissioner, Kenneth Hayne, specifically referred IOOF’s handling of the Questor issue to the Australian Securities and Investments Commission (ASIC) on the basis of a breach of the ASIC Act relating to misleading and deceptive conduct. Hayne found that a letter from IOOF Investment Management to members of the Questor funds claiming the anomaly was due to an “historical distribution error: resulting in a “lower rate of return” was effectively misleading. He said he was satisfied that IIML may have failed to act in the best interests of members and thereby contravened Section 52(2)(c) of the Superannuation Industry (Supervision) Act. “The matter not having been drawn to the attention of the regulator, I refer the conduct to APRA,” he said. Hayne noted that APRA was also pursuing proceedings against IOOF and some of its senior executives including managing director, Christopher Kelaher, but also noted that that the fate of the sale of the ANZ OnePath superannuation businesses was in the hands of the OnePath Custodians Board. He commended the board for focusing on members’ interests “despite significant and potentially conflicting interests of the parent group”.
THE Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has cleared the way for criminal prosecutions, with the Commissioner, Kenneth Hayne arguing that, too often, financial services entities that broke the law were not properly held to account. Hayne said primary responsibility for misconduct in the financial services lay with the entities concerned and those who managed and controlled those entities – “their boards and senior management”. “Misconduct will be deterred only if entities believe that misconduct will be detected, denounced and justly punished,” he said in the royal commission’s final report. ‘Misconduct, especially misconduct that yields profit, is not deterred by requiring those who are found to have done wrong to do no more than pay compensation. And wrongdoing is not denounced by issuing a media release,” Hayne’s report said. “The Australian community
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expects, and is entitled to expect, that if an entity breaks the law and causes damage to customers, it will compensate those affected customers. But the community also expects that financial services entities that break the law will be held to account,” the report said. Hayne said choices now had to be made. “The arrangements of the past have allowed conduct of the kinds and extent described here and in the Interim Report of the Commission. The damage done by that conduct to individuals and to the overall health and reputation of the financial services industry has been large. Saying sorry and promising not to do it again has not prevented recurrence.” “The time has come to decide what is to be done in response to what has happened. The financial services industry is too important to the economy of the nation to allow what has happened in the past to continue or to happen again,” Hayne’s report said.
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February 14, 2019 Money Management | 11
The Royal Commission
Twin peaks should co-regulate, sharpen teeth FPA signals cooperation with Govt on RC recommendations BY HANNAH WOOTTON
THE Financial Planning Association (FPA) has committed to “working proactively” with the Government to address the Royal Commission final report’s recommendations and to rebuilding trust in the planning profession. The Association accepted that the examples of poor advice identified by the Commission were deeply concerning, agreeing with the report’s findings that stronger consumer protections and oversight were needed. FPA chief executive, Dante De Gori, believed that trust was at the centre of improving outcomes for those who had not received proper advice. “People want to know who they can trust with their money; they deserve trusted and transparent financial advice that is unequivocally in their best interests as the client,” he said. “It will take time to review and absorb the full implications of this final report, but in principle, the FPA is committed to working cooperatively with the government and its current and future representative bodies to support the growth of our profession for the benefit of consumers.” De Gori also backed Hayne’s calls for greater transparency, with the FPA recently having conducted a voluntary internal review of its Conduct Review Commission disciplinary processes. He also pointed out that the creation of Code Monitoring Australia would help improve disciplinary independence.
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BY ANASTASIA SANTORENEOS
IN the Banking Royal Commission’s final report, Commissioner Kenneth Hayne has advised the corporate regulators and ‘twin peaks’, the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulatory Authority (APRA), to be statutorily required to co-operate, co-regulate when it comes to superannuation, and to sharpen their teeth when it comes to enforcement. Commissioner Hayne recommended that ASIC in particular know when an infringement notice simply won’t cut it, which he said would generally be for provisions that require an evaluative judgment and “would rarely be an appropriate enforcement tool where the infringing party is a large corporation”. “…Improving compliance with financial services laws cannot be achieved by focusing only on negotiation and persuasion,” he said. “Negotiation and persuasion, without enforcement, all too readily leads to the perception that compli-
ance is voluntary. It is not.” Hayne recommended ASIC also recognise the relevance and importance of general and specific deterrence in deciding whether to accept an enforceable undertaking. In particular, Hayne drew attention to the fact that the regulator must approach the work ahead with a clear view on what kinds of outcome would be considered. “And unless it is plain that the public interest requires that there be no litigation, all forms of regulatory enforcement must remain under active consideration,” he said. When it comes to superannuation, Hayne recommended the regulators learn to share, and that APRA should be responsible for establishing and enforcing Prudential Standards while ASIC look after the relationships between RSE licensees and individual consumers. Without limiting any powers APRA has under the Superannuation Industry (Supervision) (SIS) Act, Hayne recommended ASIC be given the power to enforce all provisions in the SIS Act that are civil penalty
provisions, and that there be co-regulation for these provisions. “…Providing ASIC with the power to protect the interests of members would provide some consistency across the two legislative regimes that apply to RSE licensees,” said Hayne. He also recommended the regulators should jointly administer the BEAR, with ASIC to oversee Divisions one, two and three of Part IIAA of the Banking Act that concern consumer protection and market conduct matters while APRA should oversee the prudential aspects. On the subject of the BEAR, Hayne recommended the provisions modelled on the BEAR should be extended to all APRA-regulated financial services institutions, and those new provisions should also be jointly administered by and applied to the regulators. Hayne finally recommended a new oversight authority be imposed on the regulators independent of the Government to assess the effectiveness of each regulator in discharging its functions and meeting its statutory objects.
Will AMP retain its corporate super mandates? BY MIKE TAYLOR
AMP Limited may be faced with further questioning from the corporate superannuation funds to which it provides outsourced services, following the findings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. With the company late last year losing two significant corporate superannuation mandates, AMP would now be faced with the Royal Commission’s significant criticism of the structures within which its superannuation funds operated, particularly its outsource arrangements. Commissioner Hayne said that he was satisfied that the trustees’ implementation of their outsourcing arrangement may have been conduct that was inconsistent with the legislation and that the poor outcomes
delivered to beneficiaries point towards that conclusion. “A poor outcome for beneficiaries may point to a specific inadequacy in the process used by the trustee. In general, the poor outcomes achieved by the AMP trustees require an explanation as to why they occurred and went undetected for so long if the trustees’ processes were adequate,” he said. “Indeed, one of the most basic tasks undertaken by a trustee acting in the best interests of its members and exercising the care, skill and diligence of a prudent superannuation trustee would be to engage in a process of self-evaluation to pinpoint the reasons for a poor outcome.” Hayne also took the Australian Prudential Regulation Authority (APRA) to task for failing to adequately deal with the problems within AMP.
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12 | Money Management February 14, 2019
InFocus
FPA CEO HITS BACK AT ISA CLAIMS Industry Super Australia used a submission to a Parliamentary committee to question the ability of financial planners to be trusted to give unconflicted advice on post retirement products. Financial Planning Association chief executive, Dante De Gori states, however, that most financial advisers absolutely can be trusted, and it’s libellous and irresponsible of ISA or anyone to suggest otherwise. THE ABSURD BLANKET claim by Industry Super Australia (ISA) that financial advisers cannot be trusted is irresponsible at best, and libellous at worst. The hard truth is that many ethical, well-qualified financial advisers risk becoming collateral damage in the after-effects of the Royal Commission into Banking and Financial Services if such ill-informed claims are left unchallenged. I believe painting all financial advisers with the same dirty brush used to expose malpractice and unethical behaviour by some individuals and institutions is to the detriment of many truly good people, professionals, and our nation’s health and wellbeing. So, on behalf of the 14,000+ professional financial advisers who work tirelessly and ethically as FPA members to fulfil their statutory obligation to act in their client’s best interests every day - I say to my industry peers, and media, this is not the time for fear-mongering. Consumers need to know who they can trust with their money. Unless you’re recommending we all stash our money under a mattress for a rainy day, it’s deeply irresponsible to scare anyone away from considering a qualified financial adviser in these unstable economic times.
AUSTRALIAN LISTED PROPERTY SECTOR
The Royal Commission revealed an underbelly of malpractice and toxic corporate culture with often unconscionable disregard for human impact. We all heard how some people lost their homes, livelihoods, and retirement dreams due to some unethical advisers and outdated institutional practices. My use of the adjective “some” is intentional, and worth noting by ISA and anyone else who risks tarnishing an entire profession based on the abhorrent actions of some. There’s an army of ethical, professional, good financial advisers out there ready and equipped to
provide informed advice in their clients’ best interests. Not ‘some’, not even ‘many’, but ‘most’ financial advisers are qualified and ready to help people achieve their clients’ money and life goals. Rather than scaring people away from getting good financial advice, I’d urge industry commentators and the media to actively direct people to resources that equip people of all ages to make informed, responsible decisions about which financial adviser may be best suited to their specific lifestyle, dreams, and financial position. There are resources like
fpa.com.au/find-a-planner that list only FPA-registered financial advisers that have a statutory obligation to comply with the highest standard of ethical conduct, for example, and online guides like “Finding the Right Financial Planner for You” that people can and should use if they’re feeling unsure, unsettled, or scared by their financial security and future. Finally, trust is earned, never assumed. That principle applies to Super funds, as much as it does to doctors, lawyers, and of course, financial advisers. Many of our FPA members’ new clients come through referrals and personal recommendations, that only happens based on a positive experience-- and there are many, many positive client stories to be told, by the media if it cares to do so, and anyone else committed to meeting the Australian public where it’s at and helping them take informed steps toward a brighter future. As such, I call on ISA to withdraw and correct its libellous and irresponsible claim that “it should not be assumed that financial advisers can be trusted”, and for Money Management to publish the above response verbatim under my byline. Dante De Gori CFP, Financial Planning Association chief executive, 31 January, 2019
0.21%
9.74%
0.02
Returns
Volatility
Sharpe ratio
12 months to 30 November 2018. Source: FE Analytics
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Celebrating Excellence
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14 | Money Management February 14, 2019
SMSFs
SMSFs: FASEA’S NEXT FRONTIER? Self-managed superannuation funds are growing in popularity, and at the same time scrutiny of the quality of advice around them is also increasing. Hannah Wootton looks at the Productivity Commission’s recent suggestion for specialist training requirements for SMSF advisers, what this could look like, and why advisers should care. “YOU DON’T GET a GP to do a surgery, you get a surgeon,” Joseph Hoe believes. Hoe is a financial planner, Money Management Women in Financial Services Mentor of the Year finalist, and, importantly, accredited SMSF Specialist Advisor (SSA) with the SMSF Association. His words apply just as much to SMSF advisers as to surgeons. SMSFs are a beast of their own when it comes to financial advice, and the Productivity Commission (PC) recognised this last month, suggesting that specialist training be required for planners advising on SMSF establishment in its final report
JORDAN GEORGE
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into the superannuation industry. While, to some planners working in the SMSF space, this may seem like salt in the wound of the Financial Adviser Standards and Ethics Authority’s (FASEA’s) push for more stringent education requirements, it’s not a new idea. Report 575 from the Australian Securities and Investments Commission (ASIC) last year already found that the quality of SMSF advice was not up to consumer expectations, suggesting that specialised education requirements could be needed, and the SMSF Association advocated for this to both the Productivity and Royal Commissions. FASEA has also proposed that specialist SMSF training be considered a non-formal education component within its annual continuing professional development (CPD) requirements. Client sentiment also suggests that more specialist training is needed. Investment Trends found last year that of the SMSF trustees with unmet advice needs, which represent nearly half of trustees, 27 per cent were
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February 14, 2019 Money Management | 15
Strap SMSFs
dissuaded from obtaining advice because they lacked confidence in advisers’ expertise. Although the PC did say that “the forthcoming higher educational and training standards that will be required for financial advisers should go some way towards improving the quality of advice provided”, it still proposed specialist training as one potential remedy.
LOOKING BEYOND ESTABLISHMENT According to SuperConcepts’ executive manager, SMSF technical and private wealth, Graeme Colley, a specialist accreditation in SMSFs needs to extend beyond just establishment to the technical aspects of running an SMSF, as these are what are most different to regular super funds. The SMSF Association’s head of policy, Jordan George, backs this up. “You need people who can advise over the whole lifecycle of the fund,” he says. “Establishment, accumulation phase, retirement phase, winding down … [an accreditation] needs to cover them all”. This could cover the best interests duty, efficiency and cost efficiency, the time and knowledge needed to take on the role of trustee, exit strategies for older trustees, estate planning, gearing issues, and auditing and compliance obligations. And then there’s the investments themselves. Unlike with Australian Prudential Regulation Authority (APRA) funds, there isn’t an investment committee going over asset allocations. As the buck really does often stop with the adviser in these cases, specialist training in investment strategies mightn’t go astray.
