Money Management | Vol. 36 No 9 | June 2, 2022

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Vol. 36 No 9 | June 2, 2022

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Vol. 36 No 9 | June 2, 2022

20

ESG

Company alignment

ADVICE

22

Maximising data benefits

RETIREMENT INCOME

PRACTICE MANAGEMENT

Demonstrating your value

The health impact of the RC on advisers

BY LAURA DEW

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Trustees set to work maximising retirement incomes THE Retirement Income Covenant will see changes to the superannuation industry and how they create retirement income strategies for their clients.

Encapsulating a decade of thought and knowledge around retirement, it aims to provide funds with flexibility to design and tailor products which will meet the specific needs of their members.

It also wants trustees to create a retirement income strategy which balances the three retirement objectives of maximising income, managing sustainability and stability risks and giving flexible access to funds.

While the changes have been broadly welcomed, not everyone was convinced that change was needed in the space.

Andrew Buchan, partner at HLB Mann Judd, said: “I’m not sure how a codified obligation helps the end investor. More legislation costs, which is just passed onto the end investor, which is not welcomed”.

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Full feature on page 14

24

SOME 80% of advisers say their stress levels has “significantly increased” since the Royal Commission, causing marriage breaks-up, long working hours and depression.

According to a survey by financial adviser Philippa Hunt and Forte Asset Solutions of 693 respondents, 95% said their stress levels had slightly or significantly increased while just 2% said it had slightly or significantly decreased.

Some 87% said their mental health had significantly or slightly declined, 73% said the same about their physical health and 70% said their sleep was suffering.

Over half said they were drinking more to cope and, of those, 39% said their intake had significantly increased. Some 10% said they were taking non-medicated drugs,

primarily sleeping tablets.

Some 18% said they were on medication compared to 7% prior to the Royal Commission and more than 20% said they had entertained thoughts of self-harm.

However, respondents were actively seeking to address this as 78% said they had taken personal steps to improve their mental health and 37% had consulted a doctor with 18% being prescribed medication for the problem. Some 7% had contacted a support network such as Lifeline or Beyond Blue.

The report said: “The answers of the survey show up that this was a plea for help. The overwhelming responses in the survey show advisers love their work that helps their clients reach a better place in their life.

However, with the imposition of Continued on page 3

How can Australia lessen the advice gap?

THE advice gap is more acute in Australia than other parts of the world, according to a panel of industry experts, and is lagging behind in digital advice propositions.

Speaking at the Stockbrokers and Investment Advisers Association (SIAA) conference in Sydney, Irene Guiamatsia, head of research at Investment Trends, said regulatory changes had led to an advice gap.

“If we define the advice gap, which is the disconnect we have between those who want to access advice and those who can afford it, is that different in Australia? I would suggest that yes, it is more acute in Australia than in other jurisdictions where we do research.

“In 2011, the wealth of advised Australians reflected the wealth across the population. If you looked at market segments of mass market, mass affluent and high net worth, 63% of advised people were Continued on page 3

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June 2, 2022 Money Management | 3

News

Looking beyond the Professional Year

BY LIAM CORMICAN

ONE of the most important factors to a successful Professional Year (PY) strategy is for firms to look beyond the 12-month horizon.

Speaking at the Stockbrokers and Investment Advisers Association (SIAA) conference, Canaccord Genuity Wealth Management WA state manager, Chris Webster, said firms needed to have a clear idea about what would happen to the PY adviser once their year finishes.

“I think the worst thing that can happen is you can pull some young people through a program like that and then put them back into the seat where they’ve come from,” he said.

Webster, whose firm had recently graduated a PY adviser with three more in the program and a further 10 in a pre-PY academy, said new advisers brought new energy to an organisation.

“We talk about what we teach them through the program, but

we learn so much from the younger cohort.

“Their clients are going to be different to ours, they’re going to have different needs and wants, they’re going to use different platforms, they’re going to manage money differently.”

Ord Minnett interim head of human resources, Bernadette Page, said a good PY program was all about managing risk from a talent and succession

The health impact of the RC on advisers Continued from page 1 overreaching legislation and regulation has caused advisers such overwhelm and stress simply doing their job.

“However, there are a number of advisers who are intending to stay, and they don’t have low base clients. All of the clients in the industry will now move further to the upper end of the highnet-worth clients who can afford to pay fees and those advisers won’t be feeling the stress of trying to make ends meet with higher costs of the business and having to charge clients more.

“The fact that the industry has been brought to this point, and even if those distressed advisers leave, they’ll end up being mentally and emotionally burnt out and this is actually forcing them out. And this is one of the most heartbreaking aspects of the whole survey and its results.”

If you are affected by any issues in this story, contact Lifeline on 13 11 44 or Beyond Blue on 1300 22 4636.

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planning perspective.

“The ongoing success of our business and the existence of our business will come down to us developing new advisers and successfully seeing that huge transition that’s going to happen in the next five years with those that exit.”

Fourth Line chief operating officer, Joel Ronchi, said he expected the Professional Year would be the “next big focus” for

the advice community following completion of the financial adviser exam.

The risk management and compliance firm was setting up an academy to help firms manage new entrants on their Professional Year.

Prior to joining Fourth Line, Ronchi had been supporting advisers ahead of them sitting the exam so was well-placed to work with them on the PY.

How can Australia lessen the advice gap?

Continued from page 1 in the mass market. Now we find it is a third [in each segment].

“This is a very, very acute problem in Australia.”

Even within high-net-worth individuals, those with $1 million available to invest, she said Investment Trends’ research had found 59% had unmet advice needs and needed help with portfolio construction and investment selection.

Discussing how it could be addressed, Balaji Gopal, head of Vanguard Australia Personal Investor, said Australia was behind the US and UK in the uptake of digital advice tools. In the US, he said, there was greater adoption and awareness of financial advice over the last five years while the UK was seeing people seek advice around retirement as the country lacked a mandated superannuation system.

“Australia, we feel, is slightly behind in advice adoption and digital advice adoption

- predominantly we have robo-advice solutions. Pleasingly, ASIC [the Australian Securities and Investments Commission] is taking a view to try and look at scaled advice or fractional advice to make it accessible so hopefully things will change.”

However, the panellists said experiences in the US had indicated people still sought human engagement when it came to advice.

Guiamatsia said: “Our research in the US when you look at retail investors uptake of robo-advice solutions shows what investors really want is the ability to dial up or down the presence or engagement with a human. So for each of those market segments, there needs to be a human at the end of the process, it just varies by degree”.

This echoed findings by a previous Vanguard report earlier this year of 1,500 US investors which found human and digital advice played different roles with clients preferring the emotional support of human advisers but the tax optimisation and diversification offered by digital advice.

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4 | Money Management June 2, 2022

Editorial

laura.dew@moneymanagement.com.au

THE UNINTENDED TOLL OF THE ROYAL COMMISSION

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

It is no secret that the Royal Commission has impacted advisers but research has highlighted the severe toll it has taken on their health.

Editor: Laura Dew Tel: 0438 836 560 laura.dew@moneymanagement.com.au Journalist: Liam Cormican

WHEN the Hayne Royal Commission was completed, its recommendations were billed as a way to clean-up the industry, improve its professionalism and salvage the reputation of the financial advice sector.

These were notable aims after some less-than-palatable scenarios occurred in previous years but, several years on, the recommendations have had an unfortunate unintended consequence.

Yes, the industry is indeed more professional, its advisers are better educated and the quality of advice provided is higher.

However, a report by Forte Asset Solutions and adviser Philippa Hunt has highlighted the physical and mental toll that the recommendations have taken on the industry.

On the adviser side, this included higher stress levels, marriage breakdowns, depression, increased medication usage and poor sleep.

On the business side, over a third said their cashflow had declined while others were spending less time with clients and increasing fees to cover costs.

In the worst-case scenario,

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21% said they were contemplating self-harm. After the report was published, several Money Management readers got in touch to relate their own experiences regarding depression and self-harm.

We talk about the ‘light at the end of the tunnel’ approaching and how the changes have improved the industry but for many, the last few years may have been a change too far for them.

