Money Management | Vol. 36 No 2 | February 24, 2022

www.moneymanagement.com.au

MAGAZINE OF CHOICE FOR AUSTRALIA’S WEALTH INDUSTRY

Vol. 36 No 2 | February 24, 2022

12

INFOCUS

Managed investment schemes

ADVISER EDUCATION

19

Was FASEA exam worthwhile?

Picking tomorrow’s leaders

More principle-based advice legislation needed

ETFs

BY LIAM CORMICAN

PRINT POST APPROVED PP100008686

Targeting a new audience WITH more millennials and female investors using exchange traded funds (ETFs) to make their first foray into investment markets, firms are changing the types of funds they are offering as the audience expands.

What used to be the domain of Australian and international equities has expanded to include more thematic funds in areas such as video games, technology and climate change.

There had been a particular growth in the number of environmental, social and governance (ESG) ETFs being launched.

Even firms which had traditionally focused on active management such as Australian Ethical and Munro Partners were now launching ETFs as a way to ‘democractise’ investment and allow all types of investors to invest with them.

John McMurdo, chief executive of Australian Ethical, said: “We wanted to make sure everyone who wanted to invest ethically had the option to do so. Many in that channel will be millennials though and this will make it easier to cater to them”.

Meanwhile, Perpetual said they planned to launch a whole range of active ETFs after launching its first active ETF last year focused on ethical and socially responsible investing.

02MM240222_01-12.indd 1

22

ESG

Full feature on page 14

ADVISERS need less prescriptive and more principle-based legislation in order to make the industry more efficient and more affordable to middle Australia, according to Diverger Limited.

Speaking to Money Management, Nathan Jacobsen, managing director of Diverger Limited, said the Corporations Act had become very operational and specific in how outcomes should be delivered to clients, rather than principle based.

“A reversion to a less prescriptive, less black and white and more principle-based legislation will actually provide, what is now a very professional adviser population, with the flexibility to execute advice more efficiently,” said Jacobsen.

In particular, fee disclosures

and opt-in obligations had become “extremely prescriptive”, according to Jacobsen.

“They also place obligations, not just on the adviser, they place it on the licensee, they place it on the platform providers, and ultimately, the super trustees, through different legislation, see themselves as needing to see evidence as well,” he said.

Jacobsen said this had created a multiple-tier system of oversight for advisers.

“And this is on an adviser population that’s been under a code of ethics now for two years,” Jacobsen said.

“It has been through the ethics exam; it no longer has passive revenue streams so it’s actually substantially a more professional cohort of advisers.

Continued on page 3

Adviser optimism lifts despite market volatility FINANCIAL advisers’ confidence in their businesses is improving strongly despite higher market volatility, according to Colonial First State (CFS) research.

Adviser sentiment lifted in the December quarter of 2021, scoring 57 out of 100 in the CFS Advice Insights Report research, which was a distinct rise from Q4 2020’s score of 51.

Released in mid-February and conducted by financial research consultancy, CoreData, the report surveyed 270 mass affluent and high net worth individuals (HNWIs) as well as more than 200 financial advisers to examine investor behaviour and sentiment.

Confidence improved across all index measures including revenue expectations, business outlook, business conditions and operating conditions. Over 70% of advisers expected their revenue Continued on page 3

17/02/2022 3:08:57 PM

Empower those who create a Better Future Perennial Better Future is the next generation of authentic ESG investing.

We invest in companies making a positive contribution to society and the environment, while pursuing strong, consistent returns for investors.

Empower your clients to make investments that create a Better Future – sustainably and financially.

Why Perennial Better Future?

– Authentic ESG-first approach integrated across the entire process – Consistently strong returns, having outperformed the benchmark – Highly experienced and large team dedicated to finding investment solutions across small- and mid-cap markets – Active engagement with companies to improve outcomes & manage downside risks Start creating a Better Future today Call us on: +61 2 8274 2740 or visit www.perennial.net.au/better-future

Disclaimer: This information has been prepared and issued by Perennial Investment Management Limited (ABN 13 108 747 637, AFSL No. 275101) as Responsible Entity and is for general information purposes only and must not be construed as investment advice or as an investment recommendation. This material does not take into account your investment objectives, financial situation or particular needs and you should not construe the contents of this material as legal, tax, investment or other advice. Past performance is not a reliable indicator of future performance. A copy of the PDS, Additional Information Booklet and the TMD is available at www.perennial.net.au.

No distribution of this material will be made in any jurisdiction where such distribution is not authorised or is unlawful.

Perennial Better Future_Money Management Mag_240x330mm_FA.indd 1 _FP ad Test.indd 2

21/1/22 7:02 am 24/01/2022 1:37:45 PM

February 24, 2022 Money Management | 3

News

Advisers could lose clients over lack of ESG commitments

BY OKSANA PATRON

ADVISERS who are unable to demonstrate adequate commitment to environmental, social, governance (ESG) investing could start losing clients as nearly two out of three retail investors are ready to move their investments to new advisers, according to research from behavioural finance Oxford Risk.

Further to that, around one in five retail investors said they had already done so or intended to do so while another 43% said they would move if they continued to be unhappy about the ESG commitment of their current wealth adviser.

One in three clients rated their current adviser’s ESG commitment as ‘highly’ or ‘very highly’, 62% were neutral and 7% rated their current adviser’s ESG focus as either ‘poor’ or ‘very poor’.

The research also found that one in five clients held 60% of their investments in ESG-friendly funds but only less than 5% said they had all their wealth in the ESG-friendly funds.

“Advisers who do not demonstrate a

More principlebased advice legislation needed Continued from page 1 “So we’re over monitoring [and] over regulating the advisers and I don’t think the evidence, when you look at the stats coming in at Australian Financial Complaints Authority (AFCA), supports that.”

Coming into an election, Jacobsen said the industry would love to see an intent to simplify adviser legislation whilst maintaining consumer protections.

“There is certainly support for that from both sides of politics but not a lot of detail,” he said.

“So I certainly would like to see a more considered approach to legislative approach change over the next two or three years and one that has more consultation with the industry in advance of the changes rather than at the last minute.”

02MM240222_01-12.indd 3

commitment to and focus on ESG investing will lose clients, and investors are ready to move money to new advisers if they are unhappy. In particular, deployment of cash into new investments will greatly favour strong ESG propositions,” Oxford Risk’s head of behavioral

finance, Greg B Davies, said.

The research also found that technology played a crucial role for investment providers and advisers in order to meet the responsibilities of matching socially-minded investors to suitable ESG investments.

Adviser optimism lifts despite market volatility Continued from page 1 to grow by 10% or more over the next year.

CFS chief distribution officer, Bryce Quirk, said the findings showed that the advice industry had held up remarkably well considering the challenges that the industry had faced over the last few years.

“Adviser services are in demand which shows that many more Australians are looking for help with financial decisions,” he said.

“While there are challenges in the operating environment, advisers are optimistic about the opportunities for their businesses in the coming year.

“CFS is focused on supporting advisers by providing the tools they need to do business more efficiently and becoming easier to do business with in the future.”

The report also looked at investor sentiment, which recovered strongly in the December quarter of 2021 after dips during the worst of the pandemic, scoring 31 out of a maximum possible index score of 50, compared to a score of just 19 in the same quarter of 2020.

The December survey showed there was a significant turnaround in investors’ expectations for investment markets compared with the September quarter of 2021.

Investors also reported higher levels of household financial security, including their ability to pay bills and pay down debt.

Savings levels in Australia soared during the pandemic with the household savings ratio sitting at 19.8% at the start of Q4 2021, up from 9.8% at the beginning of Q1 2020, according to Reserve Bank of Australia figures.

There was a marginal increase in investors’ satisfaction with their existing investments and the proportion of both HNWI and mass affluent investors who planned to invest new money into existing investments increased during the quarter.

Investors’ propensity to purchase new investment products improved in the survey but remained negative with many investors remaining reluctant to commit to new investments. More recently, investment markets had weakened, and concerns had increased over rising inflation and interest rates.

“It’s likely investors’ confidence may have been shaken, but our findings suggest that investors are moving past their worries about the pandemic and lockdowns and are looking to the future again,” said Quirk.

17/02/2022 3:09:02 PM

4 | Money Management February 24, 2022

Editorial

jassmyn.goh@moneymanagement.com.au

ESG INVESTING NO LONGER ‘NICE TO HAVE’

FE Money Management Pty Ltd Level 10 4 Martin Place, Sydney, 2000

Editor: Laura Dew

ESG investing is far from a fad and advisers could lose out if they exclude it from portfolios.

Tel: 0438 836 560 laura.dew@moneymanagement.com.au Associate Editor - Research: Oksana Patron

WHEN environmental, social and governance (ESG) investing was first introduced, it seemed many viewed it as a fad.

While the UK and Europe are far advanced in their use of ESG and responsible investments, it seems Australia has lagged, not helped by the high proportion of resources companies boosting the economy.

However, this is now changing with investors more than ever asking their adviser for responsible and ESG options.

Not only are they asking for it but findings from behavioural finance company Oxford Risk have stated that clients would be willing to walk away from their adviser if they had insufficient ESG options or failed to implement it in portfolios.

Some 43% said they would move if they continued to be unhappy about the ESG commitment of their current wealth adviser and one in five said they had already done so.

It seems ESG is no longer a ‘nice to have’ but a vital part of an investor’s portfolio and advisers need to have these options available and be able to discuss them with their clients.

Tel: 0439 137 814 oksana.patron@moneymanagement.com.au Journalist: Liam Cormican Tel: 0438 789 214 liam.cormican@moneymanagement.com.au ADVERTISING Account Director: Damien Quinn Tel: 0416 428 190 damien.quinn@moneymanagement.com.au Account Director: Amy Barnett Tel: 0438 879 685 amy.barnett@moneymanagement.com.au Junior Account Manager: Karan Bagai Tel: 0438 905 121 karan.bagai@moneymanagement.com.au PRODUCTION Graphic Design: Henry Blazhevskyi

Whether the question should be raised by the client or by the adviser is another matter, but it is a conversation that needs to be had if an adviser wants to build a fully-formed portfolio.

As detailed in our page 14 ETF feature, more and more fund managers are also launching products in the ESG space and expect to continue to do so.

Millennials coming of age and making their first investments has coincided with fears over climate change and the younger generation are particularly keen on ESG products.

This view is likely to stay with them for the rest of their investing life, indicating ESG products will be appearing in portfolios for years to come, not just while these investors are young.

It is in advisers’ interest to get on this (eco-friendly) train as early as possible if they want to be able to service the needs of the younger generation when the intergenerational wealth transfer takes place in the future.

www.moneymanagement.com.au/subscriptions customerservice@moneymanagement.com.au

Money Management is printed by IVE, 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 permission from the editor. © 2022. Supplied images © 2022 iStock by Getty Images. Opinions expressed in Money Management are not necessarily those of Money Management or FE Money

Laura Dew Editor

WHAT’S ON AIST legal and regulatory special interest group

AFA Mentoring Program (2022) Launch

FSC Political Series: Superannuation Jim Chalmers MP, Lawyers’ Conference Shadow Treasurer 2022

Online 28 February aist.asn.au

Online 2 March afa.asn.au

Sydney 9 March fsc.org.au

02MM240222_01-12.indd 4

Subscription enquiries:

Management Pty Ltd.

ACN 618 558 295 fefundinfo.com © Copyright FE Money Management Pty Ltd, 2021

Canberra and Online 10-11 March lawcouncil.asn.au

17/02/2022 2:24:24 PM

_FP ad Test.indd 5

13/01/2022 9:54:20 AM

6 | Money Management February 24, 2022

News

Advisers fearful of regulatory implications of digital advice

BY LAURA DEW

ALLOWING greater clarity over how advisers can use digital advice would be a key improvement for the advice industry, according to abrdn.