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That’s not even mentioning tax, which can prove complex with concessional contribution limits, business concessions, and the transfer balance cap. “SMSFs require a strong level of understanding of superannuation tax obligations on both an individual and fund level,” Colley says, whereas with APRA funds advisers usually only need the former. It is hard however, to draw a line at what such an accreditation would cover; perhaps that is why the PC stopped at establishment. “How long is a piece of string,” Hoe says, when asked what a compulsory accreditation could cover. “Perhaps it needs to be [focused], instead of covering one end of the rainbow to the other as that is endless”. George also notes the PC’s concern about low balance accounts, which recommendations around the establishment of SMSFs reflect, while the PC itself identified the focus as at least partially because “this area is where many of the most egregious cases of poor advice have occurred”. Going beyond the content of the course, regulators would also have to hash out what form a compulsory qualification in SMSF advice took should it be pursued. Ideally, George believes that it would be a postgraduate tertiary qualification, like a graduate certificate or a masters with a focus on SMSFs. “However, I don’t think that’s necessarily realistic for every adviser wanting to give SMSF advice given the other FASEA requirements,” he says. An alternative could be an industry accreditation model like what the SMSF Association already has in its SSA; although, of course, as a generation of advisers who already have
degrees comes through, postgraduate qualifications will become less intimidating. Then there’s the practicalities such courses could involve. A recent Money Management survey revealed that the current education provider of choice for advisers post-FASEA was Kaplan. The institution’s flexible, online learning model and low fees presumably were a factor in this, and could be worth considering for organisations looking to offer SMSF accreditations. And should it be compulsory, regulators would be involved in working the above out: “If this [PC] recommendation did get up,” George says, “it would take FASEA and the Government and ASIC looking at it to what out what the standard should be and how to get there”.
WHY SHOULD I CARE? When you ask any planner what the biggest benefit of professional education is, the obvious answer is to the clients. And considering that SMSF owners represented around one-fifth of the financial advice industry’s revenue in 201617, it’s a potentially lucrative space for planners to specialise in. Both Hoe and Bridget Lamphee, an adviser at Heard Financial and an SSA, have seen improvements in the advice they provide as a result from their specialist training. “Although the process of becoming a specialist through the SMSF Association … has been quite arduous and tedious, it’s been worth it for my clients,” Hoe says. When it comes to the everchanging regulations around SMSFs for instance, the continuing professional development (CPD) requirements of the SMSF Association accreditation gives Hoe the
JOSEPH HOE
confidence he’s across new requirements. And as Colley observes, this then gives clients confidence that they’re doing the right thing. Indeed, this is something Lamphee has noticed those without specialist training may lack: “Unfortunately, some practitioners can be unaware when it comes to staying abreast of any new legislation which can potentially arise to a contravention of the Tax or SIS Acts for trustees”. Then there’s a benefit to clients’ bottom line too. According to Colley, as “a very general rule”, SMSFs with advisers working on them achieve returns one per cent higher than those without. “I have implemented numerous strategies for clients over the years which have resulted in them being in a superior position today,” Lamphee says, giving credit to “many technical and training days specifically in the area of SMSF” for enabling her to do so. “The benefit [of an accreditation] to me is simple, by applying various strategies, clients grow their wealth in the most advantageous manner.” Specialist accreditations could also advantage advisers looking to gain an edge with consumers, Continued on page 16
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SMSFs
Continued from page 15 especially when their qualifications are under a spotlight. “Specialists for SMSFs will become more and more limited in supply as everyone is in waiting mode for the finalised piece of legislation from FASEA,” Hoe believes. As advisers deal with what FASEA wants with them, he doesn’t think specialist accreditations that aren’t, or at least aren’t yet, recognised by the Authority will be a priority. George is much blunter about it: “It’s a branding tool too – it’s a way to differentiate yourself in a crowded market”. Advisers seem to be picking up on the advantages of SMSF accreditations too. SuperConcepts saw a 20 to 30 per cent increase in interest in their September SMSF masterclass, while George says the SMSF Association has observed “an ongoing trend of understanding that specialist knowledge is needed here, especially as interest in SMSFs [from consumers] continues to substantially grow”. As there’s more scrutiny from consumers of their advisers in the wake of the Royal Commission too, requiring specialist knowledge in complex areas such as SMSFs wouldn’t go astray.
BRIDGET LAMPHEE
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ANOTHER UNREALISTIC EDUCATIONAL DEMAND? As with the benefits, planners tend to agree on the detriments of being required to study: Time and cost. When running a business, any additional qualification is a time drain people don’t need. Add to this the pressure advisers will feel as they work to meet the FASEA requirements by 2024, and it’s hard to imagine a compulsory SMSF advice accreditation being welcome. While the SMSF Association SSA accreditation obviously isn’t necessarily the same as what a compulsory one would be, the latter would surely have similar levels of CPD requirements. After all, the rules and recommendations around SMSFs are changing so much (even just on establishment, should the PC’s narrow focus be pursued) that continuing education is needed to add validity to the qualification. And, Hoe warns, the SSA’s CPD requirements are “more strict and hard than general financial planning requirements”, and hence more time-consuming. Of course, that doesn’t mean it’s not interesting: “I am passionate about SMSFs so I have never found the training piece arduous,” Lamphee says of her SSA training. “I have enjoyed increasing my skill set.” In terms of the cost, Hoe saw no cost benefit for the first two years of practicing as an accredited specialist. He did after that however, noting that “when you become a surgeon you don’t expect to make a profit in the first year”. The cost would also depend on the form a compulsory accreditation took. If it were
through a university, for example, the money could be loaned from the Government. If, alternatively, it was through a private provider as some of the FASEA-approved courses are, would students have to stump the cost at the start? One way of mitigating the impact of cost is to pass it onto the client; after all, they’re getting the benefit of the advisers’ improved knowledge. The risk of this however, is that clients unwilling to pay that may just go it alone instead. As Colley observes, many SMSFs trustees are already “like bulls in a china shop, thinking they know exactly what should happen with their fund”. To this end, SuperConcepts is looking into giving trustees themselves training in managing them.
A GLANCE FORWARD To think we may not see a change in federal government this year is to bury your head in the sand, and if Labor gets in it’s likely that many of the PC’s recommendations will fall by the wayside as different superannuation priorities are pursued. Does this mean the recommendation may be ignored?
Well, probably, but that doesn’t mean its contents won’t be legislated through other means. Colley says that even if the report isn’t taken up, there’s been so many people agitating for this reform specifically that it probably wouldn’t matter. “ASIC, for example, made a lot of noise about this, particularly over the past year,” he says. George backs this up: “I don’t see that as a risk going forward. I think both sides of Parliament have an interest in making sure recommendations for financial advice and superannuation are put into place.” Colley suggests it could even be covered in licensing arrangements and that the ASIC Financial Advisers Register might be able to cover it already. It’s also an area that could interest FASEA, who is the obvious choice to look at any compulsory accreditations going forward. George believes that the Authority’s part in regulating it is a question of what the long-term role of FASEA is. To the frustration of many planners, long-term the next phase of its professionalisation regime could be standards for specialised areas of advice.
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Active management
WILL THE PENDULUM SWING BACK IN ACTIVE MANAGERS’ FAVOUR? While the extended bull market saw a rise in investors’ interest in exchange-traded funds, Anastasia Santoreneos writes that perhaps 2019 will see the pendulum swing back in active managers’ favour. EXCHANGE-TRADED FUNDS (ETFS) have enjoyed a decent uptake in investor interest in recent years, driven in part by the extended bull market. Just last year, the now $41 billion Aussie ETF industry added over $5 billion in assets, following a similar pattern to the global ETF industry, which now sits at US $4.8 trillion. Hamish Tagdell, portfolio manager at SG Hiscock, estimated from the bottom of the GFC (2009) through to about 2015, the market return through that period was close to about 15 per cent per annum, versus a 25-year history average of about 10 per cent. So, it’s easy to see there are some junctures where passive investing is absolutely the right (and more affordable) choice, but perhaps we’re at a juncture now where active investing is again necessary. Fast forward to 2019, and the market doesn’t look so inviting. Timing suggests the market is late cycle and investors copped a shaky Q4 correction with 2019 looking to carry that same momentum. So, with risk an ever-present factor in investing, what saw the move away from active management in the first place, will it make a heady comeback, and do investors even have to pick sides?
THE MOVE AWAY FROM ACTIVE INVESTING We know the GFC caused a lot of investors to become more cautious about their investments and head down the passive route, but the experts suggest it wasn’t the sole (or the biggest) driver.
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An obvious reason for the rise in passive investing is lower fees, but the move has actually proven that money really does talk, and what’s interesting about an uptake in ETFs and passive investing is that it’s been a signal of investors’ preference for transparency. Stuart Fechner, director, retail and relationships, at Bennelong Funds Management, said the move away from active investing wasn’t necessarily about the investment fund or the strategy of the passive vehicle, but rather about being relevant to how investors want to implement and manage their money. “That is going from that traditional and PDS [product disclosure statement] managed fund structure, to being able to implement or buy and sell online
or via the ASX [Australian Securities Exchange],” he said. “And probably especially if you’re talking about self-directed investors of SMSFs [self-managed superannuation funds] for example, they may already have an online account or broker of some type, they’re used to operating that way and hence they want to continue in that operation.” Fidelity Australia’s managing director, Alva Devoy, agreed that the mode of investing is moving away from the traditional (and opaque) model, to a more open and transparent one. “If you think about your own purchasing and the way you like to shop today, you want choice, you want to be able see and compare the costs, and you want things to arrive when they’re supposed to
arrive in the condition that you expect them to arrive,” she said. “That mode of buying and accessing goods and services is transferring to financial services.”
ACTIVE OR PASSIVE, THAT IS THE QUESTION All the experts agree that when it comes to passive and active investing, it doesn’t have to be one or the other. CEO of BetaShares, Alex Vynokur said there’s space for both active and passive, and investors looking for straight outperformance of a benchmark are missing the point. “The whole active versus passive debate misses the bigger picture,” he said. “The point for clients really is getting that asset Continued on page 18
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Active management
Continued from page 17 allocation right and making sure they’re not taking too much risk if they can’t tolerate it, but in some cases if they’re not taking enough risk, taking more.” According to Vynokur, while active managers can hone in on their particular niche, investors should instead be using ETFs broadly as building blocks to construct cost-effective and robust portfolios, and get the right balance of assets. “The mix of growth and defensive can be tailored quite easily using ETFs. An active manager that is a specialist in equities can only play around with the risk they take in the equities portfolio, but the bigger picture that people need to understand is the mix between growth and defensive across equities, fixed income, cash and alternatives,” he said. Fechner also said there’s always room for both given they’re quite different propositions in the fee sense and the investment strategy that’s involved. But, while there’s space for both, active strategies suit particular investors. Investors in retirement phase, for example, need tailored funds to minimise volatility on the downside. “You don’t get those specific tailored outcomes of fund-forpurpose from an index fund – there’s no discretion of overweight/ underweight certain stocks, you just get what you get,” he said. And, if the market plays out anything like the last quarter of 2018 where negative returns kicked in, Fechner said that typically presents greater opportunity for investment managers that are doing the detailed bottom-up analysis on the individual stocks and focusing on their fundamentals to find some decent investment opportunities. Devoy said passive plus active is very beneficial to the end investor, because there are points in time where exposure is enough
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“When you have periods of volatility, active management is set up to avoid investing in blowups to reduce the volatility in your investments and also very importantly to reduce the downside capture” – Alva Devoy, Managing director, Fidelity. to generate excellent returns, but when periods of volatility arise, active management is set up to avoid investing in blow ups. “Active management should be delivering excess returns, should be lowering your risks relative to the index, and should give you a smoother ride so that you don’t feel all of the pain, whereas with passive, you feel every bump – there is nowhere to hide,” she said. But, Devoy recognises active management isn’t always accessible to all investors given the fees, which is something that drove Fidelity’s move into the active ETF space.
ACTIVE ETFs Active ETFs are exactly what they sound like: a complete paradox. But perhaps they’re one of the regulators’ best inventions. Essentially, active ETFs make it easy for investors to gain access to actively managed portfolios, bypassing planners and dealer groups, and, ultimately, excess fees. Devoy explained the vehicle came about in Australia (and they’re only available in Australia) as the Australian Securities and Investments Commission’s (ASIC’s) and the ASX’s response to a concentration of risk building in investors’, specifically SMSF investors’, portfolios. Essentially, even though investors think they’re diversifying their assets from property (given most own a house and/or an investment property)
through to stocks and shares, particularly bank shares, their exposure through those shares is generally still to Australian housing, which layers the risk. “We have a misstep somewhere in the system, and everything blows up together,” she said. To mitigate that risk, Devoy said the regulators came up with a mechanism where fund managers can list their products on the ASX, and a client could buy a unit of their fund in exactly the same way that they buy shares in, say, the Commonwealth Bank of Australia (CBA). “They ring their broker, say they want to buy 10 shares in CBA, and that they’d like to buy 10 units in Fidelity’s Australian Equity fund as well.” While it’s still relatively new to the market, and there’s some education still to happen around the subject, Devoy already predicts it will attract many more investors to the market. “You can just see the actual vehicle reduces the friction, reduces the hassle and makes it way easier and way more transparent,” she said. “The more you have line of sight on your total portfolio all in one place, the better your investments become, the more often you’ll want to transact, which can only be a good thing in time.”