Advisers need to be supported, whether that’s by the Government, by the regulator, their licensee or professional organisations. This could be via counselling, support

services, better communication and advocacy.

As well as the Quality of Advice Review, it would be worthwhile to conduct a peerreviewed study on the effect of regulatory upheaval on the mental health of an industry, data that could be used for future legislative changes across the economy.

This will be the penultimate issue as Money Management will be ceasing print publication so look out for a special ‘farewell issue’ later this month.

Laura Dew Editor

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6 | Money Management June 2, 2022

News

Hope for certainty with Albo win

BY LAURA DEW

ORGANISATIONS have welcomed the election of Anthony Albanese as the next Prime Minister.

The Association of Independently Owned Financial Advisers in Australia (AIOFP) said it was pleased with the Labor party victory and the removal of Josh Frydenberg from Parliament.

Speaking to Money Management, Peter Johnston, AIOFP executive director, said: “Over the past nine years this Government has been brutal to the advice community - yes we did need some changes but not the ridiculous lengths they went to.

“In late 2014 when Frydenberg become our minister it was obvious he had an agenda to remove advisers from the landscape and was relentless. It is poetic justice he has now lost his job.”

Johnston said his organisation warned Senator Jane Hume in 2019 that it would attack Liberal marginal seats if her Government persisted with “ridiculous compliance legislation and refused to amend other LIF/FASEA anomalies”.

“We are pleased to say that our strategy worked particularly well in the seat of Kooyong where over 300 advisers live with thousands of clients, this no doubt contributed to the removal of Frydenberg.

“The last nine years of pain for the advice community has demonstrated that associations that sit on the fence politically or are sycophants and not acting in the best interests of members need to amend their ways.”

Financial Planning Association of Australia (FPA) chief executive, Sarah Abood, said she was hopeful that the Government would provide certainty to the adviser industry.

“We are expecting the new Government to quickly deliver on its election commitment to provide much-needed certainty to the profession on education standards, including providing for a framework to better recognise relevant experience.”

She said the FPA had already built good engagement with Albanese’s colleague, Stephen Jones, and highlighted issues such as the compensation scheme of last resort, tax deductions for financial advice and the industry funding model as priorities for the new Government.

Over at the Financial Services Council (FSC), chief executive, Blake Briggs, said: “Labor will be responsible for delivering on important initiatives such as the Quality of Advice Review and measures to make financial advice affordable and accessible to all Australians. The financial services

BY LIAM CORMICAN

industry plays an important role in supporting Australian consumers and a growing economy and we encourage Labor to focus on initiatives that will deliver an efficient and competitive industry.”

On the markets side, AMP chief economist, Shane Oliver, said: “With the share market down 3.5% over the last eight weeks there is potential for a rebound ahead as political uncertainty is reduced but the Australian share market remains vulnerable to ongoing global concerns about inflation, interest rates and recession and these will likely dominate.

“Industry sectors likely to benefit from the change in Government include clean energy, health, education, home builders & manufacturing, whereas heavy carbon emitters may lose.”

Independents triumph over Liberal candidates TREASURER Josh Frydenberg has lost his seat in this year’s Federal election while Tim Wilson and Jason Falinski, who sat on the House of Representatives standing economics committee, have also lost out.

All three members were overtaken by ‘teal’ independent candidates in closely-fought battles.

Frydenberg lost his seat in Kooyong, Victoria to independent candidate Monique Ryan.

He had been Treasurer since August 2018 and MP for Kooyong since 2010 and was tipped to be the next leader of the Liberals after Scott Morrison.

Reacting, Senator Jane Hume, said: “As a Victorian, and a Treasury Minister, I would like to acknowledge Josh Frydenberg. No one in politics worked harder.

“Assisting in drafting the equivalent of four budgets in as many months in 2020, I saw firsthand his dedication to the people of Australia. The

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Insignia tops annual turnover

economic reforms, tax cuts, and economic recovery post-COVID are legacies Australians will be the beneficiaries of for many years to come.”

It was expected the next Liberal leader would be minister for defence, Peter Dutton.

Meanwhile, Liberal member Jason Falinski, who was chair of the House of Representatives standing committee on economics, lost his seat in Mackellar, New South Wales to independent Sophie Scamps after six years.

Liberal Tim Wilson, who chaired the same committee as Falinski from June 2018-October 2021, lost his seat in Goldstein, Victoria after six years to independent Zoe Daniel.

The Federal election was won by the Labor party with Anthony Albanese succeeding Morrison as Prime Minister and Jim Chalmers appointed as Treasurer.

INSIGNIA has the highest adviser annual turnover rate of the big five licensees at 38% while Morgans has the lowest rate of turnovers at 14%, according to Wealth Data.

The calculation was completed at the licensee owner level and was based on staff resignations as a percentage of the average number of staff between the start and end of the 12-month period between 12 May, 2021 and 11 May, 2022.

In second place was Diverger with a turnover rate of 25%, followed by WT Financial Group’s rate of 33%, AMP with a rate of 31% and Centrepoint Group in fourth place with a rate of 20%.

Wealth Data’s Colin Williams, said: “Each industry and profession will have its own issues to deal with and the financial advice sector has had more than its fair share over recent times.

“However, each participant in financial advice have known what the issues are and put in place plans to minimise their losses.

Therefore, a comparison across leading participants makes for interesting reading.”

Williams said: “Turnover rate can be affected by a business strategy. For example, if a business in financial planning decides to no longer provide services to ‘single adviser’ practices, that business may expect some additional losses. However, that company may have predicted that as a result of the change, they could attract large practices and increase the number of advisers.

“This past year has been dominated by the FASEA exam and heavy losses were always expected, which in turn means a high turnover rate. As mentioned, every business knew that this was coming up, so it is interesting to see which business were able to best manage the FASEA issue.”

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8 | Money Management June 2, 2022

News

Move to in-house ESG causes salary boost

BY LAURA DEW

THE rise of environmental, social and governance (ESG) investing means firms are paying top dollar to hire in this area with salaries reaching $300,000.

According to Kaizen Recruitment, there was a trend for firms, especially superannuation funds, to set up their own in-house ESG teams rather than outsource them which was driving the increased demand for roles.

Including superannuation, a head of ESG was being paid as much as $300,000 a year while an ESG investment manager could earn $230,000.

Lower down, a senior ESG investment analyst could earn $170,000 and an ESG investment analyst could earn $120,000.

The recruiter recommended people seeking to work in this area could work in investment and then pivot towards an ESG specialisation as well as undertaking courses on ESG topics as this would give them both corporate and ESG experience.

The firm said: “The rise of awareness across society for ESG issues is having a broad impact and is permeating through to the corporate world. This trend has been accelerating and has forced businesses to consider the impact of their investment decisions. ESG roles can vary greatly in scope and depth depending on a number of factors.

“In some businesses, this has taken on the form of teams solely dedicated to ESG research while others have taken a broader stance that ESG issues should be a consideration for all employees.”

Don’t be too quick to drop bonds in the sell-off: AXA IM

BY GARY JACKSON

INVESTORS should be wary of dumping bonds even though the asset class has been caught up in the sell-off that has dominated the start of the 2022, according to AXA Investment Managers.

Markets had been rattled over recent months by numerous concerns, including surging inflation, rising interest rates, worries about weaker economic growth and Russia’s invasion of Ukraine.

Falling bond prices meant yields had risen but they remained low when compared with current inflation and to their history, meaning that few investors were excited about fixed income at the moment.

Chris Iggo, chief investment officer for core investments at AXA IM, said the focus on relatively low yields should not mean investors overlook that bond prices are at multi-year lows.

“That means there is the potential for some interesting returns in the next year,” he added. “Bonds have sold off a lot and in previous bear market episodes, subsequent returns

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have been strong. So now is not the time to sell.”

One data point that Iggo highlighted was the weighted average price of bonds in fixed income indices: average prices have been well above 100 in recent years as interest rates fell below the coupon rates at which bonds were first issued.

“That is now reversing, and prices have fallen accordingly.

What this means is that by either replicating a benchmark index or constructing a more concentrated portfolio, there is the opportunity to buy lots of bonds well below par,” he explained.