The firm had partnered with HUB24 to offer a white label digital advice solution for advice groups which could reduce the time by automating parts of the advice process and would allow them to service more clients.

However, advisers were cautious about whether digital advice would allow them to meet their best interest duty.

Brett Jollie, managing director at abrdn Australia, said: “I would like to see the Government commit to reviewing financial advice and the regulation of advice, particularly for digital advice. That would have significant benefits for the industry.

“We haven’t seen huge uptake in advisers engaging with digital advice because the regulatory

regime is too ambiguous.

Financial advisers aren’t always confident in using it, there is a lack of clarity. They need to be able to demonstrate that it meets best interest duty and if they aren’t 100% convinced that it will satisfy the regulator then it might impede their desire to take it on.”

While the Hayne Royal Commission had seen much change occur in the industry, Jollie said an unforeseen consequence was that it had made it more difficult and costly for advisers to give advice.

“In some ways, the Royal

Commission has made it harder, it was well-intentioned but has imposed greater regulation on advice groups. They haven’t really helped with digital advice.”

He said abrdn would make a submission to the Quality of Advice review via the Financial Services Council.

Jollie added the regulator in the UK, where abrdn was headquartered, had been “far more supportive” of digital advice at scale for the last seven years which gave advisers the confidence that they would not fall foul of the law.

Use life tables with caution

BY LIAM CORMICAN

THE Australian Bureau of Statistics’ (ABS) life tables are misleading and “dangerous to use” when providing financial advice to retirement aged Australians, according to the founder of the life expectancy service My Longevity.

Speaking to Money Management, David Williams, chief executive of My Longevity, said life expectancy could be misleading for most clients.

According to the ABS 2018-2020 tables, for a 65-year-old, the average remaining life expectancy for females was 23 years while for males it was 20.3 years.

But, Williams explained: “If you use that number, you’ve got big problems because only a quarter of 65-year-olds are likely to fall within three years of that number which means that three quarters of them aren’t. Further you don’t know whether a person is close to average or not.

“As we age, we become more different from each other, and average now might not be average in a few years’ time.”

Since the turn of the century, a vast amount of research had fuelled a focus on what factors would combine to provide a more useful approach to

02MM240222_01-12.indd 6

assessing a person’s longevity, according to Williams.

Williams, who had more than two decades of experience in financial services, launched his My Longevity service about 14 years ago. Throughout this time, Williams regularly refined his service which had now been used by almost 250,000 people.

“The whole aim was to ask people a series of questions about themselves and use their answers, to provide an indication of their life expectancy, the potential stages of wellbeing remaining and why they might be different from average.”

He said the information could then prompt people to take more informed action about their longevity and decide with their advisers – on a regular occasion - on the timeframe to be used to underpin health, financial and estate planning decisions.

Williams said the Government and industry should focus more on providing individuals with relevant longevity information to encourage behaviour that addressed long-term health, employment and social issues which would ultimately decrease Government spending and improve general wellbeing.

“We really can do much more as a community and as individuals to benefit from the increasing longevity bonus we are experiencing,” he said.

Disconnect between return expectations for clients FUND selectors foresee an “uphill battle” navigating the current market environment thanks to rising inflation, according to Natixis Investment Managers According to the latest statistics from Natixis Investment Managers (Natixis IM), fund selectors foresaw a “difficult market landscape” as a result of high inflation, central banks withdrawing stimulus and clients’ expectations of returns.

Respondents were expecting to see long-term returns of 7.8%, up from 7.1% last year, but this was far below client expectations of 14.5%.

Louise Watson, country head of Natixis IM for Australia and New Zealand, said: “Investors are expecting an uphill battle amid volatility caused by the pandemic, rising interest rates, and inflation.

For this reason, we’re seeing a host of investors from superannuation funds to family offices look to longer-term investment options such as private equity. This is a trend that’s been prevalent since the beginning of the pandemic and has recently been spurred on by the correction we’ve seen across asset classes.

“In Australia, it’s no surprise that environmental, social and governance (ESG) will remain a focus and investors will look to make “green” allocation changes. For example, interest in green bonds continues to rise amongst local clients with Mirova being a leader in the industry for this.”

Over three-quarters of fund selectors said their firms were already actively investing for ESG impact or considering it while over half said the demand for ESG was influenced by social and environmental issues.

16/02/2022 5:10:48 PM

February 24, 2022 Money Management | 7

News

Compensation for advice misconduct reaches $3.1b

BY OKSANA PATRON

THE big four banks, AMP and Macquarie have paid or offered a total of $3.1 billion in compensation to customers who suffered loss or detriment because of fees for no service misconduct or non-compliant advice as at 31 December, 2021 Almost $1.3 billion of this was paid or offered by the institutions between 1 July to 31 December, 2021 .

The Australian Securities and Investments Commission (ASIC) reported that AMP, ANZ, CBA, Macquarie, NAB and Westpac undertook the review and remediation programs to compensate affected customers as a result of two major reviews.

ASIC commenced the reviews to look into: • the extent of failure by the institutions to deliver ongoing advice services to financial advice customers who were paying fees to receive those service; and • how effectively the institutions supervised their financial advisers to identify and deal with ‘non-compliant advice’ – i.e.

personal advice provided to a retail client by an adviser who did not comply with the relevant conduct obligations in the Corporations Act, such as the obligations to give appropriate advice or to act in the best interests of the clients, at the time the advice was given.

Regarding fees for no service misconduct, NAB had paid or offered the most compensation at $1.1 billion to 754,519 customers followed by Westpac at $894 million for 111,284 customers.

Remediation by Macquarie and NAB had been “substantially completed”, ASIC said, while the other firms intended to complete during 2022.

For non-compliant advice, the highest compensation was again paid by NAB at $92.6 million followed by Westpac at $58.3 million while both ANZ and AMP paid $44.7 million and $41.8 million, respectively.

However, Westpac had a higher volume of customers affected at 3,304 compared to NAB’s 2,487.

Managed accounts pass $10b on BT platform

BY LAURA DEW

BT has seen strong growth in use of its managed account solutions, comprising 66% of net flows to the BT Panorama platform in the last quarter.

In the three months to 31 December, 2021, the firm said managed accounts funds under administration were $10.4 billion, up from $9.2 billion in the previous quarter.

Some 11 managed accounts had been added to the platform during the quarter, particularly in the sustainable space and the firm said it expected this to remain a popular area.

“More managed accounts that prioritise sustainability are expected to be added on the platform as momentum in this area increases, catering to strong investor demand and adviser interest.

“Across all of BT’s platforms, net flows into

02MM240222_01-12.indd 7

investment that prioritise sustainability have more than doubled in the year to June 2021.

Furthermore, 82% of advisers are interested in environmental, social and governance (ESG) solutions for their clients, with the vast majority preferring to implement these solutions via managed accounts.”

Funds under administration on BT Panorama were $107.9 billion, up from $104.7 billion in the previous quarter.

Matthew Rady, who took over as chief executive of BT Financial Group in September 2021, said: “We will be a bold industry advocate helping advisers to help their clients to have their best financial future. BT Panorama will be the undisputed leader in the platforms market.

“We are setting a new strategy with advisers at the heart and I look forward to leading and building the BT of the future.”

Government appoints FSCP members

BY LIAM CORMICAN

THE Morrison Government has appointed 31 candidates as part-time members of the Financial Services and Credit Panel (FSCP).

The FSCP was established as part of the Financial Sector Reform (Hayne Royal Commission Response – Better Advice) Act 2021 and fell within the Australian Securities and Investments Commission (ASIC) as the single disciplinary body for financial advisers from 1 January, 2022.

ASIC would be responsible for convening individual panels to consider disciplinary matters with each panel consisting of a chair (an ASIC staff member) and at least two other members. These members must be selected by ASIC from a list of eligible persons appointed by the minister.

The candidates would bring with them a range of experience across the fields of business, administration of companies, financial markets, financial products and financial services, law, economics, accounting, taxation and credit activities and credit services.

The Government said members of the FSCP were appointed following consultation with industry to ensure the membership had industry knowledge and experience.

“Financial advisers’ misconduct will therefore be assessed and sanctioned by their peers, driving further improvements in the industry,” the Government said.

The following people were appointed: Shabnam Amirbeaggi, Debra Anderson, Julie‑Anne Berry, Gabrielle Bouffler, Kathryn Brown, Donna Caird, Ian Chambers, James Cotis, Donald Crellin, Gary Croker, Bruce Debenham, Hamish Dee, Gary Deegan, Jennifer Diggle, Bradley Fox, David Giovanelli, William Hamilton, Katherine Hayes, Nicholas Hilton, Ross Illingworth, Chris MacEachern, David Murray, Melissa Nolan, Peter Richards, Samantha Robinson, Kevin Smith, Craig Stephens, Judith Sullivan, Gary Toomey, Lauren Walker, and Matthew Wigzell.

17/02/2022 9:12:13 AM

8 | Money Management February 24, 2022

News

Sequoia bolsters advice network

BY OKSANA PATRON

SEQUOIA Financial Group’s managing director, Garry Crole, has announced the appointment of Barry Strapps and Paul Griffiths while Jaclyn Bazin has been appointed as InterPrac’s adviser technology consultant.

Strapps would look after South and Western Australia while Griffiths would be responsible for Victoria/Tasmania.

The appointments were expected to bolster the frontline services the group offered to its national advice network.

“Sequoia is focussed on providing multiple services to its advice community that are delivered by industry professionals with extensive financial services industry experience and expertise,” Crole said.

“Our objective is to utilise scale to drive down the cost of providing advice and the recent acquisition and incorporation of Docscentre Legal Pty Ltd (previously known as Topdocs Legal Pty Ltd) is a high-profile confirmation of Sequoia’s commitment to

enhancing its adviser focussed services and mission.”

Strapps, who would be based in Adelaide, joined InterPrac Financial Planning last year and had an extensive career with Centrepoint, Asteron and AMP assisting advisers and accountants to build their businesses.

Griffiths, who would operate from

ASIC disputes need for external advisory board

InterPrac’s Melbourne office, joined InterPrac from Centrepoint where he was regional manager. He had extensive experience in helping practices improve efficiency and boost long-term business success.

Bazin had more than 14 years of industry experience and expertise in Xplan and she joined from Queensland-based Enzumo where she served as a senior advice technology consultant. She would continue to be based in Brisbane.

Looking to the future and in particular 2022, Crole said Sequoia would continue to seek acquisition opportunities of financial advice and wealth management businesses that were cashflow positive, profitable and merging them into the group.

“Sequoia’s Wealth division will continue to grow as the major banks exit financial advice and advisers seek a licensee that can pro-actively assist them to maximise business opportunities and effectively navigate regulatory and compliance demands,” Crole concluded.

Falinski questions QSuper court case

BY LIAM CORMICAN

BY LAURA DEW

THERE is no need for the Australian Securities and Investments Commission (ASIC) to be overseen by an external advisory board as it would require input for all parts of the community it represented.

Speaking to the Senate Parliamentary Joint Committee on Corporations and Financial Services, ASIC deputy chair, Sarah Court, said: “In conversation about an advisory board or any other external board, I am very much of the view that it would not be of great assistance to ASIC. Not least because of the conflict issue.

“If you started to have industry representatives overseeing ASIC in any way then you would need to have representatives from a number of other areas, consumer groups, financial advisers, the entire range of the community we regulate and really the FRAA [Financial Regulator Assessment Authority] is doing exactly that job.

“We now have additional level of oversight and our engagement with the body has been extremely constructive and very helpful but I would hope we see how that process works and see what the outputs are.”

The FRAA was set up in June 2021 to review and report the effectiveness of capability of ASIC and the Australian Prudential Regulation Authority (APRA).

She highlighted Parliament, the courts, media and the FRAA already did a good job of holding the regulator to account.

Her comments were echoed by chair, Joe Longo, who said he could not see what value an advisory board would bring.