THE OUTLOOK FOR 2019 While most active managers would quite frequently attest that
“this year will be theirs”, the stats show otherwise. According to the annual S&P Indices Versus Active report, 70 to 75 per cent of active managers tend to fail to beat their benchmarks (net of fees) over 12 month, three-year, five-year, 10-year and 15-year periods. Vynokur said this happens in rising, falling and volatile markets, and while the promise of active management is always there, the delivery of that outperformance is mixed at best. “That is probably really at the core of the ongoing growth in the ETF industry, and ongoing growth in index investing.” So, while active managers may think 2019’s volatility makes them the better choice, Vynokur believes it’s still the combination of passive and active, and the right asset allocations, that will really see investors through. True to form, Tagdell, an active manager, said the back half of last year saw volatility pick up, and SGH certainly thinks this year we’re going to be in a period where volatility will remain reasonably high. “I think that whilst you might see some recovery in the market, we are late cycle, it’s been 11 years in this cycle, there’s many people talking about a recession, and whilst it’s not our base case that there will be a recession this year, I expect that it will be talked about a fair bit, and there will be periods where the market will worry about that a lot.” He told Money Management that he liked the energy space, particularly LNG, and the China pollution thematic, which he expects will continue to play out through the course of the year. He said the east coast infrastructure thematic looked pretty strong, so stock exposed to that would continue to do reasonably well, but he was cautious on the consumer sectors.
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February 14, 2019 Money Management | 19 investmentcentre.moneymanagement.com.au
INVESTMENT CENTRE a part of
EMERGING MARKETS: ENTER AT YOUR OWN RISK Anastasia Santoreneos writes that while emerging markets have long providing investors with growth opportunities, this year has the experts divided on whether they’re worth the risk. AS THIS IS Money Management’s first magazine of 2019, it’s as good a time as any to investigate what looks to be one of the year’s biggest dividers amongst the investment industry. Emerging markets have long been a space where active, bottom-up stock picking managers thrive and find gold mines for their investors, but this year, a lot of active managers have indicated they’re going to steer clear. So, what really is the case for EMs, and should investors enter at their own risk?
A LONG-TERM INVESTMENT? While the 12 months to 30 November 2018 saw EMs take a big hit, with data from FE Analytics posting the sector average as -3.84 per cent, they’ve still had a pretty good run across the 10 years, five years and three years to the same date. The sector average sat at 7.02 per cent across 10 years, dropping to 5.71 per cent across five years, but climbing again to its high of 8.12 per cent across three years. What’s clear though, is that a real stalwart in emerging markets has been Colonial First State, whether it be as a distributor or a fund manager. The top spot for the 10 years to 30 November 2018 was held by Stewart Investors Global Emerging Markets, which is actually distributed to local clients through CFS. In fact,
01MM1402_14-35.indd 19
Stewart Investors have held a top 10 spot across the 10 years, five years and 12 months to 30 November, only dropping out across three years. CFS Wholesale Global Emerging Markets Sustainability and CFS Realindex Emerging Markets took the top spot across the five years and three years to 30 November 2018 respectively, with CFS Wholesale Global Emerging Markets Sustainability taking it out again in the 12 months to 30 November. Interestingly, CFS and Stewart Investors are famously sustainability focussed, which suggests that the key to a top performing EM fund is actually finding sustainable stocks.
WHO SHOULD INVEST, AND WHY? Stewart Investors’ portfolio manager, Jack Nelson, confirms that investing in EMs is best suited to those with a genuine long-term perspective, because the nature of the economies in emerging markets are such that in any given year, a political crisis or currency weakness is likely to be affecting one country or another. But, patience is a virtue, and if an investor can ride those bumps, they can sleep soundly knowing that well-run companies in emerging markets benefiting from sustainable development have the potential to deliver attractive returns over a long period of time. Nelson adds that the opportunities afforded by EMs lie in investing in companies that
contribute to and benefit from sustainable development. “There are many hundreds of millions of people who have and continue to leave poverty in Asia, Africa and Latin America,” he said. “Companies catering to the emerging consumer in these countries are particularly wellpositioned to benefit.” What really makes a good EM investment, though, is that the company grows profitably, for instance if it owns a strong brand, and that the owners of the company are willing to allow minority shareholders to benefit. “Governance risks are all too large in emerging markets, and a focus on alignment with the controlling shareholder is an absolutely essential criterion for investing in emerging markets with acceptable levels of risk,” said Nelson. “In such risky markets, the best approach to capital growth is to focus on capital preservation.”
SECTORS LOOKING STRONG IN 2019 Nelson told Money Management that broadly, EMs had suffered primarily as a result of slowing growth in China, rising US interest rates and commodity price weakness. But it’s actually not all doom and gloom, and some economies have shown strong growth and limited inflation, enabling some very strong returns to equity investors. Nelson said India in particular has been a hotspot for high quality companies, with the country breeding a large number
ANASTASIA SANTORENEOS
of entrepreneurial family companies that have built impressive business franchises. “Some of these are globally competitive service companies, like in IT outsourcing, whilst others are leading domestic consumer brands. India is a market which offers a unique combination of a huge potential for growth plus a range of highly profitable and well-run companies for us to choose from.” Going forward, Nelson remains wary but optimistic on the opportunities for attractive, risk-adjusted returns over the long-term. “Emerging markets remain vulnerable to various macroeconomic shocks,” he said. “Yet clearly we are at a point where sentiment towards emerging markets is near a nadir. At some point in the future, capital flows will likely return to EM during a period of slower developed market growth and the opportunity for outperformance from EM will return.”
7/02/2019 1:06:15 PM
INVESTMENT CENTRE
a part of
ACS CASH - AUSTRALIAN DOLLAR
ACS EQUITY - AUSTRALIA EQUITY INCOME
Fund name
1m
1y
3y
Crown Rating
Risk Score
Pendal Stable Cash Plus ATR in AU
0.18
2.17
2.28
5
AMP Experts' Choice Short Term Money Market ATR in AU
0.13
1.87
1.95
BlackRock Cash ATR in AU
0.16
1.98
Janus Henderson Cash Institutional ATR in AU
0.15
CFS Colonial First State Wholesale Cash ATR in AU
Fund name
1m
Crown Rating
Risk Score
1y
3y
Microequities Pure Microcap Value -3.35 Ordinary ATR in AU
-11.2
4.15
82
2
Legg Mason Martin Currie Equity Income A ATR in AU
-2.47
-9.55
3.68
99
1.96
0
Legg Mason Martin Currie Equity Income X ATR in AU
-2.4
-8.86
4.4
99
IML Equity Income ATR in AU
-0.74
-4.32
4.42
68
1.98
1.98
0
Armytage Australian Equity Income ATR in AU
-1.51
-6.25
4.54
110
0.13
1.94
2.03
0
-2.51
-9.77
4.92
108
Mercer Cash Term Deposit Units ATR in AU
Nikko AM Australian Share Income ATR in AU
0.17
2.01
2.03
2
AMP Capital Equity Income Generator H ATR in AU
-0.51
-6.43
1.6
99
Macquarie Treasury ATR in AU
0.16
2
2.04
1
-0.49
-6.25
1.81
99
Pendal Managed Cash ATR in AU
0.16
1.86
2.06
4
AMP Capital Equity Income Generator ATR in AU
Macquarie Diversified Treasury AA ATR in AU
0.12
2.23
2.86
2
AMP Capital Equity Income Generator A ATR in AU
-0.5
-6.24
1.82
99
Macquarie Australian Diversified Income ATR in AU
-1.69
-7.84
2.28
99
0.11
2.26
2.93
2
MLC Wholesale IncomeBuilderTM ATR in AU
ACS EQUITY - AUSTRALIA SMALL/MID CAP
ACS EQUITY - ASIA PACIFIC EX JAPAN Fund name
Crown Rating
Risk Score
1m
1y
3y
Schroder Asia Pacific Wholesale ATR in AU
0.04
-5.96
12.51
123
Fidelity Asia ATR in AU
2.55
-0.03
12.64
110
SGH Tiger ATR in AU
-2.02
-2.55
18.4
120
Fund name
1m
1y
3y
Crown Rating
Risk Score
OC Dynamic Equity ATR in AU
-8.84 -11.22
4.89
146
Bennelong ex-20 Australian Equities ATR in AU
-4.02
-6.8
5.02
114
CFS MIF Developing Companies ATR in AU
-2.7
-11.3
5.91
101
Ophir Opportunities Ordinary ATR in AU
-6.27
-9.39
6
143
Advance Asian Equity ATR in AU
-0.35
-8.11
10.29
117
Smallco Investment Manager Smallco Investment ATR in AU
-6.77
-2.47
6.44
129
Advance Asian Equity Wholesale ATR in AU
-0.26
-7.22
11.34
117
UBS Microcap Fund ATR in AU
-4.46
-8.47
6.91
102
T. Rowe Price Asia Ex Japan ATR in AU
0.47
-5.93
7.84
120
Spheria Australian Smaller Companies ATR in AU
-5.01
-6.32
8.48
106
CFS FirstChoice Wholesale Asian Share ATR in AU
0.75
-6.84
8.33
104
Pendal MicroCap Opportunities ATR in AU
-2.81
-7.6
9.28
98
Maple-Brown Abbott Asian Investment Trust ATR in AU
0.65
-3.55
9.95
103
Fidelity Future Leaders ATR in AU
-0.33
-0.11
9.51
111
Maple-Brown Abbott Asia Pacific Trust ATR in AU
-0.02
-4.19
9.99
101
SGH Emerging Companies ATR in AU
-2.75 -15.03
9.83
114
PM Capital Asian Companies ATR in AU
0.28
-14.38
3.08
107
ACS EQUITY - EMERGING MARKETS
ACS EQUITY - AUSTRALIA Fund name
Crown Rating
Risk Score
Fund name
1m
1y
3y
Crown Rating
Risk Score
OnePath Wholesale Global Emerging Markets Share ATR in AU
1.27
-3.61
10.06
97
1m
1y
3y
Prime Value Opportunities B ATR in AU
-1.82
-3.43
3.89
100
MFS Emerging Markets Equity Trust ATR in AU
1.2
-4.08
10.51
98
Australian Ethical Australian Shares ATR in AU
-2.25
-4.06
3.97
81
Legg Mason Martin Currie Emerging Markets ATR in AU
0.35
-9.1
12.74
121
Prime Value Opportunities A ATR in AU
-1.82
-2.81
4.3
100
Macquarie Walter Scott Emerging Markets ATR in AU
2.72
-4.97
6.9
89
Alpha Australian Blue Chip ATR in AU
-3.06
-6.02
4.99
96
2.21
-2.72
9.35
72
Katana Australian Equity ATR in AU
-1.56
-2.16
5.41
79
LGM Investments Limited BMO LGM Global Emerging Markets ATR in AU
0.64
-6.73
10.38
107
Australian Ethical Australian Shares Wholesale ATR in AU
Schroder Global Emerging Markets Wholesale ATR in AU
-2.18
-2.82
5.48
81
CFS Wholesale Global Emerging Markets Sustainability ATR in AU
2.72
4.32
10.48
68
BlackRock Growth ATR in AU
-5.59 -15.67
6.04
131
1.26
-2.77
10.89
98
Third Link Growth ATR in AU
-0.59
-2.66
6.13
81
Fidelity Global Emerging Markets ATR in AU
0.46
-7.97
7.68
100
Ganes Value Growth ATR in AU
-6.9
-6.98
6.14
117
AMP Future Directions Emerging Markets ATR in AU
BlackRock Equity ATR in AU
-5.58 -15.56
6.17
131
Pendal Global Emerging Markets Opportunities-WS ATR in AU
0.28
-5.05
8.67
90
01MM1402_14-35.indd 20
7/02/2019 1:46:55 PM
INVESTMENT CENTRE
a part of
ACS EQUITY - EUROPE Fund name
ACS EQUITY - SPECIALIST 1m
1y
3y
Crown Rating
Risk Score
Platinum European C ATR in AU
-3.13
-5.2
8.12
92
Pendal European Share ATR in AU
-1.46
-3.56
3.65
84
ACS EQUITY - GLOBAL Crown Rating
Risk Score
Fund name