“On the assumption that most of them will redeem at 100, returns can be significant once the market turns. Pull-to-par, like compound interest, is one of the wonders of bond investing.”

For example, the average price of bonds in the Bank of America/ ICE index had recently fallen to 90.6. Average prices had only fallen lower than this on a handful of occasions over the past 20 years – 2020’s initial COVID-19 sell-off (low of 78), the growth fears in 2015 (low of 84), the 2008-09 Global Financial Crisis (low of 55)

and the recession after the Y2K slowdown (low of 75).

Iggo added: “Each time, 12-to-24-month price returns were subsequently very strong. Prices may go lower, but they won’t stay low. Yes, default risk is rising, but active stock selection means that at the portfolio level this risk can be mitigated.”

The strategist said investors should look beyond the fact that bond yields in many cases are below the rate of inflation.

This was because bond prices moved towards 100 the closer they got to redemption (known as ‘pull to par’), which benefited returns at the index level. In addition, new bonds would be issued with higher coupons to reflect rising inflation and rates.

“If interest expectations start to ease back this will provide an additional push higher in prices,” Iggo said.

“The total return could significantly beat inflation over the next couple of years even if the yield-to-maturity (which represents the annualised total return over the remaining life of the bond) may not look as though that would be the case.”

CountPlus appoints CEO COUNTPLUS has appointed Hugh Humphrey as chief executive, effective from 1 July, 2022.

This followed the departure of Matthew Rowe in February.

Humphrey had previously worked at the big four banks as general manager of NAB’s consumer bank across metropolitan NSW and emerging markets and general manager and executive manager roles in wealth management advice at CBA. Laurent Toussaint had been working as interim CEO and was now promoted to chief financial and operating officer.

The firm praised Humphrey’s experience in strategic growth, digital and transformation capabilities and his vision for the future of advice.

Humphrey said: “I have admired the development of this business in recent years and am excited about leading its growth to be a significant financial services group”.

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June 2, 2022 Money Management | 9

News

Investing in AMP is ‘not a crazy bet’: Allan Gray

BY LIAM CORMICAN

HAVING AMP shares is “not a crazy bet”, according to Allan Gray, as the business lacks debt and will soon have billions of dollars in surplus capital from its break-up and sale strategy.

Speaking at Allan Gray’s Sydney Investment Forum, chief investment officer, Simon Mawhinney, said AMP’s strategy of breaking up and selling segments of its business had finished with the sale of AMP Capital (Collimate Capital) and its life insurance business.

“The horse has bolted on the break-up and sale strategy… [it’s] pretty much done,” he said.

“And it hasn’t been value destroying, maybe somewhat enhancing.

“It doesn’t seem like a crazy bet to make.

AMP is 3% of our portfolio at the moment, we haven’t bought or sold for over a year.”

While referring to AMP’s wealth management business as a “donut” and “a bit like the buy now, pay later companies that are

worth zero”, Mawhinney said AMP Bank had fundamental value in the form of $1.5 billion in net tangible assets.

“I made a reference to NAB which traded at around 1.8 times net tangible assets (NTA), regional banks are around 1.3 times NTA, but let’s just say AMP Bank, because all things AMP are worth a discount, let’s just say AMP Bank is

1 times NTA and that’s $1.5 billion,” he said.

He said the New Zealand business made around $20 million a year in earnings and was worth about $500 million, calculating the cumulative value of the Australian and New Zealand bank to be about $2 billion.

And with AMP selling its life insurance business for $3 billion and AMP Capital for $2 billion (Mawhinney said it should have been $3.5 billion if Boe Pahari had not been appointed to chief executive), AMP was sitting on billions in surplus capital to be delivered to shareholders.

“They have this war chest of money which is around about $2.7 billion and so when you add that onto the $2 billion from AMP Bank and New Zealand, you easily get to $1 billion of upside of AMP share from here and that is with this donut in wealth management,” he said.

“But something for nothing always looks good for us and of course something for $1 billon looks even better, in other words, we take wealth management and get paid $1 billion to receive it.”

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10 | Money Management June 2, 2022

News

Adviser departures hit triple figures Using marketing to reduce adviser burnout

BY LIAM CORMICAN

THE advice industry is down 132 advisers in the week to 20 May dominated by the effective closure of 47 small self-licensed Australian financial service licensees (AFSLs), according to Wealth Data.

This compared to a net loss of 31 advisers in the previous week.

Wealth Data’s Colin Williams said it appeared the Australian Securities and Investments Commission (ASIC) had been catching up with licensees that had not been removing advisers due to them failing the financial adviser exam.

“With regards to the FASEA exam, the AFSL was required to remove advisers who had not passed the exam and not eligible to have another go through to September,” he said.

“It is obvious that this was not done by many small AFSLs and it is only now being chased down by ASIC.” It was a slow week for growth with only 15 licensee owners managing to grow in size for a total of 24 advisers. On a positive note, seven of these were provisional advisers.

Three licensee owners

each had a net growth of three, including Michael Ibbotson (Security National Financial Services) with two advisers coming from Count.

In losses, 47 licensee closed accounting for some 64 advisers, few of which had switched elsewhere.

State One Holdings, which mostly provided ‘general advice’ was down -10 leaving one adviser at the licensee.

Interfinancial Corporate Finance closed for the loss of four advisers with Picture Wealth also down (-4). Marsh Mercer fell to zero advisers

after losing three. A total of 22 licensees were down two including Capstone, Industry Super, with the data showing a very long tail of 90 licensee owners down one.

Four losses were backdated to last year, taking the losses for 2021 to -3,453 or -16.23%.

This was the highest percentage loss since the Financial Advisers Register (FAR) was introduced in 2015.

Year to date, 121 licensees had closed and 231 had closed for the current financial year.

Clime acquires Melbourne wealth manager

BY LAURA DEW

CLIME Investment Management has acquired Melbourne-based MTIS Wealth Management.

In an announcement to the Australian Securities Exchange (ASX), Clime said the $7 million price tag would be paid in three stages.

MTIS was a wealth management, advisory and accountancy firm and had around $380 million in funds under management and total annual gross revenue of around $3 million.

Based in Melbourne, it had been in business for over 25 years.

Founders, Pauline Hammer and Anna Garuccio, were committed to staying with the business for the foreseeable future.

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This followed comments by Clime earlier this year that it wanted to increase its adviser network by 5%-10% over the next year.

Clime chief executive, Annick Donat, said: “The acquisition of MTIS fits into Clime’s strategy to create wealth for our clients, supported by high quality advice. Pauline, Anna and the team have an outstanding track record of assisting clients to achieve their financial aspirations, which aligns with our company values.

“This transaction expands our private wealth presence in Melbourne’s CBD and creates new market opportunities for the group.”

The acquisition was expected to be completed in 1 July, 2022.

LEVERAGING innovative marketing techniques and technology will increase scale in advice practices as the same conversation can be had across numerous customers.

Speaking to Money Management, founder of Firefly Wealth, Adele Martin, said she was in the process of closing a pilot program with 10 advisers which had targeted ways to increase scale in advice businesses to reduce the likelihood of adviser burnout.

Having recently celebrated 20 years as a financial adviser, Martin said she had learnt a lot that had helped her build scale in her business and maintain a healthy work-life balance.

“I see [advisers] burning out and working more hours than they’d like. They’re really struggling with the whole work life balance, particularly as we have just come from COVID19 and the Royal Commission,” she said.

Martin said most of the advisers in her pilot program were relying too heavily on referral sources which she believed was a dangerous strategy.

“Most of them are just relying on referral sources [such as] accountants and solicitors. They’re not doing their own marketing,” she said.

“The problem with that is they’re getting in front of clients and they’re trying to get married on the first day.”

Martin said her pilot program focused on three areas: improving marketing for new and existing customers through social media, email and events.

She said improvements in marketing technology through things like video, podcasting or live streaming improved efficiency in an advice practice as conversations could occur between adviser and customer at greater scale.

Martin said improving scale at the practice level was important to her because she did not want to see advisers dropping out of the industry from burnout, which would lead to fewer people receiving help with their money.