02MM240222_01-12.indd 8

LIBERAL MP, Jason Falinski, has questioned an industry expert on why the Australian Securities and Investments Commission failed to insist on QSuper informing its members of changes to how fines are paid.

Last year, QSuper won a case in the Supreme Court of Queensland to charge members an extra fee that would be used by the super fund to cover any fines or penalties, a clause known as Section 56.

Appearing before a House of Representatives Economics Committee hearing, University of New South Wales (UNSW) director of the Centre for Law, Markets and Regulation, Professor Scott Donald, said the court agreed that the court process impeded potential communication with members.

“There was a deadline here that things had to be done by the first of January, or the trustee was going to be exposed,” Donald said.

Falinski asked why the court made the ruling in relation to a time constraint if the legislation had already been delayed by 12 months.

Donald replied: “I’m not going to try and defend what the court came to in that, that was a conclusion based on the evidence before them that the court took.

“I’m very much in favour of trustees being as clear in their communications to members as they can be at an appropriate time.

“Whether members could have been informed earlier. I think that’s a decision that trustees need to make.”

Joining the hearing, Labor’s Dr Andrew Leigh, said the questioning was solely driven by chair Falinski’s concerns and not the concerns of the committee.

“The Labor members of the committee don’t share the chair’s concerns and given that there are four coalition members of whom only one is with us at the moment, I hazard a guess that perhaps not even all of the coalition colleagues of Mr. Falinski share his concerns,” Leigh said.

“We are here on a Falinski frolic doing our best to work through those issues.”

QSuper would soon merge with Sunsuper to form Australian Retirement Trust, subject to approvals.

17/02/2022 12:36:13 PM

February 24, 2022 Money Management | 9

News

A surprising week for adviser numbers

BY OKSANA PATRON

THE net change of advisers for the week ending 11 February stood at 13, marking the first gain after many weeks of adviser numbers falling to 17,295, as per the Australian Securities and Investments Commission (ASIC) Financial Adviser Register (FAR), according to Wealth Data.

The firm’s director, Colin Williams, said the previous estimate assumed the numbers would have fallen to 17,227 in January, however, he said, this was based on the Financial Adviser Standards and Ethics Authority (FASEA)’s reports from last year.

The other positive this week was a “nice surge” of provisional advisers, with a net increase of 28 year to date with a total of more

than 200 as per ASIC’s FAR data.

“There is some encouragement in the numbers for 2022. For example, as reported last week, over 50 ex-CBA salaried advisers have moved to other licensees outside of AIA, the firm that did a deal with CBA,” Williams said.

“We do suspect that not all licensees have reported to ASIC the required adviser losses based on advisers not passing the FASEA exam and many advisers are allowed to keep practicing subject to failing at least twice last year. It may take a bit of time for all of this to wash through the

Chart 1: Least growth - calendar year (from 01-Jan-22), Ex Lic < 5 Adv

Source: Wealth Data

PE Capital Funds Management ordered into liquidation

AMP reports $252m loss for 2021

BY LAURA DEW

MANAGED investment scheme operator, PE Capital Funds Management, has been ordered into liquidation by the Federal Court for breaching the law and operating managed investment schemes without an Australian Financial Service (AFS) licence and engaging in “misleading and deceptive conduct”.

According to the Australian Securities and Investments Commission (ASIC), PE Capital used the money raised by its managed investment schemes to fund eight mixed-use commercial and residential projects in Victoria.

“When raising funds into its managed investment schemes, PE Capital Funds Management made misleading and deceptive statements representing that it was authorised to operate the schemes when it was not.

“It also made misleading and deceptive statements about how the investments would be structured, telling investors they had preferential securities when they did not, and in the case of one fund misrepresented the investment strategy that would be used,” ASIC said in the statement.

Following this, the Court found that over $16 million was invested in the registered and unregistered managed investment schemes and that there was good reason to believe that these schemes were insolvent.

In ordering the liquidation, Justice Cheeseman, stated: “I am satisfied that it is in the public interest to wind up PE Capital Funds Management for the purpose of protecting investors and potential investors.

“Winding up PE Capital Funds Management will also serve to condemn the past breaches of the Act by PE Capital Funds Management.”

02MM240222_01-12.indd 9

system.”

Year-to-date, Insignia, formerly known as IOOF, led the losses and already saw a departure of 33 advisers. It was followed by Fiducian, which was down by 18 advisers, with far more advisers dropping off the Australian Central Credit union licence than being appointed to the Fiducian licence at this stage.

Also, WT Financial Group, which included Sentry and Wealth Today, lost nine advisers since the start of the year.

In general, the week saw 34 licensee owners having posted net gains for 61 advisers, while 33 licensee owners had net losses of 47 advisers.

Following that, two new licensees commenced and two were closed and nine provisional advisers (PAs) commenced.

AMP has outlined a statutory net loss of $252 million for 2021 in its full-year results, compared to a profit of $177 million a year ago.

The firm said this was impacted by statutory impairment charges, mainly non-cash writedowns.

Announcing the results to 31 December, 2021 to the Australian Securities Exchange (ASX), it said revenue from continuing operations was $3.29 billion, down slightly from $3.39 billion a year ago.

The client remediation process was now completed, it said, which had cost a total of $828 million, of which $588 million was paid to customers. This was 6% higher than the firm had initially forecast three years ago.

In the wealth management business, total assets under management (AUM) increased by 8% to $134 billion, up from $124 billion a year ago.

AUM on the North platform increased to $61.4 billion driven by improved investment markets and inflows from external financial advisers, which were up 18% to $1.3 billion.

Net profit after tax on the Australian Wealth Management division was $48 million, down from $64 million a year ago, while there were $146 million losses in advice.

Alexis George, chief executive of AMP, said: “We have set a clear strategy to drive two simpler and more efficient businesses, well placed to compete, grow and deliver value in a highly dynamic market.

“There are positive signs in our platform business with North AUM growth from stronger market performance and higher inflows from the EFA channel, which is a key focus of our strategy .”

The demerger of the firm’s private markets business from AMP was scheduled to be completed in the first half of 2022, she said.

“Significant progress has been made on the demerger of Private Markets from AMP, and we’re on track for completion in the first half of this year.

“Operational separation is now complete, including the transfer of the multi-asset group investment team into Australian Wealth Management.”

17/02/2022 2:25:14 PM

10 | Money Management February 24, 2022

News

A PY adviser’s view on the industry’s future

ASIC acted with ‘lack of concern’ towards Sterling: Senate

BY OKSANA PATRON

A report into the Sterling Income Trust has concluded that the Australian Securities and Investments Commission (ASIC) should have assessed the risk as higher but that regulatory changes since would have been unlikely to help.

In a final report from the Senate Economics Reference Committee, it said ASIC “could have assessed the risk as higher” as the risks related to Sterling were “heightened” in comparison to other managed investment schemes.

This was because: • The tenant-investors were elderly and retired, and were less likely to be able to recover financially if the scheme failed; • Tenant-investors often had to sell their principal residence to fund their investment in the SNLL product, thereby risking their housing security if the SNLL product failed; • The highly complex and interrelated structure of the Sterling Group whereby tenant-investors’ access to housing was dependent on the financial performance of the investments; • Directors and key executives with connections to questionable schemes that had previously failed; and • Unrealistic prospective returns from the SIT and Silverlink products and unviable pricing structures of the SNLL [Sterling New Life Lease] product.

The risks of the product had also been highlighted by the Australian Financial Complaints Authority (AFCA) which found that promoters of the scheme had engaged in misleading or deceptive conduct.

The report also noted ASIC displayed a “lack of concern regarding the involvement of questionable directors and key personnel”.

Responding in November, when it appeared before the committee, ASIC maintained that the regulatory framework did not preclude such people from promoting schemes and did not acknowledge the need for heightened oversight in response to poor previous behaviour.

Finally, the committee noted there had been several reforms intended to better protect consumers which might have been of benefit if they had been in force at the time. These were the introduction of product intervention powers and the establishment of a new obligation on issuers and distributors of financial products with new design and distribution obligations.

However, it doubted whether they would have been of use.

“Given ASIC’s apparent reluctance to be proactive, if regulatory intervention had occurred using these powers, it would likely have been too late for investors, many of whom would still have suffered irreparable damage, both financially and more broadly.”

It recommended ASIC developed a framework to promote greater awareness and understanding among retail investors and financial consumers in relation to buying financial products and services.

DESPITE the overall positive adviser sentiment for the coming months, the absence of young people coming to the industry might be one of the biggest challenges, Mia Johnson, a Professional Year (PY) adviser at Keyman Financial Services, said.

Johnson, who said she was passionate about the profession and making it more attractive for young people, felt part of the problem was there were few positive stories to help young people understand what the industry was really about.

“Everybody is so worried about the cost of advice, and all the issues that we are facing but they forget that if we do not have more people coming into the industry, then we are not going to have an industry,” she said.

“I think this is a huge problem that nobody is really focusing on addressing and I think if there is any way we can help with the PY requirements and just make it more attractive to advisers to get younger people in, and make it less burdensome that could help.”

She also said that the message for young people about the state of the industry should be better

emphasised as they did not currently view it as an attractive career choice.

“People who are in high schools and universities, they do not see it as an attractive profession and I don’t know why that is the case. I think maybe because there is not enough positive stories out there how we actually help people in their time of need and how we help people plan their future.”

When asked about what the licensees could do to help bring in younger advisers, she said that in the case of smaller practices, it was extremely hard to take on a PY adviser “I think if there is any way we can help with the PY requirements and make it more attractive to advisers to get younger people in, and make it less burdensome that could help.

“There needs to be some type of balance between making it easier for practitioners to take

somebody on but still teaching them everything they need to know to be good advisers,” she said.

Johnson stressed there was a large part for industry bodies to play in making the financial advice industry more attractive for younger people.

“I think there is probably a room for licensees to help in that space but I think that industry bodies like AFA (the Association of Financial Advisers) or FPA (the Financial Planning Association of Australia) have such respected and trusted opinion on the industry.

“I do not know why they could not get out there and help promote the industry because maybe they are too concerned with other issues that we [advisers] are facing like the exam and the educational requirements.

But I think that a lot of the responsibility could fall on their shoulders to get the word out there.”

Magellan FUM drops to $87bn as Douglass exits

BY LAURA DEW

MAGELLAN Financial Group has lost $6.4 billion in less than two weeks as Hamish Douglass takes ‘leave of absence’.

In an announcement to the Australian Securities Exchange (ASX), the firm said funds under management were $87.1 billion, as of the close of US market on 9 February.

This compared to $93.5 billion at the end of January 2022.

The downfall was attributed to “market movements (including foreign exchange),

02MM240222_01-12.indd 10

cash distributions paid in January 2022, net outflows and notifications since 1 January, 2022”.

Total net outflows since the start of the year were $5.5 billion which comprised net institutional outflows of $5 billion and net retail outflows of $0.5 billion.

At the end of January 2021, assets in the firm were over $100 billion.

It was announced at the start of February that chair and chief investment officer, Hamish Douglass, would be taking a ‘leave of absence’ from the firm.

17/02/2022 2:59:03 PM

February 24, 2022 Money Management | 11

News

CBA profits up 23% as remediation costs fall

BY LAURA DEW

COMMONWEALTH Bank of Australia has announced cash net profit after tax (NPAT) of $4.7 billion, up 23% on the first half of 2021.

In an announcement to the Australian Securities Exchange (ASX) of its halfyear results to 31 December, 2021, the big four bank said the NPAT had been supported by strong business outcomes, reduced remediation costs and lower loan loss provisions due to an improved economic outlook.

Remediations costs, which were $333 million at the end of June 2021, had “significantly” fallen to $93 million. This was due to a reduction in costs for aligned advice.

Operating performance was $6.6 billion, up 4% on

the first half of 2021.