1m
1y
3y
Crown Rating
Risk Score
Platinum International Health Care C ATR in AU
-3.2
8.84
7.2
116
CFS Colonial First State Australian -0.54 Share Growth ATR in AU
-1.6
2.55
108
IML Industrial Share ATR in AU
-0.97
-5.18
3.88
87
Platinum International Brands C ATR in AU
-0.47
-7.92
9.26
104
BT Technology Retail ATR in AU
-4.22 12.18
15.38
158
-1.44
-8.82
1.88
93
Fund name
1m
1y
3y
Ellerston Global Equity Managers C ATR in AU
-1.71
-12.4
4.54
Cooper Investors Global Equities Hedged ATR in AU
-5.91
-5.42
8.1
108
Perpetual Wholesale Industrial ATR in AU
Evans And Partners International Hedged ATR in AU
-5.51
-2.01
10.04
113
CFS Wholesale Global Health & Biotechnology ATR in AU
-5.03 10.26
5.17
136
Antipodes Global Long Only ATR in AU
-2.19
-1.39
10.91
86
Barwon Global Listed Private Equity ATR in AU
-8.28
-8.72
7.26
101
Antipodes Global Long Only I ATR in AU
-2.2
-1.53
11.28
86
CFS Generation WS Global Share ATR in AU
-2.8
7.44
13.7
106
CFS Wholesale Global Technology & Communications ATR in AU
-2.88
5.68
12.04
141
Hyperion Global Growth Companies B ATR in AU
-2.9
16.5
14.21
126
Platinum International Technology -0.52 C ATR in AU
-2.45
7.39
103
Pan-Tribal Global Equity ATR in AU
-5.35
-14.28
4.72
130
MLC Investment Trust Platinum Global ATR in AU
-0.54
-9.44
5.76
87
Meme The Dual Momentum ATR in AU
-0.47
-1.65
6
102
82
ACS EQUITY - GLOBAL SMALL/MID CAP Crown Rating
Risk Score
ACS FIXED INT - AUSTRALIA / GLOBAL Fund name
1m
1y
3y
Crown Rating
Risk Score
Onepath Wholesale Diversified Fixed Interest Trust ATR in AU
0.92
2.11
3.6
14
PIMCO Diversified Fixed Interest Wholesale ATR in AU
1.01
2.14
3.8
15
PIMCO Diversified Fixed Interest ATR in AU
0.99
2.18
3.85
15
IOOF MultiMix Diversified Fixed Interest ATR in AU
0.66
1.51
3.98
13
Fund name
1m
1y
3y
Pengana Global Small Companies ATR in AU
-1.51
-9.49
8.08
84
Supervised The Supervised ATR in AU
-0.6
-4.51
12.97
106
Dimensional Global Small Company Trust ATR in AU
-6.31
-6.48
6.36
113
Yarra Global Small Companies ATR in AU
-5.28
-2.53
6.45
112
Perpetual Implemented Fixed Income Portfolio ATR in AU
0.59
1.66
2.94
8
Fidelity Select Global Small Cap ATR in AU
-6.46
-5.44
4.1
114
Bendigo Diversified Fixed Interest ATR in AU
1.12
2.39
2.99
15
Mercer Global Small Companies Shares ATR in AU
-6.06
-5.35
4.89
118
MLC Wholesale Diversified Debt A ATR in AU
0.85
2.04
3.01
13
OnePath Optimix Wholesale Global Smaller Companies Share Trust A ATR in AU
-4.88
-5.41
5.71
108
AMP Experts' Choice Diversified Interest Income ATR in AU
1
2.4
3.14
15
OnePath Optimix Wholesale Global Smaller Companies Share Trust B ATR in AU
1.32
2.5
3.15
17
-4.86
-5.27
5.9
108
1
2.34
3.17
15
Lazard Global Small Caps W ATR in AU
-6.51
-12.9
0.74
116
Pengana International Ethical ATR in AU
-2.11
1.3
0.98
71
BT Wholesale Multi-manager Fixed Interest ATR in AU AMP Capital Specialist Diversified Fixed Income A ATR in AU
ACS FIXED INT - AUSTRALIAN BOND ACS EQUITY - INFRASTRUCTURE Fund name
Crown Rating
Risk Score
Fund name
1m
1y
3y
Crown Rating
Risk Score
IOOF Income ATR in AU
0.32
2.7
3.94
5
1m
1y
3y
Magellan Infrastructure Unhedged ATR in AU
-0.09
4.76
7.41
81
DDH Preferred Income ATR in AU
0.39
3.66
5.95
12
ClearView CFML Colonial Infrastructure ATR in AU
-1.07
3.67
8.42
85
Morningstar Australian Bonds Z ATR in AU
1.22
4.18
3.83
19
Mercer Global Unlisted Infrastructure ATR in AU
-0.94
9.26
12.43
41
Legg Mason Western Asset Australian Bond A ATR in AU
1.4
4.29
3.91
19
AMP Capital Core Infrastructure H ATR in AU
-0.66
3.34
7.81
1.4
4.59
3.98
20
AMP Capital Core Infrastructure A ATR in AU
-0.63
3.62
8.09
Macquarie Core Australian Fixed Interest ATR in AU
Macquarie True Index Global Infrastructure Securities ATR in AU
1.44
4.66
4.25
19
-0.66
6.03
8.84
86
Legg Mason Western Asset Australian Bond X ATR in AU
BlackRock Global Listed Infrastructure ATR in AU
-0.82
9.36
9.99
88
OnePath Optimix Wholesale Australian Fixed Interest Trust A ATR in AU
1.35
3.75
3.16
19
15.25
23.93
155
DDH Fixed Interest ATR in AU
1.33
3.57
3.18
21
Macquarie Global Infrastructure Trust II B ATR in AU RARE Infrastructure Value Unhedged ATR in AU
-0.51
1.79
5.6
80
0.18
1.66
3.2
4
Macquarie International Infrastructure Securities Unhedged ATR in AU
Smarter Money Higher Income Assisted Investor ATR in AU
0.81
1.84
6.99
83
PIMCO Australian Bond Wholesale ATR in AU
1.16
3.57
3.35
18
01MM1402_14-35.indd 21
7/02/2019 1:47:08 PM
INVESTMENT CENTRE
a part of
ACS FIXED INT - DIVERSIFIED CREDIT Fund name
ACS FIXED INT - INFLATION LINKED BOND Crown Rating
Risk Score
Fund name
1m
1y
3y
PIMCO Global RealReturn Wholesale ATR in AU
1.78
-0.26
5.3
37
Morningstar Global Inflation Linked Securities Hedged Z ATR in AU
0.63
1.75
2.96
20
Ardea Real Outcome ATR in AU
0.31
3.29
4
9
Macquarie Inflation Linked Bond ATR in AU
1.21
3.32
2.55
30
Ardea Wholesale Australian Inflation Linked Bond ATR in AU
0.97
3.36
2.74
29
1
3.6
2.96
29
Aberdeen Standard Inflation Linked Bond ATR in AU
0.05
2.65
2
19
Mercer Australian Inflation Plus ATR in AU
0.27
3.26
2.63
8
CFS Wholesale Government Inflation Linked Bond ATR in AU
-0.54
3.19
0.14
31
Macquarie True Index Cash ATR in AU
0.16
1.86
1.94
0
1m
1y
3y
Perpetual Credit Income ATR in AU
-0.34
1.74
3.9
7
Janus Henderson Diversified Credit ATR in AU
0.07
1.96
4.27
8
Spectrum Spectrum Strategic Income ATR in AU
0.29
3.41
4.68
6
Firstmac High Livez Retail ATR in AU
0.33
3.98
4.7
10
Firstmac High Livez Wholesale ATR in AU
0.35
4.2
4.94
10
Bentham Global Income ATR in AU -1.56
0.74
5.57
19
Bentham Syndicated Loan ATR in AU
0.3
6
19
Ardea Premier Australian Inflation Linked Bond ATR in AU
4.76
6.79
14
-2.44
Blue Quay High Income ATR in AU Bentham High Yield ATR in AU
-1.6
-2.64
6.8
29
Premium Asia Income ATR in AU
1.81
-0.92
7.44
39
ACS FIXED INT - GLOBAL BOND Crown Rating
Risk Score
Crown Rating
Risk Score
Fund name
1m
1y
3y
Supervised Global Income ATR in AU
0.38
2.94
5.19
28
Fund name
1m
1y
3y
Invesco Senior Secured Loans ATR -2.57 in AU
-0.11
5.24
24
Cromwell Phoenix Property Securities ATR in AU
0.33
-0.96
7.68
85
Janus Henderson Global Fixed Interest Total Return ATR in AU
0.03
-1.48
3.2
13
1.43
-1.04
8.29
108
Mercer Global Sovereign Bond ATR in AU
OnePath Optimix Wholesale Property Securities Trust B ATR in AU
2.47
3.77
4.27
23
1.69
3.33
9.78
79
PIMCO Global Bond Wholesale ATR in AU
Charter Hall Maxim Property Securities ATR in AU
0.83
0.8
4.27
15
Crescent Wealth Property Retail ATR in AU
0.34
2.16
10.09
64
PIMCO Global Bond ATR in AU
0.83
0.84
4.32
15
Fiducian Property Securities ATR in AU
1.34
1.8
7.74
88
Invesco Wholesale Senior Secured Income ATR in AU
-2.53
-0.11
5.17
24
Zurich Investments Australian Property Securities ATR in AU
0.94
1.39
7.85
101
AMP Future Directions International Bond ATR in AU
1.29
0.55
2.7
17
The Trust Company Diversified Property ATR in AU
1.69
3.96
8.01
95
BlackRock Global Diversified Bond E ATR in AU
0.41
-0.26
2.78
17
Ironbark Paladin Property Securities ATR in AU
0.9
3.62
8.33
99
BlackRock Wholesale International Bond ATR in AU
2.31
4.53
8.38
116
1.53
0.47
3.04
17
Macquarie Wholesale Property Securities ATR in AU Macquarie Property Securities ATR in AU
2.32
4.79
8.51
116
1m
1y
3y
Resolution Capita Global Property Securities Hedged II ATR in AU
-5.99
-3.38
4.85
99
Quay Global Real Estate A ATR in AU
-2.28
7.63
5.94
92
Perpetual Implemented Real Estate Portfolio ATR in AU
-0.78
2.52
6.69
83
1
1.33
7.2
101
ACS FIXED INT - GLOBAL STRATEGIC BOND Fund name JPMorgan Global Strategic Bond ATR in AU
1m
1y
3y
Crown Rating
Risk Score
ACS PROPERTY - AUSTRALIA LISTED Crown Rating
Risk Score
ACS PROPERTY - GLOBAL Fund name
Crown Rating
Risk Score
-0.98
-1.32
3.03
17
Dimensional Global Bond Trust AUD ATR in AU
1
1.39
3.8
21
Dimensional Global Bond Trust NZD ATR in AU
2.26
6.39
4.53
21
Pimco Unconstrained Bond Wholesale ATR in AU
0.1
1.21
4.26
11
Pimco Unconstrained Bond C ATR in AU
0.11
1.33
4.36
11
Australian Unity Strategic Fixed Interest Trust Wholesale ATR in AU
Resolution Global Property Securities B NPF ATR in AU
-5.99
-4.94
4.28
99
0.12
2.13
2.66
6
Resolution Global Property Securities A PF ATR in AU
-5.97
-4.5
4.38
99
T. Rowe Price Dynamic Global Bond ATR in AU
1.17
1.42
2.69
19
Resolution Capita Global Property Securities Unhedged II ATR in AU
-2.33
3.41
4.62
90
IOOF Strategic Fixed Interest ATR in AU
0.43
2.03
2.81
5
IOOF Specialist Property ATR in AU
-3.81
2.1
4.94
87
Perpetual Exact Market Cash ATR in AU
0.18
1.86
1.95
0
Perpetual Select Investments Real -0.89 Estate ATR in AU
1.16
5.29
83
Macquarie True Index Cash ATR in AU
0.16
1.86
1.94
0
ClearView CFML Listed Property ATR in AU
0.85
6.48
111
AU A-REIT ATR in AU
1.65
The tables and data contained in the Investment Centre are intended for use by professional investors and advisers only and are not to be relied upon by any other persons.
01MM1402_14-35.indd 22
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February 14, 2019 Money Management | 23
FASEA survey
PLANNERS UNHAPPY WITH FASEA’S REGIME Debate has been raging about the impact of the Financial Adviser Standards and Ethics Authority’s professionalisation regime since its inception. While many advisers plan to leave the industry, Oksana Patron writes, a Money Management survey has revealed the number of those departing is smaller than originally feared. MONEY MANAGEMENT ASKED its readers via an online survey about their sentiment regarding the impact of the new Financial Adviser Standards and Ethics Authority (FASEA), their plans under the new regime, and their thoughts on the Authority’s performance. The survey, for which close to 90 per cent of respondents were planners, particularly aimed to capture what proportion of planners were considering leaving the industry before 2024 due to the higher education standards, as well as the general sentiment among those who would stay and what the new reforms would mean for them. Below are some highlights from the survey.
INDUSTRY DEPARTURES According to the survey’s full results, of those who declared they would most likely depart the industry, 80 per cent said that their decision was driven by the new education standards proposed by the FASEA. At the same time, it should be mentioned that this number was much lower than what planners indicated in similar surveys in the closing months of 2018, with only 30 per cent of planners declaring an intention to leave the industry before 2024.
EDUCATIONAL DEMANDS Money Management also asked those participants who declared they would stay in the industry what further study they would be required to undertake under the new regime. The result showed that almost 60 per cent would need to do at least one FASEA bridging course or Approved Graduate Diploma (GDip) with some variations due to credits and/or ADFP (the Advanced Diploma of Financial Planning). Following this, another 13 per
cent of respondents said they would need to do another approved Graduate Diploma (GDip). Other educational requirements planners would be undertaking were three FASEA bridging courses (eight per cent), three FASEA bridging courses and one FASEA-approved unit (six per cent) and a bachelor degree (close to three per cent). Around four per cent of respondents said they would need to apply for Department of Education and Training (DET) and Standards Body assessment and pursue a subsequent FASEA pathway, while 3.21 per cent said they would not be required to undertake any further studies in the face of the new regime. Six per cent said it was not clear to them what steps they should take.