“If you help someone with their money… it improves their family’s lives, it improves the community, it has this ripple effect.

“As financial advisers, I feel like we’re in a very unique position and have a very privileged job that sometimes I think we forget that we have this huge effect.

“So if I can help support and train other advisers make it easier for them, I can help more people manage their money.”

25/05/2022 11:09:34 AM

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12 | Money Management June 2, 2022

News

AMP seeks to engage advisers and boost loss-making division

BY LAURA DEW

AMP is questioning how it can improve its advice offering, acknowledging its advice business has been running at a substantial loss.

At its annual general meeting in Sydney, chief executive, Alexis George, said the firm needed to address the losses and make the division more efficient.

Some $200 million in earnings across superannuation and platforms was offset by losses in the advice business while Australian wealth management profit was also down 25% as AMP repositioned the portfolio to be competitive.

However, wealth management profit in New Zealand was up 11%.

George said: “When it comes to our advice business, we know how important providing financial advice for Australians is, and we remain committed to improving access.

“However, the current regulatory settings mean it is very difficult for a licensee to be sustainable and profitable. The business has been running at a substantial loss in recent years and is projected to do so in 2022.

“We are accelerating the transformation of

Actions taken post-RC have successfully boosted trust POSITIVE market returns and improvements to the professionalism of the industry have helped Australia to improve trust in the financial services sector, according to the CFA Institute.

In the institute’s fifth survey, trust in Australian financial services had risen from 21% two years ago, shortly after the Hayne Royal Commission, to 45% this year.

In a webinar, CFA commentators said various factors had led to improvement including the boosted professionalism and regulatory actions.

Maria Wilton, non-executive director at the CFA Institute, said: “It is not surprising we have seen an increase in trust because we have been raising professional standards in the industry.

We have seen a lot of advisers leave the industry because of the increasing education standards required so the level of quality has increased.

“We’ve also seen the unwinding of conflicted business models so a lot of vertically-integrated business models have unravelled and we’ve seen increasing regulation and more visible regulatory oversight.”

She also said the time the survey was done, which was between October

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and November 2021, was a positive time for market returns which would have fed into clients’ trust.

However, Rebecca Fender, head of strategy and governance at the CFA Institute, pointed out that 45% was still low relative to other countries.

“We can be quite cynical and not necessarily believe what people are telling us. The financial services industry and superannuation is a political issue which becomes highly politically-charged and that has the risk of undermining trust in the industry.”

Regarding advisers, 58% of Australians with an adviser trusted financial services compared to 39% of those without one.

Wilton commented: “I’m disappointed we have made our system so complex that we need to have financial advice to navigate it and to get the best financial outcome.

“There’s an opportunity for the industry that we haven’t seized because there has been so much change and we’ve been grappling with regulatory change that maybe we’ve dropped the ball around product development and embracing robo-advice.”

advice by implementing a contemporary services model, embracing technology and ensuring the services provided are appropriately priced.”

There was strong potential in the firm’s platform business which supported aligned advisers and independent advice practices.

“We are focused on making our top investment management platform, North, a preferred platform for all financial advisers.

While we have a network of aligned advisers, who know our systems well and use North, if we are to grow, we also need to engage independent financial advisers.

“We do this by constantly improving the capability of the platform, expanding the investment options available and ensuring we have the right relationship management in place.”

A number of savings had already been achieved, she said, and these would be visible in the firm’s next results.

Why did the RBA opt for a 0.25% rise?

THE Reserve Bank of Australia (RBA) has offered insight into its decision to raise rates by 0.25% at the last meeting.

At the minutes of the meeting, held on 3 May, the RBA said there were three options on the table for a rate rise: raising by 15 basis points, 25bps or 40bps.

There was no option for delaying a raise as inflation had increased substantially to above its 2%-3% target range which made the case for a rise in the cash rate.

Inflation was unlikely to return to within the range until late-2024, the minutes said.

“Members agreed that the condition the board had set to increase the cash rate had been met. They also agreed that further increases in interest rates would likely be required to ensure that inflation in Australia returns to the target over time.”

The raise of 15bps was “not the preferred option” as it was likely to require further rate rises afterwards. It would also be inconsistent with the historical trend of raising rates by no less than 25bps.

There was a possibility of a raise of 40bps “given the upside risks to inflation and the current very low level of interest rates”.

Therefore, the committee felt the preferred option was 25bps to bring rates to 0.35%.

“A move of this size would help signal that the board was now returning to normal operating procedures after the extraordinary period of the pandemic. Given that the board meets monthly, it would have the opportunity to review the setting of interest rates again within a relatively short period of time, based on additional information,” it said.

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June 2, 2022 Money Management | 13

InFocus

A SHIFT AWAY FROM THE COALITION There was a shift away from the Liberal party at this year’s Federal election, writes Laura Dew, as independent candidates emerged victorious and stalwarts such as Josh Frydenberg lost their seat.

THERE WERE SURPRISES at this year’s Federal election with the swing away from Liberals being higher than pollsters had expected and ‘teal’ independents usurping political stalwarts.

Josh Frydenberg had been Treasurer under the Morrison Government and had been tipped to be the next Liberal leader.

However, he was beaten in his Kooyong electorate by independent candidate Monique Ryan.

Many Money Management readers were jubilant at his departure, having undergone endless legislative changes under his tenure. They also criticised his role in the Royal Commission which caused extreme stress for advisers in the aftermath of the recommendations.

Research by Forte Asset Solutions had found advisers felt their mental and physical health had significantly declined since the implementation of the Royal Commission changes and the financial adviser exam requirements. This had caused a widespread departure with the number of advisers falling to 17,000.

The impact of Frydenberg was particularly highlighted by the Association of Independently Owned Financial Advisers in Australia (AIOFP) who said it was “poetic justice” he had lost his seat after his measures caused so many advisers to lose theirs.

Chief executive, Peter Johnston, said: “In late 2014 when Frydenberg become our minister it was obvious he had an agenda to remove advisers from the landscape and was relentless. It is poetic justice he has now lost his job.”

He said around 300 advisers lived in Frydenberg’s electorate and were likely to have voted against him.

Meanwhile, Tim Wilson and Jason Falinski, who had both

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chaired the House of Representatives standing committee on economics, also lost their seats to female independent candidates.

Liberal’s Wilson had been making a push in recent months for people to use their superannuation for property, a policy announced by the Liberal party in the final days of the election campaign. However, this policy was widely criticised by the industry and public alike as it was feared it would push up property prices.

The next step now will be for organisations to understand how they can work with the new Government led by Anthony

Albanese and advocate for regulatory change on behalf of their members. There is hope that now the industry is a profession, regulation will take a ‘lighter touch’.

Many will have already worked closely with Stephen Jones, who was shadow minister for financial services, and with incoming Treasurer, Jim Chalmers.

Chalmers had also previously sat on the House of Representatives standing committee on economics and was shadow minister for financial services and superannuation from October 2015-July 2016.

This contrasted with Frydenberg who had a

background in energy prior to becoming Treasurer.

Measures that organisations hoped that Labor would focus on included the Quality of Advice review, accessibility of advice, compensation scheme of last resort (CSLR) and the industry funding model.

Financial Planning Association of Australia (FPA) chief executive, Sarah Abood, said: “We are expecting the new Government to quickly deliver on its election commitment to provide muchneeded certainty to the profession on education standards, including providing for a framework to better recognise relevant experience”.

25/05/2022 4:58:36 PM

14 | Money Management June 2, 2022

Retirement income

TRUSTEES SET TO WORK MAXIMISING RETIREMENT INCOMES New legislation that aims to improve the living standards of millions of Australians in retirement falls squarely onto the shoulders of wealth advisers and trustees, writes Nina Hendy.

A SCRAMBLE TO implement measures to be more hands-on to help retired members balance retirement risk and reward has begun in earnest.

The Retirement Income Covenant (RIC) encapsulates a decade of thought around the topic of income in retirement.

Parliament passed a bill in February 2022 that requires superannuation trustees to create retirement income strategies that provide more granular detail about how they can assist super fund members in retirement.

The Covenant aims to provide

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funds with flexibility to design and tailor their retirement income strategy to meet the needs of their specific membership now and in the future.