The bank said it would pay an interim fully franked dividend of $1.75 per share, an increase of 17% from the same period a year ago and announced an on-market $2 billion share buyback.

It said it would continue to target an interim payout ratio of around 70% of cash NPAT and 70%-80% for the final dividend.

Chief executive, Matt Comyn, said: “We expect the Australian economy to have a strong year in 2022 despite early challenges

from the Omicron strain of COVID-19. Both the unemployment and underemployment rate are at the lowest since 2008, with high participation rates.

“Looking ahead, we will continue to invest in the business to extend our product offering to our retail and business customers and extend our digital leadership. We are well positioned to support business investment to build Australia’s future economy.”

Platinum warns markets ‘more extreme’ than 2000 MARKETS right now are even more extreme than they were in 2000, according to Platinum, with many perceived ‘safe’ stocks looking risky.

In an update to the $8.5 billion Platinum International fund, managers said 2000, the year that the dotcom bubble burst, was the best parallel for current markets.

This meant many stocks which were perceived as being ‘safe’ options were actually risky ones.

“What has appeared to many investors to be ‘safe’ could turn out to be very risky and vice versa. The closest parallel we can use to describe today’s markets is the year 2000. The only difference being that it’s more extreme.”

The Platinum International portfolio was dominated by companies in the decarbonisation, travel, technology and Chinese consumer space while its short portfolio was dominated by those

02MM240222_01-12.indd 11

technology stocks which it viewed as being overpriced.

Top ten holdings included resources company Glencore, Samsung Electronics and Ping An Insurance Group.

The management team, made up of Andrew Clifford, Nikola Dvornak and Clay Smolinski, acknowledged this had led performance to be “languid”. Over one year to 31 January, the fund had returned 13.5% compared to returns of 23.3% by the MSCI All Country World index.

Performance had improved in the past quarter, however, with the fund returning 9.2% versus returns of 2.9% by the index.

“Our approach is about trying to avoid the hype, staying away from the crowd and we have talked at length about the risks in markets. While this has made us appear languid at times, it was a very deliberate approach which led us to enter this year very cautiously positioned on the basis that risks in markets were very asymmetric.”

Treasury ‘confident’ in trustees’ ability to avoid providing financial advice THE Treasury has released its final report into the Retirement Income Covenant, stating it is confident superannuation trustees can meet the requirement without providing financial advice.

In its final report into the Corporate Collective Investment Vehicle (CCIV) Framework and Other Measures Bill, the Senate standing committee on economics concluded that it was confident in superannuation trustee’s ability to fulfil the requirements.

Committee chair, Senator Paul Scarr, said: “Regarding issues raised by submitters when formulating and giving effect to their strategy, the committee is confident that trustees can fulfil the requirements of the covenant and create effective retirement income strategies without providing financial advice or breaching anti-hawking laws.

“Further, the committee understands that Treasury’s review of the quality of financial advice consultation process will explore the issue of whether financial advice concepts could be simplified.”

“The committee recommends that the bill be passed as soon as practicable in order to provide certainty to stakeholders working towards the 1 July, 2022 deadline for implementation of the CCIV and the retirement income covenant.”

The comments followed submissions by organisations such as the Australian Institute of Superannuation Trustees (AIST) who noted practical concerns related to the overlap between what was expected from superannuation trustees regarding guidance and what was considered advice.

The Financial Planning Association of Australia (FPA) also noted superannuation trustees had access to personal information about beneficiaries which created a “very fine line” between the provision of factual information and the provision of advice.

“The FPA submitted that superannuation trustees have access to personal information about beneficiaries, which creates a very fine line between the provision of factual information and the provision of general or personal advice as the beneficiary may assume the trustee has considered the individual’s circumstances when ‘assisting’ them with their retirement income needs.”

The report also confirmed trustees of self-managed superannuation funds (SMSFs) would be excluded from the covenant as they were “very different” to those funds regulated by the Australian Prudential Regulation Authority (APRA).

Adam Hawkins, assistant secretary, tax and transfers branch at Treasury, said: “An APRA-regulated fund has a very large membership, potentially millions of members, and will need to gather information in order to formulate their strategy; whereas a self-managed superannuation fund will intimately know their members, so the need to gather information and then develop a strategy on types of services or products that might be appropriate to them isn’t as involved as it would be for an APRA-regulated fund”.

17/02/2022 10:28:27 AM

12 | Money Management February 24, 2022

InFocus

WHO SHOULD OFFER PROTECTION TO INVESTORS? The examples of failed managed investment schemes have reopened the question around the Government’s proposed model for a Compensation Scheme of Last Resort, writes Oksana Patron.

THE RECENT FIASCOS of the managed investment schemes (MIS) have once again prompted the question what else should be done to better protect consumers from risky investments.

These have included an ongoing debacle of Sterling Investment Trust and, more recently, the liquidation of another operator of managed investment schemes PE Capital Funds Management.

While the chair of the Australian Securities and Investment Commission (ASIC), Joe Longo, who spoke earlier this month in front of the Senate Parliamentary Joint Committee on Corporations and Financial Services, admitted ASIC should have issued a more decisive response with regards to Sterling, consumer groups insisted that the Compensation Scheme of Last Resort (CSLR) should be expanded to include all the financial services that were covered by the Australian Financial Complaints Authority (AFCA).

According to consumer advocacy group CHOICE’s chief executive, Alan Kirkland, who also recently appeared before the Senate Committee, the CSLR should be extended to cover managed investment schemes, funeral insurances policies and debt management firms as “an absolute minimum”.

2022 BUSINESS CHALLENGES ACCORDING TO 400 CEOs

He said that if CSLR included MIS, a larger number of Sterling’s victims would have obtained access to compensation.

However, CHOICE-affiliated volunteer-led group, Sterling Action Group (SAG), found through the survey of 55 victims that the maximum compensation under the CSLR would still fall short when it comes to the financial losses incurred by Sterling Group’s victims.

The SMSF Association’s deputy chief executive, Peter Burgess, who also expressed a “deep concern” with regards to the exclusion of MIS from the CSLR,

said it was particularly worrying for self-managed superannuation fund (SMSF) investors as such exclusion would mean that the advice industry was going to pick up the costs.

Further to that, such an exclusion could lead to a situation in which advisers were being left to pay disproportionate costs as the fault would be placed with them.

The Financial Planning Association (FPA) of Australia shared the same concerns. Its chief executive, Sarah Abood, said that although the organisation had welcomed the Senate Economic Legislation Committee’s report of

the Government’s proposed model regarding the CSLR, there were still concerns that it would fail to provide adequate protections for investors.

According to the FPA, the Government should expand the base of the proposed CSLR to reflect the AFCA jurisdiction in order to ensure the sustainability of the scheme for consumers and fairness for contributors.

This would make 15 industry and consumer bodies advocating for the expansion of the CSLR, supported by recommendations in the Senate Economic Reference Committee’s own report into the Sterling Income Trust.

Although, the minister for superannuation, financial services and the digital economy, Jane Hume, said the CSLR was not designed to pay compensation to any consumer who lost money in an investment and therefore should not be expanded to cover MIS or high-risk investments.

A number of recent investigations and examples of financial wrongdoing further highlighted the inadequacy of the Government’s approach to the implementation of recommendation 7.1 of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, the FPA said.

69%

50%

48%

Talent acquisition and retention

Cyber security

Remote working

Source: KPMG

02MM240222_01-12.indd 12

16/02/2022 5:09:33 PM

BE BETTER INFORMED:

FE fundinfo Crown Fund Ratings are highly respected and widely recognised across the UK, European, and Asian markets.

Now, available in Australia in partnership with Money Management, FE fundinfo’s quantitative ratings are designed to help advisers identify funds which have displayed superior performance in terms of stockpicking, consistency and risk control.

A one Crown rating represents a fund that falls into the fourth/ bottom quartile

Two Crowns demonstrates funds that place in the third quartile

Three Crowns demonstrates funds that sit in the second quartile

Four Crowns are given to funds that have placed between 75-90% of their sector peers

Five Crowns are awarded to funds that place in the top 10%

WHERE CAN YOU VIEW CROWN RATINGS? a part of

Powered by

The multi-award winning research, due diligence and portfolio construction tool.

A part of the Money Management website, the investment centre gives you access to fund performance data and much more.

www.fe-fundinfo.com

www.moneymanagement.com.au/crowns

For more information on the methodology please visit: www.moneymanagement.com.au/aboutcrowns

5264_CrownsPrintUpdate MM FP.indd 13

a part of

in partnership with

16/02/2022 10:15:12 AM

14 | Money Management February 24, 2022

ETFs

TARGETING A NEW AUDIENCE With the traditional demographic of ETF investors changing to include more young and female investors, providers are changing the type of products they are launching, writes Laura Dew. IF YOU LOOKED at the exchange traded fund (ETF) market 10 years ago, the typical findings would have been a focus on Australian or global equities with a small proportion in fixed income and commodities funds.

Little interest was paid to thematic or environmental, social and governance (ESG) investments.

In 2011, a report by the Reserve Bank of Australia referenced the “relatively recent

innovation” of ETFs but global assets were already over US$1.2 trillion. It seems Australia was a slow mover to the space, however, with only US$4 billion at the time.

Alex Vynokur, chief executive at BetaShares, said: “When we started BetaShares 11 years ago, the early adopters were male, wealthy self-managed superannuation fund clients and advisers who focused on highnet-worth individuals (HNWIs).

“The last few years have been transformational, and it has gone from early adopters to mainstream investors”.

A decade on, the Australian ETF market has risen to $132 billion and the audience has tilted to include more young people who are getting into investment for the first time and women who may have been previously disengaged with investment.

Others are using them as an easy

way to access stocks which are listed offshore, particularly mega-cap technology names in the US such as Tesla and Apple.

With no minimum investment, less paperwork, lower total expenses ratios than active funds and transparent pricing, firsttime investors are finding them easier to understand and access than managed funds. They are also able to enter and exit the investment at any time during

N OW AVA I L A B L E A S A N AC T I V E E T F

Perpetual Ethical SRI Fund (Managed Fund) Invest in a diversified portfolio of predominately high-quality Australian ethical and socially responsible companies.

MAKE A POSITIVE INVESTMENT TODAY. perpetual.com.au/give

02MM240222_14-27.indd 14

16/02/2022 5:15:31 PM

February 24, 2022 Money Management | 15

ETFs

trading hours, which was appealing compared to their money being tied up.

As a result, ETF providers have had to change the type of funds they are launching to address the demands of this new changing audience.

This has included thematic funds in areas such as video gaming, electric vehicles and robotics.

It has also led to the huge growth in development and inflows to funds focused on areas such as the environment, responsible investments and sustainability.

“We have long believed ETFs give people the power to democratise wealth creation, everyone should have that opportunity at any age.”

ESG DEMOGRAPHICS

FUND LAUNCHES

During the pandemic, more women and young people than ever were interested in ETFs as an easy way to take their first steps into investment markets.

Mik Kase, fixed income and multi-asset manager at Schroders, said: “There has definitely been a rise in millennials holding more ETFs, this has been driven by the accessibility of them and gives them another access point to invest without needing a broker.

“ETFs can easily slot into their financial ecosystem; if they already have a Commonwealth Bank account for example, then they can use CommSec to buy an ETF.” Vynokur added the gender balance had shifted away from male investors in their 40-50s to more women and millennials.

“There has been a significant

One particular area of growth which was being driven by the changing audience was ESG funds. In less than a year, there had been numerous launches of ETFs in this space and according to the 2021 annual ETF report from BetaShares, one sustainable ETF received such strong flows that it was among the top 10 largest inflows for the year.

This was the BetaShares Global Sustainability Leaders fund which received $786 million in inflows throughout the year.

Launched in July 2017, the fund now had $2.1 billion in assets under management and sought to invest in ‘climate leaders’ which excluded those with direct or significant exposure to fossil fuels or engaged in activities inconsistent with responsible investment considerations.