Chart 1: Adviser intentions on leaving the industry post-FASEA
Chart 2: Advisers’ educational requirements under FASEA
KAPLAN THE INSTITUTION OF CHOICE Further to that, the majority of those who said they would need to pursue either a Graduate Diploma or Bachelor degree, would look to enrol in Kaplan Professional (60 per cent), with 23 per cent currently undecided a and further 22 per cent declaring that they would consider going back to university.
Chart 3: Institutions of choice for advisers
IS FASEA A FAILURE? According to the majority of respondents (57 per cent), FASEA failed to meet its objectives, with a further 30 per cent declaring that they neither agreed nor disagreed with the above statement. Only 13 per cent expressed their approval regarding FASEA’s new requirements. Of those who were negative, the majority of planners complained about the absence of decent communication resulting in confusion, as well as lack of proper recognition by FASEA of their prior learning and, in some cases, decades of experience.
Chart 4: Adviser sentiment on FASEA’s performance
Source: Money Management
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Important information: Fidante Partners Limited (ABN 94 002 835 592 AFSL 234668) is the Responsible Entity and issuer of interests in the Alphinity Global Equity Fund (ARSN 609 473 127) (the Fund). Alphinity Investment Management Pty Ltd ABN 12 140 833 709 AFSL 356 895 (Alphinity) is the investment manager of the Fund. You should read the Product Disclosure Statement for the Fund before making any decision in relation to the Fund. The information in this document is intended solely for holders of an Australian Financial Services Licence or other wholesale clients as defined in the Corporations Act 2001 (Cth). It should be regarded as general information only and is not intended to be advice. It has been prepared without taking account of any person’s objectives, financial situation or needs. Because of that, each person should, before acting on such information, consider its appropriateness, having regard to their objectives, financial situation and needs. Past performance is not a reliable indicator of future performance.
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1/02/2019 4:02:27 PM
Alphinity Global Equity Fund
Investing in leading global companies at the right time. TALENT A united and deeply experienced team of global portfolio managers each with over 20 years in the industry. DISCIPLINE A disciplined process finding quality businesses with strong earnings that are under appreciated by the market. This approach has proven successful across different market cycles. CONCENTRATED An actively managed, concentrated portfolio of 30-45 of our best ideas, highly diversified across sectors and regions. A truly global fund consistently exposed to powerful trends reshaping our world. ALIGNED Alphinity Investment Management is a boutique firm, strongly aligned with its clients’ investment objectives and focused solely on growing clients’ wealth. To find out more about the Alphinity Global Equity Fund, visit alphinity.com.au or contact the Fidante Partners Adviser Services team on 1800 195 853.
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1/02/2019 4:02:45 PM
26 | Money Management February 14, 2019
Global equities
BEYOND OUR BORDERS Despite political instability and earnings downgrades abroad in 2018, Hannah Wootton finds that global equities are still offering more to investors than many of their domestic counterparts. AS DOMESTIC BIAS in Australia wanes, investors are increasingly looking abroad to add not just diversity but also better returns to their portfolios. And the figures show why. As chart one shows, both sector averages and indices for global equities outstripped their domestic counterparts in the last five years. But with a global stage dominated by earnings downgrades, domestic upheaval across European and South American states, and arguably the most unpredictable White House in history, it can be hard for investors Down Under (or indeed, anywhere) to make sense of everything that’s happening abroad. So, what happened in global equities last year and where should investors be looking going forward?
A LOOK IN THE REAR VISION MIRROR Looking back on 2018, two key stories in the global equities universe were China and the US. In China, economic growth slowed as the Government deleveraged the system, which Nikki Thomas, a portfolio manager at Alphinity Investment Management, put down to the Asian giant starting to address its balance sheet issues. Then there was the added strain of tariffs imposed by US President Donald Trump, which also flowed
NIKKI THOMAS
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through to the US’ story for 2018. Despite threats of trade war from what Thomas labels the US’ “accidental President” however, the US market had a strong year. Tax cuts saw the market rallyup until September, with December’s drop unexpected by most. Looking more broadly, it was a year defined by growth globally before a surprisingly damp end. “2018 began well with synchronised growth across a number of key economies and a cyclical uptick in global growth but ended in a flurry of volatility and disappointing returns,” Hyperion’s CIO, Mark Arnold, says. Amongst many reasons for the downturn, geopolitical instability (think of Brexit) and the spectre of a trade war between the US and China stand out to Arnold, as well as slowing growth in Europe and Asia.
WHAT DOES 2019 HOLD? Earnings look to be formative to the global equities landscape for 2019, with pretty much every sector and region experiencing earning downgrades in the last six to eight months. This may continue or even worsen before it improves. “Many sectors of the market will find it difficult to maintain even their current levels of earnings,” Arnold says, with his deputy CIO, Jason Orthman, pointing to ‘old-world’ businesses as those that will struggle, as a changing world sees oil and thermal coal, for example, overtaken by renewables. We may also see rerating occur, with Principal Global Equities CIO, Mustafa Sagun, believing that any resolution in the US and China ‘trade war’, the US government shutdown and Federal Reserve policies are all catalysts for rerating. So what does this mean for
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February 14, 2019 Money Management | 27
Global equities Strap businesses and growth? “[In] 2019, we believe that global growth will very likely continue to slow, but not to the point that all expansion will be at an end,” Arnold says. “Business conditions will definitely be more challenging, and ... a number of headwinds will likely create the low inflation, economic growth and interest rates that are likely to be our global economic reality for at least the next decade.” And what are these headwinds? According to Arnold, they’re rising levels of consumer debt, the middle class hollowing out, technological innovation’s impact on job prospects and wages, an ageing population, and environmental factors. While this may sound a bit doom and gloom, investors shouldn’t be holding their breaths about recessions as there’s very little data to support one happening in 2019. Thomas warns however, that “the market has this funny ability to create its own recession” if it’s discussed enough and debt and equity markets create tightening. There are also silver linings to be found in the de-ratings environment. “After significant de-ratings with no consideration of earnings growth profiles, there are opportunities to take advantage of at the stock level, particularly within emerging markets (EMs), particularly China and South Korea,” Sagun says.
LOOKING EAST AND WEST Unsurprisingly, the US is a key market to watch in 2019: “It’s such a big opportunity set, I think you have to be looking there,” Thomas says. The market is nervous that the Fed will step on the US’ fiscal stimulus-driven growth from last year though, she says, trying to control inflation. Some communication from the Fed could be useful in calming those fears. Regardless of the Fed’s actions, Thomas believes that US growth is “almost guaranteed to slow” in 2019 as markets create tightening, sentiment changes, and fiscal stimulus fades compared to 2018. And the “accidental President”? “Interestingly, in 2018 Trump was very positive for US economic growth as he was pro-growth domestically, although I’d argue he wasn’t good for growth in the rest of
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the world,” Thomas says. The problem, rather, is whether, given the US debt position, there is any room left to sustain it into this year. It’s worth considering that the US only joined the earnings downgrade party in 2018’s last quarter so more downgrades are expected before they turn. Indeed, Sagun warns against the “less favourable” earnings/valuation backdrop within US large caps, with earnings set to reduce off the back of tax abatements. He cautions that despite their cheapness, financials will likely remain under pressure as rates stay at historically low levels, squeezing net interest margins. The next most important country to look at, Thomas says, is China. “Investors should at least be watching what is happening there, even though actually finding investible ideas is hard,” she says. Sagun suggests industrials, consumer and materials based upon valuations, infrastructure spend, and upside to physical commodity prices given weakness in 2018 and issues stemming from iron ore supply problems may prove investible opportunities. Investors should also remember that China is suffering from its deleveraging, plus there’s a real risk of Trump escalating tariffs in March. “The risks we see with China and the US include a lack of trade resolution between the countries, as well as stimulus measures failing to provide as a backstop to slowing China growth,” Sagun says. “A dovish Fed moves back to a more hawkish approach, leading to a strong USD, but a negative for EMs and multinationals.” Thomas is optimistic however,
that China’s attempts to stimulate growth will flow through: China will “throw fiscal and monetary stimulus at it” until something works, and she thinks that something will in time.
AND WHERE ELSE IS THERE OPPORTUNITY? While Europe isn’t offering much currently, Brexit looks set to resolve this year, and Thomas says that that could see investors again having enough certainty to price risk there. Of course, the best time to buy is before others are willing to face that risk. Now, UK stocks are cheap on a yield basis, as well as being at a 30 and 10 per cent discount to the world and Europe respectively when measured against P/E and P/BV. “Our belief is any form a resolution could lead to a rerating of UK domestic stocks,” Sagun says. “For investors, these valuation levels mean the opportunity for discounted UK stocks is now.” For Asia, EMs will be risky due to their high exposure to the USD. With the right people on the ground however, and the necessary levels of knowledge of the idiosyncrasies of those markets, there could be something there. As written in Money Management’s Investment Centre this week, this could be somewhere for investors with long-term horizons to look. In terms of sectors to watch, the consumer discretionary sector is one to be wary of, Thomas says, with earnings coming under pressure. For technology in general, Sagun warns that while its growth profile remains strong, risk is to the downside: “Investors should be cautious as high valuations eave for limited rerating potential as well as
Chart 1: Australian v global equities returns over the last five years
Source: FE Analytics
MARK ARNOLD
any quarterly missteps”. In terms of individual businesses to look at, Arnold says, unsurprisingly, those that will succeed have strong fundamentals. “By this we mean modern businesses with strong value propositions, those with large and growing addressable markets, and can grow revenues and profits organically rather than on the back of cheap debt,” he said. Luxury goods brands are such businesses, Orthman says, favouring those with sufficient brand equity to maintain prices, and benefitting from the growing number of high net worth individuals in countries such as China and India.
GLOBAL EQUITIES AREN’T GOING ANYWHERE As Aussies grow more comfortable with global investing, interest in equities abroad looks set to sustain. “Australia’s market is very small by world standards – so it goes without saying that there are more opportunities abroad than at home – and that’s the benefit,” Arnold says. “Offshore markets offer both a larger universe of stocks and greater diversity of industries to choose from – and equally importantly, the economies in which they operate often have higher growth potential than the Australia’s. Furthermore, although Thomas acknowledges she took a “pretty bearish tone” in her thoughts on 2019’s global market, she says “there’s always opportunity for change”. The world is developing rapidly, not just in terms of technology but also in how society works. There’s simply much more chance to invest in that development by looking at what’s on offer beyond our border.
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28 | Money Management February 14, 2019
Infrastructure
THE OUTLOOK FOR GLOBAL LISTED INFRASTRUCTURE INVESTMENT Amid slowing global growth, Sarah Shaw believes that global listed infrastructure’s asset subsets combined with changing demographic trends mean the sector is still appealing to some investors. INFRASTRUCTURE AS AN asset class is increasingly on the radar of investors and their advisers. We remain optimistic about the prospects for the global listed infrastructure asset class in 2019 and beyond, due to a number of factors.
TWO DISTINCT ASSET SUBSETS With active management, an infrastructure portfolio can be positioned to take advantage of both the opportunities and challenges 2019 throws at us. This is facilitated by infrastructure’s
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structural composition, as it comprises two quite distinct and macro diverse asset subsets (Regulated Utilities and User Pays). Regulated Utilities (the so called ‘bond proxies’), such as electricity, water and gas providers, are more immediately adversely impacted by rising interest rates/inflation and are slower to realise the benefits of economic growth. This is due to the nature of their business, whereby their returns are measured independently of volumes and are subject to regulatory oversight (which takes time). In addition, the
conflicts between corporate profitability, environmental costs and household bills can be highly politically charged (e.g. Australian power prices). As a result, both the regulatory review process and the final outcome can be unpredictable. By contrast, User Pay assets are positively correlated to GDP growth and wealth creation. Typical User Pay assets are airports, toll roads, rails and ports, where users pay to use the asset. These stocks capture GDP growth via volumes and often have built-in inflation protection mechanisms through their tariffs.
As interest rates/inflation increase over time, this macro correlation leads to earnings upside. This should then be reflected in the relevant stock price and performance. Therefore, portfolios can be actively managed to take advantage of the market cycle. In tough macro environments Regulated Utilities are the preferred positioning as these assets hold up incredibly well due to them being largely immune to the macro environment. In contrast, when there is a solid, growth-oriented macro backdrop User Pays are the preferred holds.
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February 14, 2019 Money Management | 29
Infrastructure FAVOURABLE ENVIRONMENT While not as buoyant as 2018, we remain optimistic on the macro outlook for 2019. We see US and global economic growth slowing in 2019 but are not expecting a US recession. As shown in table one, the typical US recession predicting indicators suggest a limited risk at present. Key in all of this will be the US Federal Reserve. We expect they will be responsive to reported data and act accordingly. We are already starting to see this in their communications with the market and a more dovish rhetoric emerging. Accordingly, with the US economy slowing but still in positive territory, and inflation still within range, we expect the Fed will only hike once or maybe twice in 2019. While rising interest rates act as a brake on an economy, a 1-2-hike scenario, as compared to recent market consensus of 3 or 4, should actually see some relief in the market. Infrastructure assets are sensitive to changes (and the expectation of future changes) in interest rates, some more so than others – in particular the Regulated Utilities discussed above. However, we believe an environment where global growth remains positive, inflation is ticking up modestly and previous expectations of rising interest rates are tempered, would be conducive for equity markets in general and also for infrastructure assets to perform well – particularly those that have a positive correlation to the macro environment such as User Pay assets. It would also be supportive of an emerging market (EM) recovery, as the threat to those economies of forced rate hikes (in line with Fed) is mitigated. Therefore, with our 2019 outlook of ongoing but slower global GDP growth and modest inflation, we remain overweight User Pay assets and underweight Regulated Utilities. However, should this be derailed by a US Fed policy error (i.e. lifting US interest rates too quickly) or geo-political
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events, we can quickly reverse this overweight into the defensive Regulated Utilities which offer equity downside protection.