The clock is ticking for trustees, who need to have formulated their retirement income strategy by 1 July, 2022.

The Covenant outlines a pathway to further develop the retirement phase of superannuation. The covenant places a key obligation on trustees to formulate, review regularly and outline how they play to assist their members to balance key retirement income objectives.

The RIC requires trustees to formulate, review regularly and give effect to a retirement income strategy that achieves and balances three retirement objectives for fund members who are retired or approaching retirement.

These are: • Maximise expected retirement income over the period of retirement; • Manage expected risks to the sustainability and stability of their retirement income, including longevity risks, investment risks and inflation risks; and

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June 2, 2022 Money Management | 15

Retirement income

• Have flexible access to expected funds over the period of retirement.

ASSESSING THE RISKS The RIC puts the onus on the super fund to help members balance their risk versus having higher expected income.

It comes after the Government’s earlier Financial System Inquiry and Retirement Income Review observed retirees can combine new types of products to generate up to 30% more income. For example, an investment-linked lifetime income stream could deliver higher expected income without any increase in the risk of living savings.

The RIC has placed a significant emphasis on the retirement phase of superannuation, which will drive innovation in retirement products over time, not just within superannuation, but across the retail market, according to Aaron Minney, head of retirement income research at Challenger.

“This presents a significant opportunity for wealth managers and financial advisers. Retirement is often a trigger for people to seek financial advice, so the opportunity lies not only in a wider range of innovative retirement products, but also a growing awareness among retiree clients that retirement is different and requires more tailored and holistic advice,” Minney said.

Financial advisers, just like their retiree clients are craving innovative approaches to capital protection, flexibility and guaranteed income certainty, something that has eluded the retirement savings industry for decades, Adrian Stewart, Allianz Australia Life Insurance chief executive, said.

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“The Retirement Income Covenant is critical to accelerating this process in offering consumers choice addressing their specific needs.

The effects of which are already in motion with the super fund industry and platforms actively seeking products that deliver these choices ahead of the RIC coming into force,” he said.

Stewart added: “We need more life company participants pioneering with creative product design to offer greater financial security to those in retirement and create a flourishing decumulation landscape.”

FINDING A BALANCE Balancing the desire to maximise retirement income with the need for flexible access to funds when clients need it while managing the other expected risks to the sustainability and stability of their retirement income is a delicate balance, Deloitte partner Andrew Boal said.

This includes longevity risks, investment risk and inflation risk.

“One of the key considerations is the customer’s eligibility for the government Age Pension. Many low-balance members will be eligible to receive a full Age Pension from the start of their retirement, and this is likely to make up 80% or more of their income in retirement.

“One the other hand, many wealthy retirees will be able to enjoy a satisfactory retirement using the investment income from their savings alone, or with only a limited need to access the capital,” Boal said.

In the middle are the retirees who are eligible for a part Age Pension for much of their retirement.

“This group is expected to grow in size over the next 20 years and particular attention will need to be made to understand their spending needs. In particular, how much they would like to spend during the early, healthier years of retirement and what their spending needs later in retirement will be,” he said.

The paper outlines metrics that can be used by trustees to determine period of retirement end date, safe retirement income, expected retirement income and retirement income risks.

It shows how drawdown strategies based on the period of retirement ending at a fixed age don’t maximise members’ retirement incomes.

“This starts to raise the question: How can superannuation funds measure retirement income when we don’t know how long that income needs to last,” Boal said.

TIME FOR CHANGE There has been a frustration among financial planners and their clients for more than a decade that there were only really three retirement strategies in relation to super – managed lump sums from super, account-based pensions and basic annuity products, points out the Financial Planning Association of Australia (FPA).

Therefore, the RIC is a welcome requirement on superannuation trustees, and financial planners are excited about the potential innovation in the retirement income space to provide greater flexibility in assisting their clients live their best retirements and achieve their retirement goals, FPA head of policy, strategy and innovation, Ben Marshan said.

Continued on page 16

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16 | Money Management June 2, 2022

Retirement income

Continued from page 15

IMPLEMENTATION PHASE There are five key steps to implementing the requirements of the RIC, once the initial strategy document has been drafted and approved by the board, Boal said.

The first is to analyse their membership to identify what member cohorts they have that might require different retirement solutions. This step is likely to require some customer data that the fund does not yet hold. For example, to determine Age Pension eligibility.

The next step is to review the product landscape and design suitable solutions for each member cohort.

Next, consider how the trustee is going to help guide members to an appropriate outcome. This may include financial calculators and online tools as well as advice models.

The trustee also needs to think about what other factors will impact a person’s retirement outcomes, such as their changing health and aged care needs, their bequest options and the need to meet one-off expenses.

And finally, there needs to be a process in place to regularly review and assess the member outcomes and refine the retirement strategy for its members, Boal said.

SOLUTIONS EXPLORED One of the focus areas of the RIC is higher incomes, which will likely see the use by super funds of more income-style investments, Richard Dinham, head of client solutions and retirement at Fidelity International, said.

“A range of solutions or allocations could be used, such as high yield debt, emerging market

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debt, higher-yielding equity and property trusts.

These types of assets are already in high demand and come with investment risk, and so we may see more diversified solutions, such as global multi-asset income, or diversified global fixed income solutions, Dinham said.

“The other investment aspect of the RIC concerns managing individuals’ longevity risks. For this, we may see greater use of longevity products such as annuities, group self-annuitised arrangements or other insured arrangements.”

However, he warned these products may lack the required flexibility, which could also see the emergence of investment-based solutions to help manage risk.

WHERE DO THE CHALLENGES LIE? Many welcomed and strongly support the intentions of the RIC to improve member retirement outcomes but some concerns have been raised.

Marshan said: “There is some concern as to whether superannuation trustees who are building products for millions of clients are going to get it right, but over the broad spectrum of super funds, there’s a lot of opportunities to innovate and create novel solutions that address longevity risk, extension risk, market risk, sequencing risk and meeting different term goals, inflation risk etc, which are all concerns over the retirement journey of a client”.

Ignition Advice chief executive for Asia Pacific, Craig Keary, said the obvious challenge is the how.

“It’s well documented that there’s an advice capacity gap, and accessing advice in a timely and affordable manner does have demonstrable benefits for its members,” he said.

“The challenge for super funds is matching their members to RIC products without advice. Given the larger numbers of retiring members involved in coming

Continued on page 18

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18 | Money Management June 2, 2022

Retirement income

Continued from page 16 years, digital advice will be an important part of the solution.”

The integration of digital advice within superannuation will enable funds to bring scalable and intelligent retirement income products to members.

“Super funds have the retiring members, and they have the building blocks, including the Account Based Pension.

“Under the Covenant, they will also be helping members manage longevity risk. The inclusion of digital advice and digital guidance will enable super funds to map members in a scale, leveraging an appropriate mix of the account based pension and longevity building blocks, resulting in a bundled solution that is seamless, simple and with a wonderful experience for the member.

“This will be an important step forward for funds as they seek to cater to members that typically would not have accessed advice,” Keary said.

TOO MUCH TINKERING There’s little doubt that the industry has up until recently been focused overwhelmingly on the accumulation phase of super.

The retirement phase had received little attention, Fidelity’s Dinham said.

“But now the RIC places a strong emphasis on improving outcomes for members in retirement and so firmly focuses the industry on this goal.”

A significant number of participants welcome this new focus, having recognised the lack of previous innovation in postretirement. But others may find the RIC an onerous change among a raft of other demands, such as

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fund mergers and managing the performance test, Dinham said.

But not everyone agrees that change is necessarily needed.

Andrew Buchan, HLB Mann Judd partner in Brisbane, believes there’s too much tinkering given that Australia’s retirement sector is already one of the best in the world.

Within the confines of the legislation, we have a thriving retirement income sector based around account-based pensions and annuities, Buchan said.

He admits he’s concerned about what the changes says to a person on the cusp of retirement, but is even more concerned about other issues like the disappearing risk insurance industry and the soaring cost of advice.

The system has legislated savings around choice of funds, income stream options and innovation within sector boundaries.