– Alex Vynokur, BetaShares shift towards true gender balance and investors are getting younger too. We have long believed ETFs give people the power to democratise wealth creation; everyone should have that opportunity at any age.”

On a monthly basis, the iShares Core MSCI World ex Australia ESG Leaders ETF, launched in April 2016, saw inflows of $134 million during December 2021 to make it one of the top 10 largest monthly inflows.

In contrast, there were no ESG ETFs featured in the top 10 funds with the largest monthly outflows.

This was echoed by data from the Australian Securities Exchange (ASX) that showed top 10 net flows during 2021 included multiple ESG funds such as BetaShares Climate Change Innovation ETF, VanEck Global Clean Energy ETF and ETFS Hydrogen ETF. Over at State Street Global Advisors (SSGA), it stated ESG ETFs were “increasingly becoming core holdings” for many investors which was forcing them to take steps with ESG in mind. In February, SSGA reduced fees on its two carboncontrol funds SPDR S&P World ex Australia Carbon Control and SPDR S&P World ex Australia Carbon Control (Hedge) by 12 and 14 basis points respectively.

The firm also announced the two funds would change the

ALEX VYNOKUR

specific indices they tracked in order to improve their ESG profile.

This decision was taken in response to investor demand for improved sustainability scores and lower greenhouse gas emissions.

Kase said: “Already, across all cohorts, we are seeing increased interest in ESG and that will continue to be an element of people’s investment decision.

ETFs can allow them to use ESG as a thematic rather than just a part of a wider portfolio. The desire to focus on ESG will only continue to grow and it will be vitally important for asset managers to focus on that”.

ACTIVE ETFS This drive for ESG was also prompting those firms which had traditionally focused on the active management side to consider ETFs for the first time.

Australian Ethical, one of Australia’s largest providers of Continued on page 16

ASX: GIVE

02MM240222_14-27.indd 15

16/02/2022 5:15:37 PM

16 | Money Management February 24, 2022

ETFs

Continued from page 15 ethical and sustainable funds, launched its first ETF, the High Conviction fund. This was an actively-managed portfolio of 20-35 companies drawn from the ASX 300 which met extensive ethical criteria based on the firm’s Ethical Charter.

The firm said the decision to launch an ETF had been taken as a way to “democratise” ethical investing to the most possible investors. While the firm had been around for 20 years, chief executive, John McMurdo, said he had witnessed an “enormous change” in the last five years, particularly around interest in climate change and renewable energy. “[Ethical investing] has transformed from being a niche industry to one which is part of every conversation. CEOs used to ignore the conversation but now they are coming to us for advice, it has been turned on its head.”

Its Ethical Charter requirements included factors such as alignment with the US Sustainable Development Goals (SDGs), seeking out investments which developed locally-based ventures, developed appropriate technology, preserved endangered ecosystems and undertook efficient disposal of waste, among more than 20 considerations.

McMurdo said: “We hadn’t been looking to target a specific audience or demographic with an ETF, we wanted to make sure everyone who wanted to invest ethically had the option to do so.

Many in that channel will be millennials though and this will make it easier to cater to them.

“It is our first listed product but we wouldn’t call it a thematic

02MM240222_14-27.indd 16

fund. It is an actively managed portfolio of companies that meet our Ethical Charter.

“We have a strong history in the active equity space so this was a natural place to start. People don’t need to fill out extensive paperwork and it has a smaller minimum investment.”

Over at Perpetual, Karen Trau, senior product manager, listed and direct, said the launch of the firm’s socially responsible investment (SRI) ETF in December, Perpetual Ethical SRI, was the first in a suite of active of ETFs for the firm.

“We put a lot of thought into the ETFs we launch and they are driven by the needs of our clients rather than us targeting a particular audience.

“We do recognise though that one of the big trends in the marketplace has been the growth of ESG and advisers are shifting their clients towards using that and clients are demanding it.

“ETFs will continue to grow, there will be a broad variety of strategies coming to market. For us, this fund is the start of a suite of active ETFs we are launching.”

Meanwhile, Munro Partners

said their decision had been taken on the back of demand from certain advisers who had set up their businesses to focus on ETFs. The firm had three listed ETFs on the ASX, the most recent of which was the Climate Change Leaders fund.

“There is a section of the community who have told us they have a strong preference for listed or quoted products. They would say they liked our products but couldn’t invest unless it was in a different structure because of how they’ve set up their back office systems or platform to focus on ETFs,” said chief executive Ronald Calvert.

He said the decision to focus a fund on the theme of climate change was based on the vast potential market it saw for companies to benefit from the decision to go carbon neutral.

“The Climate Change Leaders fund is focused on those companies which are going to benefit from governments or organisations taking the decision to go carbon neutral. We think it will be a huge spend in the future and wanted to seek companies which were going to be drawing revenue from that expenditure.”

KAREN TRAU

17/02/2022 9:14:00 AM

ASX: GIVE N OW AVAI L AB LE A S AN AC TIVE E TF

Perpetual Ethical SRI Fund (Managed Fund)

Designed to match your ethical and environmental preferences.

Discover a new way to access Perpetual’s proven investment approach. Trading as GIVE on the ASX, this exchange traded managed fund provides an easy way to invest in a diversified portfolio of predominately high-quality Australian ethical and socially responsible companies. Through the ongoing pursuit of unique insights, which we call Perpetuality, the fund aims to provide long-term capital growth and regular income.

To help make a positive impact in Australian local communities, we intend to donate a portion of our performance fee to charity each year.

MAKE A POSITIVE INVESTMENT TODAY. perpetual.com.au/give

Prepared by Perpetual Investment Management Limited ABN 18 000 866 535, AFSL 234426 (PIML), as the issuer of units in the Perpetual Ethical SRI Fund (Managed Fund) (ETMF). It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider, with a financial adviser, whether the information is suitable for your circumstances. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. The PDS for the ETMF, issued by PIML, and any ASX announcements for the ETMF, should be considered before deciding whether to acquire or hold units in the ETMF. The ETMF’s PDS and Target Market Determination can be obtained by calling 1800 022 033 or visiting our website www.perpetual.com.au. No company in the Perpetual Group (Perpetual Limited ABN 86 000 431 827 and its subsidiaries) guarantees the performance of, or any return on an investment made in the ETMF or the return of an investor’s capital. Past performance is not an indication of future performance.

_FP ad Test.indd 17

15/02/2022 1:17:26 PM

18 | Money Management February 24, 2022

Adviser education

FASEA EXAM LIFTS ADVISER STANDARDS With a large proportion of financial advisers having now completed the FASEA exam, Alexandra Cain asks whether advisers who passed found it worthwhile?

AS THE FINANCIAL advice industry adjusts to the Australian Securities and Investments Commission’s (ASIC) takeover of education responsibilities for the profession, advisers agree sitting the exam is a worthwhile experience that helps increase knowledge. After conjecture around the proposed requirement for all ASIC-registered financial advisers to hold a degree qualification, most are now comfortable with the compromise reached to allow senior practitioners without a degree to continue providing financial advice to clients as long as they sit a tertiary-level ethics exam.

Since 2019, the Financial Adviser Standards and Ethics Authority (FASEA) had administered a Federal Government-mandated set of standards to which financial advisers were required to adhere to.

Until 1 January this year, FASEA was also the body that conducted the exams ASIC-registered advisers were required to sit to maintain their registration with the regulator.

Federal Treasury took over this responsibility at the start of 2022.

Simultaneously, ASIC assumed

02MM240222_14-27.indd 18

responsibility for adviser education, in conjunction with the Australian Council of Educational Research (ACER), which has been responsible for developing and administering the 15 exams that have been held so far. ACER will continue to run the exams.

The examination requires advisers to apply their knowledge to between 70 and 80 case studies over three-and-a-half hours, covering legislation including the Corporations Act 2001, the AntiMoney Laundering and CounterTerrorism Financing Act 2006, the Privacy Act 1988, the Tax Agent Services Regulations 2009 and the Financial Planners and Advisers Code of Ethics 2019. The open book, multiple choice, pass/fail test examines practitioner knowledge of financial advice regulations and legal requirements, financial advice constructions and ethics.

MetLife’s head of advice strategy, Jeff Scott, said: “ASIC has produced a number of excellent resources to assist financial advisers with their exam preparation, including recommended reading lists,

16/02/2022 2:25:39 PM

February 24, 2022 Money Management | 19

Adviser education Strap

sample examination questions, and examination guidelines.

“There is an extension to October 2021 if an adviser has sat the exam at least twice and failed.

Advisers who have not sat the examination, or have only sat the examination once and failed, are now unable to provide personal financial planning advice to clients until they complete the relevant ASIC, formerly FASEA, education requirements,” said Scott.

According to ASIC’s figures, 17,950 of 19,770 advisers have passed the adviser exams held to date, which is roughly nine out of ten candidates. More than 15,500 of those who have sat the exam are recorded as active financial advisers on ASIC’s Financial Adviser Register, representing 82% of active advisers on the register. To date, 3,197 unsuccessful candidates have re-sat the exam, 66% of whom have passed.

Some areas where ASIC has identified exam candidates underperforming include applying Chapter 7 of the Corporations Act 2001 to components of the Statement of Advice and Financial Services Guide and identifying the consequences of not acting in best interests of clients. Demonstrating knowledge and understanding of the code of ethics was also an area for improvement.

ADVISER EXAM ADDS VALUE The introduction of the Financial Planners and Advisers Code of Ethics back in 2019 represented a radical shift in the way financial advisers were regulated.

“While most advisers already acted in their clients’ best interest, codifying the principles by which

02MM240222_14-27.indd 19

all financial advisers must operate meant locking certain thinking into everything we do.

“For example, Standard 8 on record keeping gave our practice the opportunity to re-examine our entire engagement and advice process and how we document client conversations. As a result, we fine-tuned some of our existing processes, which led to better audit trails. Interestingly, it also clarified how we articulate the value of advice to clients,” said Peter Foley, director of financial planning firm Third View.

Foley said sitting the exam was useful, although Third View was already following many of the standards outlined in FASEA’s code of ethics, such as the client care and ethical behaviour requirements. “They have always been the bedrock of the decisions we make and the way we advise our clients.”

Pete Pennicott, director of financial advice firm Pekada had a different view on the standards but felt they had served a secondary purpose at his firm.

“The exam’s scope was vast but much of it did not apply to our advice offering, although it served a secondary purpose in terms of building awareness of the broader financial services industry. It also gave us a framework in terms of identifying issues and mapping the path forward. This helps us articulate to clients why certain parts of the advice process exist, especially when they seem tedious.”

Sarah King, head of advice at online investment platform Stockspot, said sitting the exam was an opportunity to refresh her knowledge of legislation such as the Corporations Act 2001.

“The FASEA code of ethics also provides a good framework for ethical decision making, which I already embody as an adviser. It was a useful opportunity to understand where we need to get to, to be considered a true profession with properly-defined standards, to which all advisers are held accountable.”

EXAM SKILLS MATTER Before the FASEA exam was introduced, formal study was years in the past for many advisers. So, the biggest challenge in sitting the FASEA exam for many within the profession has been knowing how to study for and successfully sit the examination.

The Association of Financial Advisers’ national practitioner chair, John Cachia, a financial adviser with 20 years’ experience, said it is important to understand that when it was introduced, the FASEA exam was totally unfamiliar to advisers.

“It was challenging getting them to understand ethics and professionalism and the standards the public and Federal Government expect financial advisers to maintain. The exam was the game changer and helped ingrain professional practices across the industry.”

Scott said MetLife realised when the exam was introduced, it would be a daunting experience if a financial adviser was unfamiliar with university-style exam situations, especially if they hadn’t sat any exams since high school.