Table 1: Risk of US recession predicting indicators
DEMOGRAPHIC TRENDS Longer-term demographic trends further support the infrastructure asset class. The emergence of the middle class, particularly in EMs, is a theme we find very exciting at present and one we believe will provide enormous opportunity for investors. Why are we excited? Given the potential size of the middle class in EMs (China, India and Indonesia alone account for 40 percent of the global population), changes in spending and consumption patterns will have significant implications for global business opportunities and investment for decades to come. From an individual’s perspective, as personal wealth increases in a country (reflected by a growing middle class) consumption patterns inevitably change. This starts with a desire for three meals a day; moves to a demand for basic essential services such as clean water, indoor plumbing, gas for cooking/ heating and power; and progresses over time to include services that support efficiency and a better quality of life, such as travel – with demand for roads (on which to drive that new scooter and then car) and airports (to expand horizons). Importantly, one of the clear and early winners is infrastructure which is needed to support the evolution. An example of the impact of an expanding middle class is the natural correlation between growth in GDP per capita and vehicle ownership. EMs in general still have a relatively low level of motor vehicle penetration. However, as each nation’s GDP per capita grows, it would be expected that so too will each country’s level of vehicle ownership, which, as infrastructure investors, equates to the need for more roads. From an infrastructure investment perspective, the consequences of this changing demographic are enormous, and
Source: Standard and Poor's, Federal Reserve, BLS, National Statistical Agencies, NBER, ISM, Census Bureau, Haver Analytics ®, Credit Suisse
include capturing the domestic demand story within the EMs by way of utility and transport investments, as well as a growing need for new and expanded international (and domestic) airports, toll roads, port infrastructure and utility services more generally.
POTENTIAL HEADWINDS There has been no shortage of headlines and proposed policy that could potentially disrupt our expected outlook, at least in the short term. It’s important to maintain a focus on the wellpublicised, prevailing macro issues such as the direction of US interest rates and potential for US Fed policy error, global growth/inflation, US/ China trade wars and Brexit. From a demographic standpoint, our biggest immediate concern stems from political threats (e.g. Corbyn’s threat to nationalise the UK electricity, gas and water utilities should he be elected; and populist rhetoric globally, as discussed further below). Over the medium term, however, certain countries’ unfavourable population demographics (i.e. ageing populations) will put pressure on economies and governments alike. Populist political movements is a more recent theme of concern to us due to its potential to derail sensible policy construction and implementation. What is also becoming evident is that while populist political policies can work in getting a
candidate or party elected, they are often very difficult to implement as they are either incredibly divisive (such as Brexit), or run into the normal fiscal and monetary hurdles of government – such as the battles the new Italian government had with the EU in managing their fiscal position, with the EU successfully demanding greater austerity (often the mortal enemy of a populist political agenda!). What does this all mean for infrastructure and equities more generally? As we indicated earlier, populism creates an environment where poor or ill-defined public policy is developed and attempted to be implemented; which is detrimental for not only asset markets, but society in general. This is a major concern for 2019 and beyond, and something we are monitoring very closely on a global and regional level. Overall, we believe infrastructure as an asset class should perform well in 2019. Given infrastructure’s unique composition of two macro diverse assets sub sectors – Regulated Utilities and User Pay Assets – as well as it being truly global in nature across developed and emerging markets, we believe a portfolio can be positioned for all stages of an investment cycle and to take advantage of in-country opportunities. Sarah Shaw is chief investment officer of 4D Infrastructure.
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30 | Money Management February 14, 2019
Practice management
ACCELERATE YOUR PRACTICE GROWTH IN 2019 As vital as business development is to the successful management of a financial planning practice, it often falls by the wayside. Ray McHale outlines how to complete a brief review in a few simple steps. BUSINESS DEVELOPMENT IS a concept that many practice owners and managers understand but tend to put aside until a later date, when things are less busy. You understand how important it is but the problem is that you’re working in the business, so you struggle to find time to work on the business. With that in mind, this a quick guide to help you conduct a business development review in just a few hours.
WHAT IS IT THAT YOU OFFER CLIENTS? The first step is to review what services (and products) you offer clients. Questions to answer include: • What are the core services that you provide? (try to stick to half a dozen or less) • Do these services align with what your clients need? If you’re not sure then you should conduct a survey of all your clients to identify how you can improve their experience (see later section on clients). • Which of these services are your most successful (client
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uptake & profitability)? • What services are most attractive to prospective clients? • What services are helping retain clients? • What services are most cost effective to deliver? • Are there opportunities for expansion based on your most successful services? • Are there opportunities to cross sell services?
HOW EFFICIENT IS YOUR PRACTICE? The next step is to review the factors that could be holding your practice back. Premises/facilities • What are the advantages and disadvantages of your current location? • Is there room to grow or cut back if necessary? • If you moved, would there be long term cost savings and efficiency improvement? • How do you compare with your competition? • What kind of experience are you offering clients?
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February 14, 2019 Money Management | 31
Practice management Strap
Technology • Does your current suite of technology systems deliver value to your practice? • Are you paying for systems that you rarely use? • Is there an opportunity to upskill your team on the use of these systems to get the most value from your investment, or should you consider removing them? • Are there more efficient processes you would like to implement that you currently don’t have a solution for? • What technologies exists in the market that you can take advantage of? • Are there integrations you could implement to improve efficiencies? People • Do you have a training and development plan in place for your team? • Are there opportunities to upskill your staff so you can delegate some of your workload? • Do your staff understand what is expected of them? Are they assigned clear KPIs? • Do you provide opportunities for them to provide feedback on ideas for business improvement? • Are there services you’d like to offer to clients that your current staff can assist to implement? Or would you need to look at new hires? • Do you have the right management team in place for growth?
HOW ARE YOU PLACED COMPETITIVELY? When prospective clients are looking for services like yours, it’s likely they’ll review multiple practices before deciding who to
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approach and proceed with. So, this step is about understanding your competitive positioning. This will help you understand what you need to do or say in order to win a prospect’s business. You should be able to answer most of these questions with desktop research. • Who are your top three competitors? • What does their team structure look like? • What services do they offer? • Who is their target market? • What do they say about themselves (unique value proposition or same old same old)? Review their website, sales literature, and advertisements. • What do other people say about them? Look for customer reviews, testimonials, social media comments, or press articles. Also ask prospective clients if they’ve dealt with them – and if so – ask them about their experience. • What technology do they deploy to deliver their services?
DO YOU KNOW ENOUGH ABOUT YOUR CLIENTS AND MARKET? As part of this review, it’s critical for you to understand your clients and market. You should have covered this if you already have a marketing plan, but regularly collecting feedback from your clients will ensure you’re consistently delivering a great experience. • What do your clients say your practice’s strengths are? • Where do they think you could improve? • Can you segment your client list to make communication with them more effective? Consider not only their contribution to
your revenue and profitability, but also their demographics and needs. • How can you use their feedback to improve your business performance? • How can you use their feedback to establish trust with prospective clients via social proof? • Are there any changes in your market that could challenge how you deliver your services (such as outcomes of the Royal Commission)? • Are there any new or emerging trends that you should consider adopting as part of your business operations? • What predictions can you make regarding your clients’ needs for this year, and are you in a position to meet them? Once you’ve answered these questions you will have a good idea of where your practice sits. The next step is to work on a plan that will help you put new ideas in place and set a timetable (and budget) for doing so. The most important piece of advice is to keep it simple and involve your team where possible. This way, the workload is shared, and everyone feels like they’re contributing to the practice’s future. You will also generate a wider range of ideas based on different perspectives. Adopt the mindset of continuous improvement to enhance your ability to be proactive and a market leader. Good planning helps you anticipate problems and adapt to change more quickly, easily and successfully.
“You understand how important business development is but the problem is that you’re working in the business, so you struggle to find time to work on the business.” - Ray McHale
Ray McHale is chief executive and co-founder of MyNextAdvice.
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32 | Money Management February 14, 2019
High net worth investing
FOUR THEMES FOR HIGH NET WORTH INVESTORS IN 2019 Peter Moussa writes that high net worth investors are thinking about volatility, diversity, and defensive and deep valuation sectors as the new year gets underway. AS THE NEW Year begins, many investors are reflecting on the lessons from 2018. It was a year characterised by volatility, trade tensions and a number of geopolitical events, all of which have left many investors wondering what they should expect next year. Our high net worth clients are already considering what will characterise 2019, with four themes staying front of mind.
1. EXPECT VOLATILITY If 2018 taught us anything, it is that expecting volatility is the
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safest course of action. Whilst there has been a lot of noise about what is driving volatility, ultimately the two key factors responsible are the tightening US Federal Reserve (the Fed) monetary policy, and the impact of trade tensions. These two factors are set to play a significant role in 2019 as well. Following on from four rate hikes in 2018, Citi currently expects a further two hikes from the Fed in 2019. This reflects the strength in the US economy, as when the Fed tightens, the cost of
borrowing goes up and this helps tame rising inflation in the US. However, increasing trade tensions are generating some questions about whether the Fed may change their approach and potentially slow down the pace at which they are raising rates. While clients are expecting volatility, they are being cautious rather than alarmed. This is because the US economy is still very strong, unemployment is at 50-year lows and there is significant spending in both the private and public sectors. However, all of this
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February 14, 2019 Money Management | 33
High net worth investing Strap
is being contrasted by a slow-down in four of the five largest economies: the full effect of trade tensions on China is unknown, Germany and Japan have reported their first negative GDP growth since 2015 and the UK continues to struggle with Brexit. With this global landscape in mind, the Fed must conduct a balancing act between raising rates too quickly and being too dovish, in order to avoid spooking the market. As these mixed conditions create uncertainty, it is clear why our clients are preparing for a volatile year ahead.
2. CONSIDER DEFENSIVE SECTORS In 2016/17, the world enjoyed relatively smooth conditions for markets, largely due to highly accommodating central banks globally. This means new investors, or those guilty of having a short memory, are surprised by the volatility present in 2018. It’s important to keep in mind that this level of volatility is highly unusual, and reflects the market adjusting from an ‘accommodating Fed’ to a ‘tightening Fed’. Markets are only now shifting from a liquidity driven market to one driven more by fundamentals. To prepare for such an environment, we are seeing our high net worth clients already positioning their portfolios more defensively ahead of the holiday season, with clients reducing their exposures. One asset class proving a popular alternative is
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investment-grade corporate bonds, which provide a ‘middle ground’ investment that generally comes with less risk than equities, but stronger returns than government bonds or term deposits. In domestic equity markets, defensive sectors are also becoming increasingly popular. Healthcare remains a Citi overweight sector given its resilient earnings profile. It is a sector that looks to hold its value over the long-term, partly due to our ageing population. The consumer staples sector, which includes companies like Coles and Woolworths, is another popular option for investors expecting more dovish central banks, given the negative correlation of consumer staple performance to yield.
3. SEEK DEEP VALUATION SECTORS Over the last five years, growth sectors have taken centre stage. Technology, in particular the FAANG stocks of Facebook, Amazon, Apple, Netflix and Google, have been the growth drivers of US markets. In 2019, we see value sectors playing a more pivotal role. A value sector is one that has been discounted due to a large degree of well publicised negative news. For example, in Australia, the banking sector is viewed as a value sector as result of the Royal Commission pressuring bank stock prices in 2018. Overall, the ASX 200 is also considered a value index as valuations have
fallen to long-term low levels and the potential for upside may be worth considering.
4. DIVERSIFY ACROSS THE YIELD SPECTRUM The benefits of diversification for generating healthy returns are well-known. In an environment of volatility, bond investors are encouraged to diversify across the yield spectrum. This will mean that if there is an eventual rate hike in Australia, the investor will be better protected as they will have a range of investment options, instead of holding all their eggs in one basket. For example, many investors opt for longer term bonds which generally offer a higher yield, however tend to be more sensitive to changes in interest rates. Investors looking to diversify should also consider short end (floaters) through to neutral duration (fixed – variable). While these offer slightly lower returns, they come with less risk. It should be noted that the likelihood of a rate hike in Australia appears low, with Citi predicting the next local rate hike may occur in 2020, making AUD corporate bonds attractive in the current environment. Given the uncertainty going in to 2019, high net worth investors are opting to focus on capital preservation through bonds as they wait and see how events unfold in the New Year.
“The Fed must conduct a balancing act between raising rates too quickly and being too dovish, in order to avoid spooking the market.” - Peter Moussa, Citi investment strategist
Peter Moussa is Citi's investment strategist.