“I’m just miffed with the raft of legislation we’re producing, and for what reason?”

Buchan added: “Seeking advice (whether from an industry fund or a holistic plan) is about a retiree getting educated about their retirement options, and how they fit with their objective and how the age pension may interact with that.

“I’m not sure how a codified obligation helps the end investor.

More legislation costs, which is just passed onto the end investor, which is not welcomed.

“We have innovation on this product happening – for innovation reasons, not for the sake of legislation. Genlife has just released its income stream product, and there’s the Allianz with Retire Plus and Magellan are also trying for a solution,” he said.

“Less legislation and a greater emphasis on research and collaboration on real issues like the National Seniors campaign, and enabling pensioners to do some paid work is good for our society, and is money better spent,” Buchan said.

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26/05/2022 13/09/2021 9:20:13 9:33:06 AM

20 | Money Management June 2, 2022

ESG

MORE THAN JUST SIN AVOIDANCE

Sustainable investing is about more than just avoiding ‘sin stocks’, writes Damian Cottier, and investors need to examine the alignments of their chosen investments.

THE NEXT GENERATION of investors and analysts are taking sustainable investment to a new level – moving beyond traditional ESG analysis to ESG v2.0 or ‘better future investing’.

ESG integration in its current form is largely mainstream, with the Responsible Investment Association Australasia (RIAA) reporting that 89% of funds under management in Australia are managed responsibly.

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But increasingly ESG v2.0, which shifts the focus on to the intentionality of the invested company and whether it is creating a better future rather than just having sound ESG credentials, is coming to the forefront. There are two critical parts to this: understanding what constitutes a truly sustainable investment and ensuring there is a strong alignment between profit and purpose.

This next iteration of sustainable investment allows investors pure play access along the transition to a more sustainable and better future instead of simply avoiding the ‘sin stocks’ such as gaming, alcohol, weapons, and tobacco, etc.

Today, the market and investors have become more sophisticated as investors can access companies that are positively contributing towards a

better future while also presenting compelling returns. To do this, we must look at the intentionality of the company. It is not about investing in Westpac or NAB because one may have a better diversity policy. Rather, it means investing in a company whose business purpose is to, say, pull carbon out of the system.

The reason these companies can present themselves as a sound investment is a growing

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June 2, 2022 Money Management | 21

ESG

case study. We have seen an increasing frequency and severity of extreme weather events, with Australia not immune. In the past two years, Australia has seen devastating bushfires and one in 100-year floods. Governments across the world have acted in support of reducing carbon emissions as a means of tackling climate change. But, more importantly, innovative companies continue to supply solutions to this challenge, and innovation doesn’t stop at climate change.

From a sustainable innovation perspective, we see companies providing solutions to improve healthcare outcomes, treatment of water and waste, the internet of things, the proliferation of education – and more.

While we see wonderfully innovative companies providing solutions or products to sustainability challenges, it is important to analyse the companies’ ESG intentions to better understand how sustainable it truly is.

The Perennial Better Future Trust has taken it a step further to establish our proprietary environmental, social, governance and engagement score (ESG&E Score) to assess a company’s commitment to all aspects of sustainability.

Based on our internallygenerated research, each company is given a score for environmental, social and governance performance (20%) and a score for ESG engagement (40%). This provides a total score out of 10 that is then compared with the benchmark (the S&P/ASX

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Small Ordinaries Accumulation index). We then construct a portfolio of between 25 to 70 stocks, with each company requiring an ESG&E Score better the benchmark to be eligible.

Don’t get me wrong, being aware of what you don’t invest in is still important. For example, we have a zero-revenue threshold for tobacco, alcohol, weapons, thermal coal, oil and gas, gambling, pornography, toxic pesticides, old growth forest logging or live exportation of animals offshore.

A zero-revenue threshold results in a zero allowance for any activities outlined as excluded. But the bigger picture is examining what you do invest in to nurture an investment portfolio of companies that are actively addressing sustainability challenges and contributing to a better future as these companies create compelling investment stories.

The investment benefits of allocating resources to such stocks are clear; many are achieving increased growth and demand, often globally, that can generate strong returns for investors.

Renewable energy is an example of a sector that demonstrates the longterm global growth opportunities because of the universal need to urgently address climate change.

Again, ESG v2.0 is about targeting those businesses that are helping to shape a better future.

In our opinion, the tragic war in the Ukraine, which has seen a spike in oil and gas prices, does not alter the long-term imperative to switch from fossil fuels to renewable sources of energy. In

fact, we believe it has heightened the need for investment for energy security, of which renewable energy will be of key factor.

Although while the Ukrainian invasion has created a paradigm shift for decarbonisation, we believe there are forces at play that create both investment opportunities and energy efficiency outcomes.

Take Calix for example - Calix is an industrial solutions company dedicated to solving global sustainability challenges. One of the uses of their technology is a process to separate carbon dioxide in the lime and cement production process. The lime and cement industry is responsible for ~9% of global greenhouse gas emissions.

This process, called LEILAC, is now in collaboration with some of Europe’s largest cement and lime companies and therefore addressing the emissions in this sector is critical as we progress towards a net zero emissions economy.

Following its successful partnership with European lime and cement companies, Calix is now involved in the decarbonisation process of three Australian companies, having won Government funding in May 2022 to collaborate with Boral, Adbri and Pilbara Minerals. These grants with a combined value of $61 million will allow Calix to support the decarbonisation efforts of these Australian companies with its marketleading innovative technologies.

Boral received $30 million from the Australian Government’s Carbon Capture, Use and Storage

(CCUS) Hubs and Technologies Program to develop a CCUS project at its cement and lime facilities, for which Calix will be supplying its LEILAC technology.

Similarly, Calix received $11 million from the CCUS program to develop the world’s first commercial-scale process for the manufacture of low emissions lime with Adbri.

Regarding Pilbara Minerals, the company received $20 million under the Australian Government Modern Manufacturing Initiative (MMI), which will be used as part of a joint venture with Calix for the progression of a demonstration scale facility at the Pilgangoora Project. The grant is expected to assist in delivering substantial sustainability benefits across the lithium industry, through electrification of the refining process, thereby enabling decarbonisation.

In our opinion, Australia is well placed to be an integral part of this fundamental change in the global energy mix, and investors want to be involved. They are increasingly looking to generate returns from the strong tailwinds for companies addressing sustainability challenges and creating a better future.

While not investing in the ‘sin stocks’ can still be a valuable tool, focusing on what you do own is a beneficial evolution in the space and we believe that the Australian small and mid-cap marketplace is proving to be a fruitful arena for these types of businesses.

Damian Cottier is Perennial Better Future Trust portfolio manager

25/05/2022 9:54:59 AM

22 | Money Management June 2, 2022

Advice

USING DATA TO SHAPE THE INDUSTRY’S FUTURE With the vast amount of data being generated everyday, there are ways that advisers can use this to maximise their clients’ experience, writes Darren Stevens.

APPROXIMATELY 90% OF the world’s current data was created in the last two years, giving you an appreciation not only of the amount of data we all contribute as individuals each day via emails and tweets, but also the vast range of data available to advisers to help them run more efficient practices, segment their client bases and better service their customers.

Yet to date, despite its value being likened to a form of currency, this data has been somewhat of a latent resource of information and knowledge in the wealth management world.

In a recent HUB24 research paper titled HUB24: The future is now: Digital disruption and generational change- what will they mean for your business?, we discussed how digital tools will become increasingly vital for licensees and advisers in cementing trusted relationships with their clients. Further, by leveraging data, licensees and advisers can uncover business efficiencies and develop solutions that enable them to better service their clients and deliver on their value proposition.

USING DATA TO UNDERSTAND YOUR CUSTOMERS In many ways, the financial advice industry is at an inflection point, a pivotal time in its journey. While the industry wrangles with the ongoing challenge to remain competitive in a changing

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business landscape and new customer segments requiring different propositions for example millennials.

Futurist Rocky Scopelitti notes the wealth of the millennial generation will continue to grow during the next decade, and if the advisers can provide the right customer value proposition, this will represent a growing proportion of the typical financial adviser’s customer base. To service this generation, advisers will need to speak their language to deliver the tech-driven user experience they are used to.