“So, we developed exam study skills materials for our advisers, distributed advice about what the exam environment was like, helped them to understand how to

“While most advisers already acted in their clients’ best interest, codifying the principles by which all financial advisers must operate meant locking certain thinking into everything we do.”

– Peter Foley, Third View

Continued on page 20

16/02/2022 2:25:49 PM

20 | Money Management February 24, 2022

Adviser education

Continued from page 19 pace themselves in the exam and gave them insights into how to prepare. In the past two years, 1,000 advisers have used our tools and successfully passed the exam,” said Scott.

Paul Moran, partner with financial advice firm Moran Partners and founder of financial advice fintech iFactFind, was among the first cohort of advisers who sat the FASEA exam in 2020 and stressed how important it was to be exam-fit to pass.

“I’ve done a lot of education in my life and I’m very comfortable with digital and exam technique, so I was confident sitting the exam. As a licensee, I also have an in-depth understanding of the law.

I had already embedded many of the practices tested by the exam such as ethics in the business.”

Moran said it was frustrating, however, not to receive any feedback on the exam.

“The idea of implementing learnings from the exam is impossible when there’s no feedback.”

He recognised giving feedback was difficult at a practical level because everyone sat the same exam and providing comments on individual exam papers would give the game away for future students.

ASSESSING THE EXPERIENCE PATHWAY A requirement for ASIC-registered advisers to hold a degree qualification was a sticking point through the decade-long negotiation process to codify adviser education. The compromise is a Government-sanctioned ‘experience pathway’, which is an

02MM240222_14-27.indd 20

opportunity for advisers without a degree, but with 10-plus years’ experience, to continue providing advice as long as they sit the tertiary-level ethics exam.

Foley said this was a sensible option. “I’m not degree qualified, but I have provided advice for 17 years. For a government or regulator to insist on my return to study is a pure farce. I passed the FASEA exam, received the CFP designation in 2008 and have maintained extensive CPD requirements throughout my career. Any requirement for experienced advisers to study to a degree level is not necessary.

“But I acknowledge new entrants to the industry should be required to obtain a degree and existing entrants who have only minimal qualifications should be required to do further study. This will lift the standard of knowledge and technical competence within the profession.”

Pennicott agreed, he said: “An experience pathway is essential; you can’t completely dismiss the knowledge gained over years of being a practising financial planner. The majority of my expertise has come from practising financial planning and not necessarily from my university degrees. A balanced approach is needed, as we are still on the journey to lift the status of the financial planning profession. Therefore, a pathway that brings together tertiary qualifications and industry experience makes sense”.

Nevertheless, he acknowledged not all experience is equal. “Credit for experience could be assessed individually.

The idea would be to have an appropriate body or university assess an individual’s experience and apply credits for tertiary units. This serves to recognise the individual’s specific experience and create knowledge and tertiary pathways to fill in the gaps.”

The first exam sitting under ASIC’s administration took place earlier this month. It’s likely adviser exams will evolve through time as the industry continues to professionalise.

16/02/2022 2:26:04 PM

MANAGED PORTFOLIO REPORTING Designed around your brand Improving production times Efficient document workflow FE fundinfo’s state-of-the art document production platform enables you to automate managed portfolio factsheets, performance updates and quarterly commentary summaries, in your brand and style.

Contact a specialist to find out more fe-fundinfo.com enquiries@fefundinfo.com Scan for more info

5265_FE fundinfo Managed Update MM FP 3.indd 21

15/02/2022 12:21:37 PM

22 | Money Management February 24, 2022

Technology

USING TECHNOLOGY TO REDUCE ADVICE HOURS

The financial services industry says a regulatory overhaul could rejuvenate the advice industry and technology could achieve the same result, writes Andrew Zietara.

THE FINANCIAL PLANNING industry is in dire need of regulatory reform, but advisers no longer have the luxury of waiting for change.

More than 3,000 advisers left the industry in 2021 alone due to rising compliance and educational requirements.

While regulatory reform could reduce the cost of providing financial advice and save advisers about one-third of their time, according to a recent Financial Services Council (FSC) analysis, there is another way forward.

02MM240222_14-27.indd 22

The power of technology can already cut the time advisers take to prepare advice – but only if advisers adopt a fully-digital approach.

This isn’t to say that abolishing the safe harbour steps for complying with the Best Interests Duty and replacing complex Statements of Advice with simpler Letters of Advice wouldn’t make a difference.

But these changes aren’t going to happen tomorrow, especially when many practices are leaving practical technology solutions laying idle on the shelf.

Fully leveraging advice

technology requires more than implementing the right software to work – it requires a new mindset and the adoption of smarter ways of working.

This is the only way to create far more efficient businesses, which can lead to higher practice profitability and lower the cost of advice, while broadening the accessibility of advice.

CUTTING TIMECONSUMING ACTIVITIES Collecting data about a new client is one of the most time-consuming

activities an adviser can undertake.

Too many advisers are still filling out fact finds on paper and then they (or their paraplanner) re-enter the same information online. This adds needless time to the process. Less than one-third (31.9%) of advisers say they are currently using an online fact find and risk profiling tool, according to Netwealth’s AdviceTech 2021 report.

An even better approach is to ask the client to fill in their own data online. Many people are comfortable doing this for most online interactions, such as tax

16/02/2022 5:14:46 PM

February 24, 2022 Money Management | 23

Technology

returns, insurance applications, or other services that request personal information.

Perhaps if clients do this task themselves, advice practices can factor the time they save on data entry into their pricing structure.

Given more than one-third of Australians think advice is too expensive, it could be a win-win approach.

The FSC’s report says regulatory reform could cut the time to produce advice from 23.9 hours to under 16.8 hours.

Advisers could produce 2.2 Letters of Advice a week as opposed to the current 1.5 Statements of Advice. These documents are too long and contain too much legalistic disclosure that does not help clients. Only one in five people who receive long financial product disclosure documents say they read them, according to ASIC. It is possible to create more effective documents that still meet legal disclosure obligations by cutting down on manual effort and duplication.

Similarly, advisers also need to ask themselves why they spend time needlessly tailoring advice disclosure documents down to the structure of individual sentences.

The key is to identify what makes the advice personalised and only make changes within those boundaries.

MAKING THE MOST OF FACE-TO-FACE TIME Spending quality time with clients is essential to learn about their needs and build the trust that underpins advice. But this can take a substantial two to four hours, particularly when the

02MM240222_14-27.indd 23

relationship is being formed.

Online meetings are a more efficient option.

Many advisers have switched to online communication channels such as video conferencing, instant messaging, email, and phone in the wake of COVID-19. The use of online meeting tools has risen from just 45.7% in 2020 to 75% of practices, according to Netwealth’s AdviceTech 2021 report.

However, much of these online interactions are with existing clients, with advisers still reticent to start relationships through online channels. There is no reason this barrier can’t be broken down, creating significant benefits for both adviser and client.

Many people used online psychological therapy for the first time during the height of the pandemic. Research trials (pre-pandemic) have shown that online therapy is as effective in reducing symptoms as face-to-face therapy. Client satisfaction with the online therapy and relationship with the therapist was at similar levels to face-to-face therapy.

If video conferencing works for such personal medical relationships – where trust is a crucial component of the relationship – there’s no reason advisers can’t start more client relationships online.

ONLINE ADVICE SERVICES The shift to an all-digital approach requires new processes and procedures to ingrain habits. Yet many clients are already comfortable with the digital world.

Genuinely adopting digital advice at a fundamental level can create new business models, but

Too many advisers still think of digital advice as a threat rather than a complement to their existing practices. too many advisers still think of digital advice as a threat rather than a complement to their existing practices.

ASIC recently said that almost three-quarters of 183 surveyed advisers did not want to provide digital advice in the future, although they were keen on regulatory technology (RegTech) solutions. These are technology solutions that help businesses comply with regulations efficiently and less expensively.

The reality is they are missing out.

Advisers could potentially add to their existing offer with more tailored online advice that catered to simple life situations with no manual effort. This is a step above existing robo-advisers that offer simple exchange traded fund (ETF)-based portfolios based on a client’s risk profile.

Clients could be encouraged to take up this service through lower prices, sharing in the benefits of a more efficient service. Many of these clients would never have been able to afford traditional advice, so there is no cannibalisation – it is making the pie bigger.

These are just some of the benefits that advisers can take up today if they exploit the true benefits of technology. If they don’t, many more will be forced to leave the industry while waiting for regulatory reform.

Andrew Zietara is head of product at Midwinter Financial Services.

16/02/2022 5:14:47 PM

24 | Money Management February 24, 2022

ESG

FINDING TOMORROW’S ESG LEADERS There are many different ways of looking at ESG, including often-overlooked opportunities for alpha generation via companies improving their ESG status, writes Will Deer.

ENVIRONMENTAL, SOCIAL AND governance (ESG) as a source of investment alpha may be limited when focussed solely on companies displaying ‘best in class’ ESG characteristics.

Evidence shows there’s equal, if not greater, benefit in finding companies which are actively improving their ESG credentials.

Their ESG scores may be ‘less than stellar’ at the time of investing, but there is strong correlation between companies which are improving their ESG and their investment returns over that same period and beyond.

This idea might be controversial among some investors who have fixed views that to qualify as an ESG investment, the company must have already ‘arrived’ as a force for good. Which begs the question:

CAN WE AGREE ON ESG?

Chart 1: Variation in ESG assessments

Source: Schroders Analysis

02MM240222_14-27.indd 24

A challenge for financial advisers and investors alike is that everybody has their own ideas about ESG – ask 10 different investors to define ESG and you’ll almost certainly get 10 different answers from them.

This lack of consistency even extends to the established and highly-regarded ESG ratings agencies, who often show vastly different views when assessing the same criteria. Using the Tesla stock as an example, Chart 1 shows variation in the ESG assessment by some of the most influential ratings companies in this space: ESG is a particularly broad and fluid concept. While many ESG discussions revolve around sustainability and the

environment, even something like tax can be an ESG issue, according to sustainability leaders UK-based ESG specialist WHEB Asset Management LLP. WHEB (which also manages the Pengana WHEB Sustainable Impact fund) says company attitudes to tax can tell you a lot about management quality and about how a company’s senior leadership sees the world.

Companies which spend an inordinate amount of time and money on elaborate structures to avoid paying tax may be falling short of their social obligations – one of the key factors in ESG. As a general rule, WHEB prefers to invest in companies that have a greater focus on growing superior businesses than on creative tax planning.

What is beyond doubt is the growing popularity of ESG investments which have surged over the last two years; and investors increasingly want to know that the companies they are investing in are doing the right thing by the planet, by their people, and behaving responsibly.

Admittedly, these motives are not always purely altruistic.

Investors understand that well-run sustainable companies, which prioritise their employees, the environment and the communities in which they operate are more likely to grow and profit, particularly those which are poised to benefit from decarbonisation.

WHERE DOES ESG HAVE THE MOST POWER? It’s worth considering ESG’s influence at different subcomponent levels i.e. the E (environmental), S (social), and G

17/02/2022 12:17:00 PM

February 24, 2022 Money Management | 25

ESG (governance). In recent years social factors have outperformed meaningfully relative to governance and environmental factors, particularly in the US. Social has been the biggest outperformer because people are key assets for many structural growth businesses. Once improvement areas are identified, changes are often quickly implemented and results may follow quickly.

For example, companies may be able to enjoy ‘quick wins’ on social factors by implementing training or mentorship programs and more progressive employment policies, which quickly attract higher calibre employees. From an analyst’s perspective, this will reflect in higher social scores.

By contrast, environmental improvements generally take much longer to implement, and often involve short-term costs associated with changing business practices. While businesses are increasingly targeting net carbon neutrality from their operations, these objectives are generally longer term so it is more appropriate to assess the business impact over a longer time horizon.

As such, the results will take longer to reflect in the data.

Governance is often glossed over as investors’ gaze is drawn to the big environmental and social wins from ESG approaches. Yet governance is critical to an ESG company’s performance. While implementing good governance can deliver benefits relatively quickly, addressing a bad governance reputation may take considerable time.