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34 | Money Management February 14, 2019
Sustainable investing
SUSTAINABLE INVESTMENT DRIVES SHIFT IN WEALTH PHILOSOPHY
As the initial gloss wears off sustainable investing, Masja Zandbergen writes that it’s prudent to maintain a watchful eye on potential issues and respond accordingly. SUSTAINABLE INVESTING (SI) has rightfully evolved to now be considered a mainstay of the global investment landscape. But as with all new concepts, once the initial gloss has worn off, it’s prudent to maintain a watchful eye on potential issues and respond accordingly. In recent years, it’s become abundantly clear that incorporating SI into an investment strategy doesn’t detract from performance. In contrast, professional investors intentionally seek to leverage SI, and the payoff is two-fold – not only are they likely to benefit
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financially, but the ability to simultaneously recompense societal needs and requirements is also a driving force. Investors are increasingly looking to create more sustainable portfolios to meet the demands of their sponsors, participants and regulators. And then there is the socioeconomic perspective and the many global challenges faced by our generation and those set to follow. The natural consequence of moving from an exercise of pure financial gain to one that equally recognises non-monetary gains is leading to the emergence of a new investment industry – it’s an
industry that has evolved from wealth creation, to one of wealth creation and well-being.
ECONOMIC GROWTH AND SI: CAN THEY COMFORTABLY CO-EXIST? Each generation brings its own achievements and breakthroughs that contribute to improved living standards, health and well-being, economic development as well as a better understanding of the natural world. However, with an everincreasing population, resources are buckling under the strain. The challenge for global economies is to grow in a way that
can be facilitated by the earth’s natural resources in the long term without depleting them. While direct government intervention (such as the implementing of energy-based quotas and targets) can certainly help ensure that economic prosperity is long-lasting, targeted investment can be instrumental in the redeployment of capital to sustainable activities. A key role of financial markets is the efficient allocation of resources to the most financially viable companies not just in the present but, even more critically, in the future. Financial viability
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Sustainable investing assessments are dependent on a myriad of factors across the competitive landscape of companies and industries. Financial materiality is the critical link at the intersection of sustainability and business performance. Investors should focus on identifying the most important intangible factors that relate to a company’s ability to create long-term value. These are the critical competencies that produce growth, profitability, capital efficiency and risk exposure. In addition, financial materiality includes other economic, social and environmental factors such as a company’s ability to innovate, attract and retain talent, or anticipate regulatory changes. These matter to investors because they can have a significant impact on a company’s competitive position and longterm financial performance.
SI MEGATRENDS In assessing the outlook for SI and how investors will approach this investment option in the years to come, it is generally agreed by SI specialists that there are some important ecological, social and governance (ESG) factors of note – for instance, climate change, inequality and cybersecurity, among others, are often held up as examples. These factors, or megatrends, can affect investors from a strategic perspective (climate change), a country perspective (inequality), and a bottom-up perspective (cybersecurity).
CLIMATE CHANGE While it’s universally agreed global warming will almost certainly worsen before it improves, the United Nations’ Paris Agreement ignited a degree of optimism among global jurisdictions in the mitigation of greenhouse gas emissions. The momentum and publicity afforded to the Agreement continues to shine a light on the efforts of world economies in each doing their part to live up to commitments made as
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signatories to the Agreement. It’s important for investors to assess the impact of climate change on asset class return expectations. The most significant physical impacts of climate change will be seen in the second half of this century, but the consequences for forward-looking asset markets may become apparent much sooner. When expectations for climate change are adjusted, the markets and asset prices will reflect these developments, possibly sooner than the physical changes of global warming make themselves felt.
EQUALITY While overall inequality rates have fallen over the past 30 years, there is rising inequality within individual jurisdictions. Unprecedented events such as the Brexit vote (and subsequent withdrawal from the European Union next year) has had a similar impact on income inequality in the United Kingdom as Donald Trump’s election victory in the United States. There are a number of cited factors for rising inequality, but the most important seem to be globalisation (in particular, the supply of cheap labour), technology, migration, monetary policy and declining unionisation. Inequality can affect economic growth through different channels. On one hand, it can promote growth as it provides sufficient incentives to accumulate capital, increase productivity and investment, and reward innovation and entrepreneurship. It can, however, be particularly damaging as it causes poverty, contributes to a sub-optimal allocation of human resources, reduces social mobility, erodes social cohesion, and boosts populist policies. All of these can have a dampening effect on investment and productivity, undermine economic growth, and have the potential to cause macroeconomic and financial disruption.
CYBERSECURITY The third and arguably most surprising megatrend is
cybersecurity. In 2017, 6.5 per cent of internet users were victims of identity fraud, with fraudsters stealing $US16 billion. Societies and economies are becoming increasingly digitised and connected. While this has many advantages, it also comes with increased risk. The 2018 Facebook/Cambridge Analytica row concerning the exploitation of user data has put data ownership and related security matters firmly on the political agenda. The rapid growth in cybersecurity spending is providing ample opportunities for solution providers to start successful businesses. And while the market’s quick growth is providing solid returns, competition is fierce and success is not guaranteed, so investors need to take a highly active approach.
DIFFERENT SI APPROACHES By the end of 2016, there were $US22.9 trillion of assets being managed in responsible investment strategies – an increase of 25 per cent in just two years. While there’s no one-sizefits-all approach to SI, consensus has grown on what approach suits various types of investors best.
Investors at one end of the spectrum only consider financial criteria, while those at the other only consider social and/or environmental criteria, including philanthropy. Institutional investors generally have a focus on strategies where sustainability is considered to mitigate risks, enhance value or create impact, alongside achieving competitive returns. Once an investor has decided their motives for investing sustainably, there are several different approaches they can choose from. These can be grouped according to the sustainability goal it wishes to achieve and implemented on a stand-alone basis or in combination with other approaches, (namely exclusions, integration and impact approaches). SI has become firmly entrenched in the mindset of many institutional investors, and it’s only going to gain in prominence, with companies, investors, regulators and society clearly increasing their focus on ESG. Masja Zandbergen is head of ESG integration at Robeco and is responsible for coordinating ESG integration across asset classes.
THE STATS DRIVING THE PUSH TO SI • The world’s population is expected to approach 10 billion by 2050. Despite ongoing innovation and productivity increases, future generations will face increasing resource scarcity and challenges linked to climate change • There are 17 UN Sustainable Development Goals, a set of global targets to ensure not only planetary stability but also social protection. The global business community and financial sector are asked specifically to contribute to global sustainable development • The Global Risks Report by the World Economic Forum shows social and environmental risks, with climate change as number one, are topping the risk list whereas more historically economic risks would prevail. ‘Rising income and wealth disparity’ was ranked third among the top risk trends that will shape global developments over the next decade. • Regulation and stewardship codes are another driver pushing SI. For instance, whereas Asia used to be a laggard in sustainability investing, the region is catching up quickly. New stewardship codes are being introduced at a rapid pace and Robeco has endorsed the Japanese, Taiwan and Hong Kong stewardship codes.
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Toolbox
LIFE INSURANCE: FINANCIAL PROTECTION FOR ALL AUSTRALIANS Suzie Brown outlines some of the key considerations for financial advisers when making life insurance recommendations and provides an overview of the upcoming legislative change. LIFE INSURANCE AND financial services are very much in the spotlight at the moment. The controversy can make it easy to overlook the very real benefits that life insurance provides. The following can help advisers in the life insurance space help their clients navigate this sometimes complex world.
This amount can often also be paid out before death, where the insured person is terminally ill. The benefit is paid to the beneficiaries nominated within the policy or to the estate. Where this cover is held within superannuation, the trustee of the fund can have input as to who receives the benefits.
WHAT ARE THE DIFFERENT TYPES OF LIFE INSURANCE?
Total and Permanent Disability cover (TPD) TPD insurance covers the cost of rehabilitation, debt repayment and the future cost of living if the insured person is totally and permanently disabled and unable to work. The intention of this benefit is to pay an amount when a person will never ever work again. However, whether or not a client is deemed totally and permanently disabled depends upon the definition within the policy. These can vary from policy to policy, but usually fall into two categories: • the insured person is unable to work in any occupation; or • the insured person cannot work in their usual occupation.
We tend to think of life insurance as a payment made to a beneficiary upon death. However, the category of insurance commonly referred to as ‘life insurance’ provides a number of different types of cover: death cover, total and permanent disability (TPD) cover, trauma cover and income protection cover. The key features of each are as follows: Death cover Also known as ‘term life insurance’ or just ‘life insurance’. Death cover pays a benefit upon the death of the insured person.
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Trauma cover Trauma insurance provides cover where a person suffers a specified illness or injury, for example cancer, a stroke or a broken leg. Trauma insurance is also referred to as ‘critical illness’ or ‘recovery insurance’. This cover pays a set amount, sometimes dependent upon the severity of the illness or injury – for example, the benefit would usually be larger for a severe stroke as opposed to a broken leg. The benefits are intended to cover items such as medical costs (over and above what health insurance will pay), an income stream if it is not possible to work, and the on-going cost of therapy and/or transport costs, as well as adjustment to housing and repaying debts. Income protection Income protection insurance replaces income lost through an inability to work due to injury or illness. Income protection insurance can differ widely, and each policy will have its own definition of disability
and range of benefits. In general terms there are two types of cover – one that pays an indemnity benefit, or what you are earning at the time of the claim, and a second which pays an agreed value, determined when you apply for the cover. The maximum covered is typically 75 per cent of gross wages. The benefit is deliberately designed to be less than 100 per cent of wages, to encourage people to return to work. Benefits are paid until recovery, up to a maximum time period, defined as a number of years, or until the person reaches a certain age.
HOW IS LIFE INSURANCE STRUCTURED IN AUSTRALIA? Australians can access life insurance in three ways, and as a result, the industry is split into three distinct channels as follows: Retail Individual insurance policies purchased through an adviser (either a financial adviser or a risk adviser) are known as retail
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Toolbox insurance. It is also known as advised insurance, because it usually involves the client seeking advice prior to purchase. Detailed health information is provided in order to take out the cover, and the price will be in some part dependent upon the risk the individual represents – due to their health, pastimes and occupation. Group Group insurance is where multiple people are insured under a single contract. These ‘groups’ are usually employees of an employer or the members of a super fund. Group insurers do not collect detailed information on each person insured, but rather make assumptions about the occupations and health of the group as a whole. As a result, group insurance can often be cheaper than retail. Due to the lack of individual risk rating, this type of insurance is advantageous for people who may not be able to obtain retail insurance – such as those in high risk occupations or with serious pre-existing health conditions, who may be denied cover during the retail underwriting process. Life insurance purchased through a superannuation fund can however be less comprehensive than that purchased directly. Direct Life insurance purchased directly through an insurer is known as direct insurance. This kind of insurance is sometimes referred to as non-advised, because no personal advice is given. This type of cover is often purchased over the phone, via either inbound or outbound calls. For this reason, direct policies tend to be simpler.
UNDER-INSURANCE IS A MAJOR PROBLEM IN AUSTRALIA Life insurance is an essential pillar of a financial plan, particularly for families, because most of us would struggle to pay our bills if we found ourselves unable to work, due to illness or injury. Yet despite the fact that 94 per cent of working Australians have some level of death cover (usually through their superannuation fund), the amount is
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often woefully inadequate. The same goes for both TPD and income protection cover. In its latest research into life insurance cover in Australia, Rice Warner estimates that the insurance needs of a 30-year-old couple with children are: • eight times family income for death cover; • four times family income for TPD cover; and • 85 per cent of family income for income protection cover. The reality is that median levels of death cover in Australia are around only two times family income. TPD cover rates are around three rather than four times family income, and income protection cover is usually 75 per cent of income. This means that if the average Australian were to claim on their death cover, less than half of their family’s basic needs would be met, and they would receive less than 30 per cent of the amount required by their family to maintain their standard of living.
WHY ARE AUSTRALIANS SO UNDER-INSURED? A common misconception in the market is that life insurance is unnecessary, because health insurance provides the same cover. While health insurance covers certain healthcare costs, including doctors’ expenses, the cost of going to hospital and some medicines; it does not cover other living expenses. This is where life insurance comes in. Living expenses do not stop, and more often than not they can increase, due to the need to bring in outside help, when someone is ill or injured. Peoples’ knowledge about insurance is also generally low, making purchasing decisions without help difficult.
YOUR ROLE AS AN ADVISER IS CRUCIAL Financial advisers are frequently on the front line – dealing with clients of a daily basis, and in a position to educate them about the options available to them, and to guide them as they make more informed choices about financial protection. Bringing this topic to the forefront of discussions is therefore a key part
of an adviser’s role. Navigating the complexities is the other key role for an adviser. Understanding what is and isn’t covered, what is excluded and included, and even how much is needed is challenging for most clients. Policy conditions and features are (by necessity) covered in detail in a Product Disclosure Statement (PDS). However, many life insurers are not great at presenting the information in an accessible way. Most life insurance PDSs are dense, lengthy and complex documents, and make understanding and comparing products difficult.