Additionally, advisers are continuously challenged by the regulatory landscape, Investment Trends’ 2021 Adviser Technology Need Report found 66% of the advisers surveyed identified compliance as the top challenge (up from 64% in 2020), followed by the provision of affordable advice (51%), regulatory uncertainty (43%), and administration of fee disclosure statements (FDS) and client opt-in (30%).

While the solution to these challenges is complex, leveraging data and technology will be key to advisers adapting to the trends of the future and building new business efficiencies and processes that make advice more cost-effective and accessible.

DATA AS PART OF THE SOLUTION With the introduction of the Consumer Data Right (CDR) legislation and the rollout of open

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June 2, 2022 Money Management | 23

Strap Advice

HOW DATA CAN EMPOWER ADVICE PRACTICES IN THE FUTURE 1) Enable data driven dashboards and reports for advice practices with proactive compliance monitoring and managing their business against key risk indicators.

2) Reduce costs for businesses by providing access to holistic client data allowing them to focus on driving business efficiencies while enabling a better client experience.

3) Allow advisers to better understand their customers and be proactive with advice and solutions.

4) Facilitate real time compliance checking of documents before they are sent to clients.

5) Deliver a more efficient and engaging client value proposition with a single view of wealth in a language that is meaningful and relevant to their personal situation.

banking that is moving towards open everything, access to data is being streamlined.

There are still many challenges that face the industry in terms of aggregating and understanding data, particularly the need to cleanse and structure it to ensure it is fit for purpose, and to ensure its safety through strong privacy and cybersecurity controls.

Technology has been racing ahead and there are now many data analytics tools available from the likes of Google, AWS, Microsoft, IBM and many others – facilitating the handling of huge data sets and computing power to apply artificial intelligence, machine learning and robotic process automation to the task.

HUB24 is well advanced in its journey to leverage data and technology to develop innovative product solutions for advisers and licensees that create value and enable the delivery of accessible and cost-effective advice.

In 2018, HUB24 established a thinktank of leading advice licensees to work together using technology and data to identify and solve key issues facing their

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businesses. Not surprisingly, compliance remains a key challenge for thinktank participants and the industry reducing advisers’ time with clients, increasing their stress levels and adding to the cost of providing advice.

Further, not having a single view of their clients’ wealth and being able to see clients’ preferences and behaviours are obstacles to the evolution of a more tailored customer experience.

UNLOCKING DATA TO GAIN INSIGHTS Just like the broader financial services market, platforms have continued to evolve to generate ‘platform alpha’ to create multiple sources of value for clients. While in the past, platforms were custodian of assets, the future of platforms lies in their ability to leverage data and technology to reduce friction for advisers and licensees to create efficiencies and reduce costs.

An estimated 20% of data from advisers in a structured format which means the majority is held

in documents such PDFs, Word files, emails and in CRM systems in unstructured and often inaccessible formats. A key focus of HUBconnect is providing access to this information, cleansing it and combining it with the structured data. Following this, machine learning and artificial intelligence can then use this data to provide insights and create predictive actions and personalised user journeys.

USE OF ALGORITHMS There are a myriad of formats, layouts and information in unstructured data in wealth management. Just consider the variation in Statements of Advice that are often modified by advisers from the standard formats to better meet their customers’ needs. For machine-learning algorithms to function properly you need to train them on relatively large volumes of data.

This can be an intensive process with the need for human intervention.

Further, there are a number of challenges such as the time and effort needed to cleanse poor quality data before it can be used to train the models. There is often irrelevant or non-representative data that can lead to biased results from the algorithms and ensuring the model is fit for purpose and not over or under engineered.

By working with a group of licensees, HUBconnect has extracted information from more than 500,000 documents and categorised them with over 90% accuracy.

Once this process has been carried out, the power of the data can be enriched through the addition of structured data and

qualitative data to add further value to advice practices and licensees. It can deliver proactive compliance and deep business insights to improve their operations and the ability to better service their customers.

The true power of artificial intelligence can also be leveraged to carry out propensity modelling, which are predictive models built to forecast behaviour of a target audience by analysing past behaviours. This will be the next step for wealth management.

THE WAY FORWARD We are collaborating with licensees, advisers and brokers to deliver innovative solutions that empower better financial futures and enable the delivery of costeffective advice.

Data is the key to industry transformation, and HUBconnect focuses on getting the data right by providing integrated data feeds, automated reporting and analytics - that drive advice efficiencies and replace manual, time-consuming and costly practices that increase the cost of advice.

There are a proliferation of fintech solutions in the industry, and through efficient access to more holistic data, advisers and licensees can create highly-tailored ecosystems to take services to their customers to the next level.

HUB24 is on this journey with advisers and licensees and investing in the future because we believe we have a role to play in addressing industry challenges, to help them meet their compliance obligations and to make advice more accessible and cost-effective.

Darren Stevens is chief product officer at HUB24

24/05/2022 10:26:00 AM

24 | Money Management June 2, 2022

Practice management

WHO DEMONSTRATES VALUE TO THE CLIENT? To thrive in today’s advice world, a new role of ‘investment proposition owner’ can look beyond investment returns and demonstrate value to a client, writes Stuart Holdsworth.

IN THE NEW ‘fee for service’ world, the investment value proposition of an advice business has changed from one centred around the promotion or selection of products to how they add value to a client’s investments. In other words, it’s no longer just about providing access to products.

The challenge of demonstrating investment ‘value add’ is also exacerbated by easier customer access to: • Investment products on listed exchanges • Tools, information, online advice capabilities/robo-advice to manage their own investments To be sustainable, the value proposition of an intermediary has had to become more advanced and sophisticated. Inside firms today, there’s a new essential role of the

09MM020622_14-28.indd 24

‘investment proposition owner’ to complement other functions such as the investment committee.

The three key questions wealth management firms need to consider to determine their optimal investment proposition are what is the: 1) Long-term sustainable customer value proposition?

2) Operational model to deliver that value proposition?

3) Financial or economic model that allows the business to be both sustainable and profitable.

LONG-TERM SUSTAINABLE CUSTOMER VALUE PROPOSITION While the process of understanding client needs, planning and providing advice is valuable, it is typically focused on a specific event. This

makes it challenging to create longterm revenue streams, which is key for a sustainable business to operate. Firms now need to have an investment proposition that adds value to clients’ investments on an ongoing basis, which brings the concept of client portfolio management into play.

The challenge is, with roboadvice and automated portfolio management solutions such as SMAs, what additional value can an intermediary add to client investment proposition? The solution is a portfolio management experience tailored to each specific client. This means delivering not only to their investment profile, but also individual rules, preferences, and constraints. These need to be considered simultaneously, whether that be single account,

multi-account, multi-entity and all the complexities that go with real life clients. This advanced level of tailored portfolio management often extends way beyond the capabilities of robo-type solutions.

As there are vastly different approaches to personalised portfolio management, it means that it is far from a ‘one size fits all’ discipline. Hence inside a firm today there is not just the specialist roles of an investment committee to select investment programs, there is also a new essential role of the ‘investment proposition owner’.

That role really must scrutinise not only the core of the value proposition from a customer’s perspective, but also the associated operational and financial models.

They need to make them all work together in a way that brings

24/05/2022 10:40:31 AM

June 2, 2022 Money Management | 25

Practice management

long-term sustainability to the client relationships and the firm.

Depending on the firm, the investment proposition owner may be a nominated individual or a committee, that resolves the complexities of what is the firm’s specific investment proposition, consistent with their uniqueness and identity.

Ultimately, the value proposition needs to be something that the consumer couldn't or doesn’t want to do on their own. It may be those without the time to do themselves, the knowledge to make decisions, or who can’t see how to apply information to their situation, or perhaps the more human aspects of having the necessary discipline or courage.

All consumers in theory have tools to access investments themselves and manage a portfolio, but many don't, generally because they lack one or more of those abilities to match information to their situation, and hence see value in someone doing it for them.

The customer value proposition is becoming not about the investment strategy itself, however, more about the application of an investment strategy to each specific customer client, ultimately in their unique best interests.