IT’S NOT JUST QUALITY Another misconception is that ESG criteria are synonymous with the common ‘quality factors’, which often includes things like strong company balance sheets, low debt, high margins, high repeat earnings, and so on.

Research conducted by MSCI has shown companies scoring well on ESG factors have outperformed companies scoring well on quality factors, while other studies have found combining both

02MM240222_14-27.indd 25

to be a stronger predictor of longterm outperformance.

US-based Axiom Investors, managers for the Pengana International Ethical range of funds, who have practiced ESG investing for over 24 years, favour the combined approach. They have found companies which improve their ESG characteristics, particularly those going from ‘laggard to leader’ tended to outperform on a total shareholder basis, even when compared to sustained ESG leaders.

THE ESG SPECTRUM DOESN’T TELL THE WHOLE STORY While there are valuation opportunities right across the ESG spectrum, not everybody will agree how broad the spectrum actually is. Some investors only equate ESG investments with true ‘impact’ strategies, which drive measurable positive change at the sharp end of the spectrum.

Yet the investment universe for true impact funds is limited, and probably excludes at least 80% of all listed companies in the world.

These strategies are accordingly niche, and the returns will be highly differentiated from broad benchmarks.

Most ESG funds seek a broader investment universe, screening out the worst offenders, such as heavy polluters, and applying positive screens toward companies with strong ESG performance.

But it’s also important to remember that not all ESG leaders started out that way. In five or 10 years we will see companies who are not currently on the spectrum transform into ESG investments, possibly even ESG leaders.

Those savvy investors who can identify tomorrow’s ESG companies today can generate considerable alpha opportunities to their portfolios.

FINDING TOMORROW’S ESG COMPANIES TODAY Recent research published by Rockefeller Asset Management (RAM), found the market tends to overvalue ESG leaders, while undervaluing companies that are

Chart 2: ESG Valuations

Source: Pengana Capital Group

in the process of improving their ESG footprint (see Chart 2).

RAM found the top-quintile ESG improvers outperformed the bottom quintile by 3.8% annualised among US all-cap equities from 2010 – 2020.

Alliance Bernstein also analysed MSCI’s ESG data, and found companies receiving ESG rating upgrades outperformed an equal-weighted MSCI ACWI index during the following 12 months by 0.93%, while stocks that were downgraded lagged.

Finding differences between price and value is widely accepted as a cornerstone of an effective investment strategy – likewise, investing in businesses that are committed to improving their ESG footprint can reduce the risk of over-paying.

Outperformance is not necessarily driven by great companies improving. Instead, companies that were previously poorly ranked from an ESG perspective but subsequently displayed significant improvements generated the strongest outperformance over the following 12 months.

Consider Amazon – marked down on ESG due to its social and governance factors. But Amazon is making significant improvements, particularly regarding labour practices and renewable energy.

While Amazon is not an outstanding, best in practice ESG target, it may justify a small allocation based on the performance potential from its

ESG improvements.

An ESG investment portfolio may then contain companies across the ESG ‘maturity’ spectrum: for example, the Pengana Axiom International Ethical fund holds a mix of ESG stocks ranging, from ESG leaders with strong ESG practices, to companies who are improving their ESG practices – where the ESG improvement is a noteworthy returns driver and/or risk mitigator for the enterprise.

ESG investment managers may also use the opportunity to engage further with company management to ensure agreed milestones are being met.

Improving ESG practices have the potential to increase brand value, enhance customer and employee loyalty, reduce costs (including the cost of capital), and create longterm competitive advantages.

This will not only help companies change for the better but also deliver attractive returns to investors.

Active equity investors can identify these opportunities through fundamental research and by engaging with companies that are accelerating ESG improvements before they are reflected in the ESG scores and valuations, or by investing with an investment manager that follows these principles and whose process includes finding companies with these characteristics.

Will Deer is an investment specialist at Pengana Capital Group.

17/02/2022 12:17:09 PM

26 | Money Management February 24, 2022

Retirement

THE RUNWAY TO REAL RETIREMENT SUCCESS With popularity growing for holistic advice, writes Joanne Earl, there is further investigation to be done into why few people seek advice on their retirement.

IN SIFTING THROUGH Australian Bureau of Statistics (ABS) survey data some years ago, it became apparent that the Australian retirement dream had a reality problem.

The ABS data presented a puzzling fact: there were a lot of people who were retiring in the first wave of a survey and then were back out looking for work in the next.

That equated to almost 200,000 Australians returning to the job market after their first attempt at retirement - most of them pushed by financial pressure

02MM240222_14-27.indd 26

(43%) or pulled by boredom (35%).

Why were people leaving work at the wrong time?

Rather than filing the ABS data as interesting, if non-actionable, evidence of retirement regret among older Australians, my research team and I decided to dig into it further.

Based on a review of psychological research on why people retire, including some of my own prior studies, the findings suggested that while financial status remains important, career, emotional, physical and social factors also played a significant

role in workplace exit decisions.

Not enough people seek advice and their workplace exit date is often determined by access to their superannuation or pensions, without fully understanding how their funds will support their lifestyle. Even if they do get financial advice, what appears to be missing is a broader conversation about why they want to leave work or when they expect to leave, beyond the financials.

This insight triggered an idea for a new research project to determine if a more multi-disciplinary approach to retirement planning

could better prepare Australians for life after work; spurring the formation of a Macquarie Universitycoordinated study in collaboration with Allianz Retire+, UNSW and the University of Western Australia.

Our research team was tasked with wondering what would happen if, instead of just getting people to get financial advice prior to retirement, they were helped with career advice first, then offered some insights into their health status - all before they sought financial advice?

Would it make a difference?

16/02/2022 5:14:15 PM

February 24, 2022 Money Management | 27

Retirement

CONFIDENCE BOOST ON HEALTH, WEALTH AND CAREER TRAINING The short answer to that question is ‘yes’.

Preliminary results from our Australian Research Council Linkage pilot completed in late 2021, confirmed that guiding pre-retirees through a structured program covering career, health and finance made a measurable impact on retirement-readiness.

The preliminary research found the three-pronged advice approach left people more confident about retirement overall while boosting their financial literacy knowledge.

Intriguingly, after completing the intensive three-module course – a mix of online and one-to-one advice activities – participants on average revised down their expected retirement ages.

The pilot experience demonstrated that when people explored beyond just the financials and started to really consider their individual circumstances and what it meant to retire or when they would like to do so, there were many ‘aha’ moments.

That is not to say the financial information was not high on the appetite list. Quite the contrary, finances in retirement could present a lot of unknowns or uncertainty for people and many were keen to develop a better handle on their knowledge.

In another significant preliminary finding, people in the pilot study said they were more likely to consult a professional financial adviser after completing the modules. Participants

02MM240222_14-27.indd 27

The promising initial indicators show that a broader approach to retirement planning – covering health and career details as well as finance – may offer a real solution to ensuring people adjust to retirement. received a mixture of exposure to financial education, resources and general advice as part of the finance component, which might have added to the general uptick in willingness to seek advice.

In my experience, people are unsure how to go about finding a financial adviser and often have little idea of what questions to ask financial advisers about retirement planning. However, the pilot showed the in-depth retirement planning module approach enabled people to think more deeply, and reflect upon their individual situation.

This also has the potential to create engaged clients for financial advisers: those involved in the study generally emerged with a much clearer idea of what to expect from advice and along the way generated more specific questions to ask.

Overall holistic approach to post-work planning is indicating benefits both for retirees and advisers, with the potential to take flight across the industry.

STUDY CLEARED FOR NATIONAL APPROACH Equipped with some interesting results based on the experience of 100 or so subjects over a relatively short time frame, we will commence the longitudinal national study in March.

The progress of hundreds of participants aged 50+ and still working will be tracked over an

extended period, as they go through the holistic retirement planning program and beyond.

Indeed, aside from building more detailed evidence on how holistic advice can improve retiree outcomes, the study also targets developing an innovative approach to retirement planning training.

This type of training for financial advisers will mean translating the theoretical promise of the multi-disciplinary retirement planning program into a workable advice solution.

Financial planners who take part in the study to offer general financial advice will be rewarded with training and CPD credits of course. But above that, given the positive feedback from those in the pilot program, they will gain insight into the value and mechanisms of holistic advice.

Who would not want more pre-retirees coming to their practice, better prepared and showing greater engagement?

ACHIEVING REAL RETIREMENT SUCCESS The promising initial indicators show that a broader approach to retirement planning – covering health and career details as well as finance – may offer a real solution to ensuring people adjust to retirement.

Participants certainly tended to have better knowledge about accessing their superannuation

JOANNE EARL

after going through the program, while also being more willing to confront health issues and perhaps giving themselves a reality check about when they may need to leave work. That can only be a positive.

With an overarching design to help people better engage and gather a realistic view of their individual circumstances, the study has the potential to increase confidence and spur active design of people’s individual retirement experience.

Financial advisers who are interested in taking part in the next phase of the study need to be listed on the ASIC Financial Adviser Register, have experience in dealing with retirement issues, be willing to go through training on the protocols of the holistic advice study and have time to connect with study participants for a general advice session.

We view this as a landmark study, with the potential to greatly impact Australians on an individual level, and offer broader societal and economic benefits.

It’s well worth deeper exploration.

Professor Joanne Earl is a Professor of Psychology at Macquarie University and a researcher focused on retirement planning and adjustment.

17/02/2022 12:32:57 PM

28 | Money Management February 24, 2022

Toolbox

THE CASE FOR INVESTING IN GLOBAL CREDIT

When used for diversification purposes in a portfolio, writes Richard Quin, global credit can offer higher income for investors with less risk than equities.

GLOBAL CREDIT CAN be a useful diversifying asset class for Australian investors. It can offer higher income than cash, with less risk than shares, while bringing diversification benefits that can reduce overall portfolio risk.

The long-term performance of different asset classes' historical risk and return trade-off is shown in Chart 1. Global credit sectors have an intermediate risk-return profile through different investment cycles.

Overseas index returns (except World Equities) are fully hedged into Australian dollars.

Optimising asset allocation is particularly important in the current environment, because forwardlooking asset class return profiles are likely to differ from the past.

02MM240222_28-32.indd 28

Chart 1: Historical Annualised Return vs. Historical Risk

Source: Barclay's Capital, Bentham, BoA Merril Lynch, Bloomberg, Credit Suisse, JP Morgan, Morgan Stanley &UBS

17/02/2022 9:22:18 AM

February 24, 2022 Money Management | 29

Toolbox Government bond yields are at record lows, while share markets globally are reaching peaks.

Chart 2 shows how global credit sectors are producing higher yields compared to cash and government bonds.

Importantly, when allocating a portfolio across cash, fixed interest and equities, adding global credit has historically improved returns for a given level of risk, because global credit can perform well at different times to share, fixed income and other asset classes.

There are five key benefits of adding global credit investments:

many different investor types, including asset managers, banks, insurance companies and pension funds. This diversity of investors means credit investments are traded between buyers and sellers even in difficult times.

Global credit has been a more resilient asset class than equities, recovering far faster than equities

after the Global Financial Crisis (GFC). Global credit is regarded as intermediate risk with an investment horizon of three to five years.

4. DIVERSIFICATION Global credit allows Australian investors to diversify away from Australian shares and achieve a broader spread of exposures

across issuers and economic/ geographic areas. Industry diversification is particularly important, because corporate failures may occur in clusters the technology crash in the early 2000s, or financial institutions during the GFC, for example.

Continued on page 30

Chart 2: Current yields of cash, fixed income and global credit (A$ hedged)

1. INCOME GENERATION Corporate bonds, loans and highyield securities tend to pay investors regular coupons, with a higher yield than cash or fixed interest. A diversified portfolio of such coupon-paying instruments allows for the smoothing out of all those cashflows, which can be paid out as regular, high-yielding income (i.e., through monthly global credit fund distributions).