THE REGULATORY LANDSCAPE FOR LIFE INSURANCE: UPCOMING CHANGES There are a number of key changes that could affect your clients’ cover over the next few years. Awareness of these changes can help set up your clients to weather the upcoming storm. Federal Budget changes to insurance in superannuation In May 2018, then Treasurer, Kelly O’Dwyer, announced a range of measures that would reform insurance within superannuation. While the changes are not yet law, they have the potential to affect the level of cover that super fund members receive and may mean that some are left underinsured or need to look at their options for a policy outside super. The key change is that insurance within super will become opt-in (rather than default or opt-out) going forward, for members: • under 25; • with balances under $6,000; and • whose account has not received a contribution for 13 months (‘inactive’). For members with account balances under $6,000 and those with inactive accounts, cover will be removed (if they don’t elect to keep it in writing) when the changes are implemented. Ongoing, all types of cover (voluntary and default) will be removed where a members account becomes inactive. The start date of these changes is unclear. These changes will have
unintended consequences for younger members who do have families that need the support of insurance cover, and those who may be unable to get opt in cover due to higher risk occupations or health issues. Exemptions for members in these situations have been requested by various industry groups but may or may not eventuate. Productivity Commission changes to insurance in super In December 2018 the Productivity Commission released its final report on the efficiency of Australia’s superannuation system. The report included recommendations for the way insurance inside superannuation is managed, as well as who is insured through their super. Key findings included: • Multiple and duplicate insurance policies are eroding the balances of members; • Superannuation trustees need to do more to provide value for money in insurance and prevent fees eroding balances; and • fees from duplicate insurance is “by far the most egregious driver" of super funds’ balance erosion. The Productivity Commission recommended: • A public inquiry to be held within four years, examining whether life insurance should be included within superannuation on a default basis; • An overhaul of the Life Insurance Framework, directed by APRA and ASIC; and • Endorsement of the Government’s proposed changes to insurance in superannuation, as outlined earlier. Royal Commission final report recommendations On Friday 2 February, Commissioner Kenneth Hayne delivered his final report and recommendations on the Banking Royal Commission, following his year-long review of the financial services sector, including life insurance. These findings were released on 4 February. Continued on page 38
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Toolbox Continued from page 38
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• • • • •
The recommendations on life insurance included: The removal of the exemptions on commissions on the sale of life (and general) insurance. However, these changes would depend on a review of the sector by ASIC in 2022, meaning there would be no immediate changes. The removal of commissions on all insurance products, including life insurance. The banning of phone sales or ‘hawking’ of insurance. The reclassification of funeral insurance as a financial service, meaning it now falls under ASIC’s regulatory regime. More oversight of the group life insurance market. Consumers to be better protected via an amendment to the Insurance Contract Act, replacing "duty of disclosure" with the "duty to take reasonable care not to make a misrepresentation to an insurer".
KEY CONSIDERATIONS FOR ADVISERS There are many questions which need answering before you can be sure you have recommended the right insurance cover for your clients. Key questions are: • What level of health insurance does your client have? In the event of serious illness or an accident, what will be covered over and above what Medicare offers? Will life insurance need to supplement medical costs or is this already covered via private health insurance? • Are ancillary benefits important? What level of support does your client have around them and what will need to be funded when they are ill or injured? • What other family members rely on your client? What support will they need? • Are rehabilitation benefits covered under your income protection policy – are they wanted? • What is excluded? There are typically three kinds of exclusions: 1) Outright exclusions that apply to everyone, for example non-payment if the cause of injury or illness is suicide; 2) A general exclusion in relation to any condition that already exists when cover is taken out (called a ‘pre-existing condition exclusion’); and 3) Specific exclusions may also apply where the client has been medically underwritten for cover. • Are stepped or level premiums a better fit? Stepped premiums start low and rise over time as the risks associated with the policy rise with the age of the policy holder. Level premiums do not change over time, but typically start higher. • Is insurance inside or outside superannuation better for the client’s circumstances? The source of premium payments and the tax consequences of benefit payments are considerations. • What is covered by any group policies, particularly through superannuation? How do any additional policies work together? A key issue for many clients is that they have cover via a number of superannuation accounts. This can cause issues in relation to income protection cover in particular. These polices pay a maximum of up to 75 per cent of income and will offset other policies providing similar income benefits. • What happens to life insurance if your client moves super funds, or starts an SMSF? • What could be the outcome for your client if the proposed budget and productivity commission changes are implemented? Preparation now could relieve workloads when these changes occur.
Suzie Brown is general manager for distribution at Integrity Life.
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CPD QUIZ This activity has been pre-accredited by the Financial Planning Association for 0.25 CPD credit, which may be used by financial planners as supporting evidence of ongoing professional development. 1. The Coalition Government has proposed a number of changes to life insurance in superannuation. What age group has the Government proposed making life insurance in super ‘opt-in’, not ‘opt-out’ a) Under 18 b) Under 21 c) Under 25 d) Under 30 2. What is the usual maximum that income protection covers? a) 100% of gross wages b) 60% of net wages c) 75% of gross wages d) 85% of net wages 3. Which of the following is a way in which life insurance can be purchased in Australia and what advice is typically offered with it? a) Retail life insurance is purchased through an adviser and often includes personal advice. b) Direct life insurance is purchased from a superannuation fund and does not include personal advice. c) Direct life insurance is purchased from an insurer and always includes personal advice. d) Group life insurance is provided by an insurer directly to a group of people and sometimes includes financial advice. 4. There are typically three categories of exclusions in a life insurance policy. What are they? a) Outright exclusions (which apply to everyone), optional exclusions, and pre-existing condition exclusions b) Outright exclusions (which apply to everyone), pre-existing condition exclusions, and specific exclusions (which relate to the policy holder’s personal health and details) c) Outright exclusions (which apply to some people), pre-existing condition exclusions, and specific exclusions (which relate to the policy holder’s personal health and details) 5. Which one of these was not a recommended change to life insurance as outlined in the Royal Commission final report? a) The removal of the exemptions on commissions on the sale of life (and general) insurance. However, these changes would depend on a review of the sector by ASIC in 2022, meaning there would be no immediate changes. b) The removal of commissions on all insurance products, including life insurance c) The allowance of phone sales or ‘hawking’ of insurance in cases of retail insurance. d) The reclassification of funeral insurance as a financial service, meaning it now falls under ASIC’s regulatory regime. e) More oversight of the group life insurance market.
TO SUBMIT YOUR ANSWERS VISIT https://www.moneymanagement.com.au/ features/tools-guides/ life-insurance-financial-protection-all-australians For more information about the CPD Quiz, please email education@moneymanagement.com.au
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Send your appointments to anastasia.santoreneos@moneymanagement.com.au
Appointments
Move of the WEEK Michael O’Brien Managing director, global real estate QIC
QIC has appointed Michael O’Brien as its new managing director, global real estate (GRE), replacing long-term managing director, Steve Leigh, who announced his retirement in 2018. O’Brien was currently chief financial officer and former chief investment officer of Vicinity Centres and was responsible for investment strategy for an integrated asset man-
Global equities manager, Bell Asset Management, has boosted its institutional and wholesale distribution capabilities with the appointment of Amanda MacDonald and James Archer as relationship managers. MacDonald, who had over 10 years’ industry experience and held roles at JP Morgan, UBS, Pendal and Macquarie Bank, would join in the institutional distribution team. Archer, who officially started his role in wholesale distribution late last year after a five-year career in funds management with firms like Challenger and Fidante Partners, would work closely with the head of wholesale, Xanthe Virtue. Managing director, strategy and distribution, Rob Sullivan, said Bell AM was experiencing high levels of interest for its institutional and wholesale offerings, and the new appointments would play a “pivotal role” in supporting
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agement platform with some $26 billion in retail assets under management across 62 shopping centres. He also held senior investment and operational roles with GPT Group and Lend Lease Corporation. In his new role, O’Brien would report to QIC chief executive officer, Damien Frawley, serve on the QIC executive committee and lead a team
the firm as it continues to attract investor interest. Former International Federation of Accountants (IFAC) president, Rachel Grimes, joined the Accounting Professional and Ethical Standards Board (APESB) as director, effective 1 February. Grimes would bring over 25 years’ experience in financial services to her new role, including roles at PwC, BT Financial Group and Westpac, where she was director of mergers and acquisitions and was currently chief financial officer, technology, finance transformation and operations. APESB chair, Nancy Milne, said she looked forward to Grimes’ insights and contributions, particularly from her global knowledge of issues facing the accounting profession and the impact of technology. Founder and former managing director and chief executive of the
of over 500 people globally. Frawley said O’Brien’s leadership qualities and market acumen would ensure that the firm’s real estate platform continued to deliver strong investment returns. During the transition, QIC GRE chief operating officer, David Asplin, would assume the role of acting managing director.
SMSF Association, Andrea Slattery, was the latest appointment to the AMP board, which she would join on 15 February as a non-executive director. Slattery would bring a wealth of director experience to the beleaguered AMP board, including as a non-executive director of the Clean Energy Finance Corporation, Argo Global Listed Infrastructure, and the South Australia Cricket Association. “Andrea’s considerable experience in financial services as a business leader, non-executive director and an expert in change brings a strong mix of skills to the AMP board,” AMP chair, David Murray, said in an announcement to the ASX. Slattery’s commencement in the role would be subject to usual pre-appointment processes. Vanguard Australia has appointed Kim Petersen as its new chief information officer (CIO) Asia Pacific.
She would be responsible for leading a Melbourne-based team of 170 professionals supporting Vanguard’s Asia Pacific businesses. This role was previously held by Charles Thompson who moved into a new role leading international systems, located at Vanguard’s US headquarters. Petersen had more than 20 years of information technology (IT) experience, leading teams in charge of end user computing, services management, data centre and cloud, networks, and cyber security operations. She would report directly to managing director, Frank Kolimago. “Kim’s technical and leadership expertise will be a valuable addition to Vanguard Australia as we continue to invest in the technology and infrastructure required to give our investors the best chance of investment success, while also focusing on delivering a superior client experience,” he said.
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OUTSIDER
ManagementFebruary April 2, 2015 40 | Money Management 14, 2019
A light-hearted look at the other side of making money
When Josh called for submissions and not everyone wrote HAS industry already made a judgement about who is going to win the upcoming Federal Election and therefore the relevance of Treasurer, Josh Frydenberg’s proposed April Federal Budget? Outsider asks this question because, on the available evidence, very few sectors appear to have taken the time to file a pre-Budget submission with the Federal Treasury. At the time of writing, he is only aware of one submission having been filed – that of the Financial Planning Association. Will this prove to be a problem for Frydenberg? Outsider believes it will very definitely not be a problem for the Treasurer, leaving him free to devise a Budget document aimed at getting the Morrison Government re-elected and free of the pleadings of those self-interested industry lobby groups.
Outsider believes that Frydenberg’s Budget objective is to regain office and, if not, to retain as many Coalition seats as possible as the Liberal and National parties head into a period of enforced introspection in opposition. Given the amount of time and effort it takes to generate a meaningful pre-Budget submission and the fallout from the Royal Commission, Outsider reckons some of the major financial services industry groups have probably been right to save their time and ink.
Yes, the minister is right until he isn’t AS any senior public servant will tell you, the minister is always right until he is no longer the minister. Thus, former Australian Securities and Investment Commission chairman, Greg Medcraft and his deputy, Peter Kell, will just have to suck up the Treasurer, Josh Frydenberg’s frequent implications that their leadership of the regulator was, well, less than stellar. Amid the questioning of the Government’s intentions with respect to the 76 recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Frydenberg suggested more than a few times that things would be better because the Government had changed the ASIC leadership. “With regards to the regulators we’ve put in place a new chair, and two deputy chairs of ASIC including someone who’s going to be responsible as a special prosecutor,” Frydenberg was heard to say. No mention, of course, of the Turnbull Government’s extension of Medcraft’s term as chairman of ASIC or, indeed, its decision to extend Kell’s term as deputy chairman but, of course, political expediency can so often drive a change in historical narrative. Outsider is not sure what Kell is going to be doing following his exit from ASIC in December but he feels sure that Medcraft is making good use of his frequent flyer points.
What’s that odour? WHAT’S in a name? That which we call a rose by any other name would smell as sweet. Except that as Outsider woke from his Chirstmas/New Year reverie he noticed that a bit of a political stink had developed over the name Wilson. You see there is Tim Wilson, the chairman of the House of Representatives Standing Committee on Economics and then there is Geoff Wilson who is chairman and chief investment officer, of Wilson Asset Management and a vociferous critic of the Australian Labor Party’s policy proposal to remove
OUT OF CONTEXT www.moneymanagement.com.au
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franking credits. A peculiar odour has been perceived because Tim Wilson’s committee is, quite unusually, reviewing the policy of a party that is not even in Government and he is alleged to have had communication on that issue with Geoff Wilson to whom he is related and in whose company he has held an investment. So, what’s in a name? Quite a bit when the proposed removal of franking credits will undoubtedly be a major election issue but questions are already being asked about the Government’s tactics.
"I said to my wife, 'You saw it all, did you think I was being pompous?' She said 'No, but you certainly can be'." ABC reports that NAB Chair, Ken Henry, addresses his demeanour during the Royal Commission following Commissioner Hayne's findings in the final report that he seemed unwilling to accept criticism.
"This Report contains some very tough medicine for banks, including potential court cases." Australian Banking Association chief executive officer, Anna Bligh, responds to the Royal Commission's final report.
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