Source: Bentham, Bloomberg Finance LLC and JP Morgan

Chart 3: The resilience of credit.

2. CAPITAL RESILIENCE SENIORITY AND SECURITY Credit investors benefit from having priority of payment above equity investors for payment of coupons and repayment of principal. Senior credit investors rank ahead of hybrid and subordinated debt investors. A credit investor's ranking in the company's capital structure is a key determinant of their recovery of investment if a company gets into trouble, and their certainty of receiving ongoing distributions.

In addition to seniority, some credit investments also provide investors with the benefit of security over specific assets of the borrower, providing further protection to the investor. This normally takes the form of a mortgage over property and other realisable assets. These factors mean the capital value of credit investments has been more resilient than equities.

Source: Bentham, Bloomberg

Chart 4: Correlation of returns between various asset classes January 1992 to January 2022

3. A LIQUID AND RESILIENT ASSET CLASS Global credit is a large and deep market and significantly larger than global share markets. It has

02MM240222_28-32.indd 29

Source: Barclay's Capital, Bentham, BoA Merril Lynch, Bloomberg

17/02/2022 9:22:29 AM

30 | Money Management February 24, 2022

Toolbox

CPD QUIZ This activity has been pre-accredited by the Financial Planning Association for 0.25 CPD credit points, which may be used by financial planners as supporting evidence of ongoing professional development.

1. Credit Risk is: a) The risk of potential investment losses due to a change in interest rates b) The risk that a company fails to pay its coupons or principal in Continued from page 29

full and on time c) The risk that a company fails to make a dividend payment to its

Industry diversification is difficult to achieve in the Australian market.

Australia is a small economy with a heavy concentration to financials and miners. Far greater diversification is available by investing in global asset classes.

There are many types of credit investments within the global credit asset class, including investment-grade bonds, global syndicated loans, convertible bonds, high-yield bonds, securitised debt, capital securities, and fixed-rate and floating-rate securities. They offer different types of credit risk and return opportunities.

5. MANAGING CREDIT RISK Like all investments, there are risks to consider. The key one is credit risk, where a company fails to repay coupons or principal in full and on time. Credit risk can be best managed and mitigated through careful investment analysis and security selection, thorough review of creditor protections in any security (i.e., seniority, security), a focus on rated, liquid investments, and significant diversification.

Accessing global credit with sufficient diversity and liquidity Retail investors cannot effectively access global credit investments directly because: • There is a lack of credit assets domestically. Banks dominate lending in Australia, which limits the issuance of credit in public capital markets as in the US and Europe; • Credit markets are largely institutional. Credit securities are typically only sold to wholesale investors and/or have large minimum investment sizes ($500,000 plus). The small number of individual credit securities made available directly to the retail market in Australia are often of "non-institutional quality", being subordinated, unrated and without a liquid, traded market; and • Credit investing requires considerably more diversity than equity portfolios. Diversity is more important in credit portfolios than in equity portfolios but less recognised. A credit portfolio with 20 to 50 securities is not diversified enough to reap the full benefits of diversification. The diversity required to create a robust credit portfolio is simply not possible to replicate with a small portfolio (for context, Bentham's credit funds typically have between 150 and 600 unique issuers in each).

This is why global credit has historically been a more institutional market.

Even the larger institutional investors, such as industry superannuation funds in Australia, will typically invest in global credit via managed portfolios, not through selecting a small number of individual bonds.

Richard Quin is chief executive and lead portfolio manager of Bentham Asset Management.

02MM240222_28-32.indd 30

shareholders 2. True or False? Global credit markets are smaller than global share markets a) True b) False 3. What is an example of a global credit asset? a) Syndicated Loan b) Non-convertible preference share c) Listed Infrastructure 4. What is NOT a reason as to why retail investors cannot access global credit investments directly? a) Credit markets are largely institutional. b) Credit investing requires considerably less diversity than equity portfolios. c) There is a lack of credit assets domestically 5. Fill in the blank: Global credit sectors have a/an risk-return profile through different investment cycles. a) Low Risk b) Intermediate c) High Risk

TO SUBMIT YOUR ANSWERS VISIT https://www.moneymanagement.com.au/ features/tools-guides/ case-investing-global-credit For more information about the CPD Quiz, please email education@moneymanagement.com.au

17/02/2022 9:22:41 AM

February 24, 2022 Money Management | 31

Send your appointments to liam.cormican@moneymanagement.com.au

Appointments

Move of the WEEK Hamish Douglass Chief investment officer Magellan Financial Group

Hamish Douglass took a ‘leave of absence’ from Magellan Financial Group, leaving Chris Mackay to take over his portfolio management duties.

In an announcement to the Australian Securities Exchange (ASX), the firm said Douglass would take a leave of absence from his fund management duties and his role as a director and chairman.

Class Limited’s chief executive and managing director, Andrew Russell, stepped down from his role.

In the announcement made to the Australian Securities Exchange (ASX), the company said that the Class and the HUB24 boards had agreed that, as a result of Class becoming a business unit within HUB24, following the court approval of the acquisition, this would be “the right time for him to step down”.

At the same time, Russell would remain an adviser to the CEO and managing director, Andrew Alcock, during the transition period.

The company advised that Jason Entwistle, HUB24’s director of strategic development, would be appointed as interim CEO and managing director of Class on implementation of the scheme, reporting to Alcock while a selection process would be undertaken for a permanent replacement.

The Association of Superannuation Funds of Australia (ASFA) appointed Gary Dransfield as independent chair with current independent chair, Dr Michael Easson, stepping down having completed two terms as chair.

Dransfield was currently a non-executive director at the organisation and was formerly chief executive of Insurance Australia for

02MM240222_28-32.indd 31

“The board of Magellan Financial Group advises that, after a period of intense pressure and focus on both his professional and personal life, Hamish Douglass, Magellan’s chairman and chief investment officer, has requested a period of medical leave to prioritise his health.

“The Magellan board wholeheartedly supports Hamish taking the time that he

Suncorp Group. He had also held board roles at the Insurance Council of Australia and Insurance Council of New Zealand.

Chris Davies, chair of the ASFA Nominations Committee, said the association was pleased to have made the appointment from outside the super industry as this would broaden the diversity of the board.

ClearView Wealth appointed Cloe Reece, former general manager of enterprise controls performance at NAB, as chief risk officer.

Reece previously held compliance roles at Westpac, ANZ and Commonwealth Bank.

Her role at ClearView would see her lead the group risk and compliance team, oversee risk management operations and build the group’s risk culture, reporting to managing director Simon Swanson.

Swanson said: “Effective risk management is the cornerstone of any organisation’s long term success and I am pleased to have Cloe on board to oversee ClearView’s risk management operations and ensure strong risk practices are embedded across the organisation.

Synchron appointed Phil Osborne as general manager, compliance, moving him from his role as a

requires to focus on his health and looks forward to welcoming Hamish back.”

Mackay, who founded the firm with Douglass, would oversee portfolio management of the firm’s global equity retail funds and global equity institutional mandates.

Nikki Thomas, who worked at Magellan for 10 years until 2017, would also rejoin the firm as co-portfolio manager on the strategies.

compliance consultant which he has held since July of last year.

Osborne had been a director and responsible manager for a number of financial services licensees and held various roles with numerous financial services businesses, including Lifestyle Asset Management, the SMSF Advisers Network, and Interprac Financial Planning,following his entry to the financial advice industry through AMP and Hillross Financial Services.

Osborne would report directly to the Synchron board and would head a compliance team which included Alison Massey, head of compliance – advice assurance. He would also be working closely with the head of compliance – policy and regulatory, Hanna Abdullah.

Former Club Plus Super chief executive, Stefan Strano, joined Australian Super as business lead for retirement solutions following the merger between the two superannuation funds.

The two funds completed the merger in December 2021, creating a super fund with over 2.4 million members.

Writing on LinkedIn, Strano said: “The Australian superannuation system has amassed an incredible $3.4 trillion of our savings and is a

wonderful success story. With more people living longer than ever before and the idea of what ‘retirement’ means being redefined, our industry is turning more and more attention to how we can best serve members in retirement”.

AustralianSuper appointed Eloy Linddeijer to its Direct Investment Decision Making and Advisory Committee for UK and European investments advisory committee to support its European investment activities.

Lindeijer was a former central banker with over 30 years’ experience in financial services and had been PGGM’s chief investment manager from 2011 to 2020.

There he was responsible for €250 billion (AU$400 billion) in pension funds under management.

He joined PGGM from De Nederlandsche Bank (DNB), the Dutch central bank, where for over 21 years he held a variety of roles culminating in responsibility for financial markets from 2007 to 2011.

Since leaving PGGM in 2020, he had taken on a variety of roles across financial services, including with the Global Impact Investing Network, the African Green Infrastructure Investment Bank initiative and as an independent adviser.

17/02/2022 2:27:02 PM

OUTSIDER OUT

ManagementFebruary April 2, 2015 32 | Money Management 24, 2022

A light-hearted look at the other side of making money

Travel is go THERE was excitement in the Money Management office this month as the Government finally announced that, after more than two years, international borders would finally reopen for tourism.

Money Management’s very own editor is from the UK and has been eagerly awaiting the opportunity to see her family and friends again while another team member is already planning his ski trip to New Zealand.

No wonder people are excited when the pandemic has left millions

separated from loved ones and restricted to local travel within their state in some cases.

Outsider hopes the move will also be the jumpstart needed for travel companies such as Qantas, Flight Centre and Sydney Airport which have been severely hit by the pandemic.

As for Outsider, he has various travel plans in the offing, he could go golfing in Scotland, whisky tasting in Japan or take some time out by laying on a beach in Fiji, the possibilities are (finally) endless.

One last perfomance IT seems for Outsider that perhaps he shouldn’t have been so hasty in giving up his musical ambitions in favour of journalism.

After all, being Prime Minister hasn’t stopped Scott Morrison from picking up his ukulele to pick out a few tunes as he travels around the country on his Federal election campaign.

He was captured on TV programme 60 Minutes playing April Sun in Cuba, a 1970s hit about escaping political disaster in search of greener pastures. However, the song came across as a cynical pick reminiscent of Morrison’s own escape to the greener pastures of Hawaii when the bushfires happened in 2019.

While Outsider cannot comment on how well Morrison could play the instrument, his own musical choice would be the guitar.

However, after listening to hours of haphazard practice in the house during the lockdown, Mrs O has finally put her foot down and convinced him that an air guitar would be better.

Along came Polly OUTSIDER thought of himself as someone who would never fall for the public relation tactics that has become so engrained in political discourse, as someone who would vote based on policy and party rather than character and as someone who could spot a political photo op from a mile away.

But then along came Polly.

Polly, Senator Jane Hume’s new black Labrador puppy, coined as a “Lib-rador” by Hume, received almost 300 reactions and dozens of comments on her LinkedIn page.

Outsider admits his first reaction to the post was ‘what does this Labrador have anything to

OUT OF CONTEXT www.moneymanagement.com.au

02MM240222_28-32.indd 32

do with financial services and Government’ but then he soon became mesmerised by Polly’s beauty.

Hume said: “So far her favourite things in the world are having a cuddle, and stealing shoes”.

Perhaps 60 Minutes can do a feature story on Polly the Lib-rador, Outsider wonders, as he is sure that will get their ratings up after Scomo’s ukulele rendition of April Sun in Cuba.

Outsider ponders whether members of the financial services community would like to see a picture of his mongrel. His favourite things are digging for bones or humping the cat.

"Meet Polly, the Lib-rador."

"We are here on a Falinski frolic."

- Senator Jane Hume gets pun-friendly with her new dog

- Andrew Leigh rues Jason Falinski's agenda

Find us here:

17/02/2022 2:59:44 PM