The key difference here is that every investment strategy choice needs to be considered in the context of each client’s portfolio and situation and given that some people have strong preferences on some investments (like ESG considerations and personal compliance obligations), combined with unrealised capital gains tax (CGT) situations, the resulting assessment for each client can have significant impact on overall client outcome.

With CGT being the largest cost of investing for many, we are even seeing the notion of what is called ‘tax alpha’ in investment propositions, where part of a firm’s proposition is to manage client portfolios to not only an investment strategy but doing this very much considering client capital gains reality.

09MM020622_14-28.indd 25

The opportunity for an advice business is developing a value proposition that is all about helping the customer have an experience of investing those moulds around them, their situation, skills, and sensitivities. Importantly, this personalised portfolio management service can be offered by firms at a premium fee level.

PERSONALISED PORTFOLIO MANAGEMENT The complexity of introducing personalised portfolio management can cause firms to give up on taking on this path.

However, abandoning personalised process can leave firms with a proposition that’s more commoditised and lacks the competitive advantage to deliver long term customer value and sustainable revenue for the business.

To successfully deliver personalised portfolio management requires an efficient and scalable operational model to sustain operating margin. This typically needs a level of technology to enable an operating process to deliver that personalised customer value proposition with achievable costs and minimal effort.

Designing an efficient operational model often means outsourcing areas of non-specific or differentiated expertise, such as the custody or the ownership of assets to platforms or specialist providers who have distinct competence and expertise. This allows the firm to focus on making the ‘insource’ components most efficient.

We’ve found that the firm’s investment proposition owner has to think more with an industrial mindset, to include efficiency and scale benefit considerations of how, with the use of technology, to deliver the customer investment value proposition.

Those who fail to meet this level of industrialised process efficiency will find themselves with an operational overhead that could leave them ultimately uncompetitive in terms of client servicing and ability to grow.

“The customer value proposition is becoming not about the investment strategy itself, however, more about the application of an investment strategy to each specific customer client.”

SUSTAINABLE AND PROFITABLE FINANCIAL MODEL It's not just about delivering a sound customer experience and doing it well; it must be profitable.

The investment proposition owner needs to consider fee revenues and input costs.

If the value proposition is too commoditised (and too similar to competitive alternatives), then the costs may be low but also the revenue levels may be too low. If the value proposition is too tailored to each client and delivered too expensively, then whilst fees may be higher the costs may be too high. So, there is a process of navigating the spectrum of portfolio-based propositions that an investment proposition owner needs to do to work out which is optimal for a firm based on its skills and target client base.

At one end of the scale is to do everything bespoke for every individual client which may work at the very, very high net-worth end of the market, but it requires fee levels that are sufficient to do that.

At the other end of the proposition scale where everything is almost a ‘one size fits all’ approach, where the issue is that there may not be sufficient value in the eyes of the customer that they are prepared to pay for over time.

These more commoditised investment propositions can also be in jeopardy particularly when consumers are bombarded with social media, mainstream media channels and the awareness of investment propositions online where they may find the alternative is far more cost attractive and perhaps even more engaging than dealing through a particularly intermediary firm.

On this spectrum between that bluntness of commoditised offers,

and the bespoke personalised service offer, each firm is finding their own sweet spot. This sweet spot reflects not only the target market they service, but also the skills they have that create customer value. Firms with an investment identity and a capability are keen to embed that into their value proposition, using it to differentiate and to improve the client experience and investment performance.

DEFINING AN INVESTMENT IDENTITY We found that firms without an investment identity often need to supplement their skills with either external asset consultants or other service providers to bolster their value proposition.

The role of the investment proposition owner is to determine the appropriate customer value proposition experience for their firm. What is the operational model to support it, and what is the financial model of input costs and revenues? Not only do they need to set the standard for the firm, but also constantly monitor and calibrate this in an everchanging world where there is increasing access to online capabilities that are growing in their attractiveness, ease of use and their interactivity all the time.

This unique role of investment proposition owner in firms today is analogous to the role of the product manager that existed in product orientated firms in the last few decades. The key difference, however, is that for the investment proposition owner role of today, it's not about a product to distribute, it's about defining both the customer experience and the business model that supports its delivery.

Stuart Holdsworth is CEO and founder of Financial Simplicity.

24/05/2022 10:40:34 AM

26 | Money Management June 2, 2022

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

Appointments

Move of the WEEK Sally Loane Advisory board member Orizontas

Former chief executive of the Financial Services Council (FSC), Sally Loane, joined the advisory board of corporate advisory consultancy Orizontas.

She would join Ted Baillieu AO, Annette Carey and Kee Wong to

support the firm, which launched earlier this year.

The corporate advisory firm was founded by Philip Dalidakis, Vanessa Liell and Patrick Gibbons and would be working with clients in the technology,

The Financial Planning Standards Board (FPSB) has announced chief executive, Noel Maye, will step down from his leadership position on 31 December.

Maye had led the organisation responsible for Certified Financial Planner certifications outside the US since it was established in 2004.

In that time, the FPSB grew in reach from 17 to 27 territories and administered the doubling in CFP professionals worldwide to 203,312.

Based in Melbourne, Pearl would report to the QMV board of directors and would be responsible for leading QMV’s group of companies through the next growth phase.

As CEO, Pearl would head QMV’s core advisory and consulting business alongside its technology and legal subsidiaries.

QMV managing director, Mark Vaughan, would move into an executive director role on Pearl’s appointment.

Industry superannuation fund BUSSQ appointed Linda Vickers and Ben Young to its board of directors.

This would help existing board members to drive the fund’s strategic direction, it said.

Vickers was formerly chief executive of the fund and worked there for 22 years prior to her retirement in 2020.

She joined in 1998 as a risk and compliance manager and took over as CEO in 2016 following a restructure while her CEO role was taken over by Damian Wills on her departure.

Meanwhile, Young owned Workplace Compliance Australia which specialised in workplace and industrial compliance matters.

GQG Partners appointed David Jenkins and Muneeza Killen as business development directors to expand the company’s footprint in the Queensland, Victorian, South Australian and Tasmanian financial advice markets.

Jenkins would be based in Brisbane and had over 15 years’ experience in the wealth management industry, covering sales, client services, product and platform development, training and development, and stakeholder management.

He joined GQG Partners from Colonial First State, where he was most recently a strategic account manager managing investment and platform relationships with key wealth management clients.

Meanwhile, Killen would be based in Melbourne and had over 12 years’ experience combined in sales and distribution, and financial

Financial services consulting firm QMV appointed Marcus Pearl to the newly-created role of chief executive officer.

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healthcare, energy and resources space.

Loane was formerly chief executive of the FSC from 2014-2021 and had 25 years’ experience as a journalist. Her role at the FSC was later taken over by Blake Briggs.

services recruitment, in Australia and the United Kingdom.

Before joining GQG Partners, Killen was director of sales at Talaria Capital, where she was responsible for distribution in both Victoria and Queensland. Killen was also currently the Victorian state chair for the Association of Financial Advisers (AFA).

Schroders appointed Anne-Sophie Williams as investment director to its equities product team.

In the role, she would be responsible for engaging with clients about the firm’s equity funds and lead product strategy efforts in partnership with the investment and solutions team.

She would report to head of product and solutions, Natalie Morcos, and be based in Sydney.

Williams joined Schroders from BlackRock where she was an active equity product strategist and previously worked at Magellan and QBE Insurance.

The appointment followed the launch of the Schroder Australian Equity Long Short fund last year.

T. Rowe Price appointed Poppy Allonby as head of ESG enablement, effective from 6 June.

Allonby was an investment and environmental, social, and governance (ESG) leader with 20 years of asset management industry experience.

She would join the ESG leadership committee and help execute the firm’s ESG strategy, driving cross-functional consistency and coordination of the strategy.

Allonby would be based in London and report to Eric Veiel, head of global equity and member of the management committee with oversight responsibility for the firm’s ESG investing, corporate, and operational activities.

Allonby was most recently head of global product, Europe, Middle East and Asia and AsiaPacific, for BlackRock, where she was instrumental in developing and delivering the sustainable product strategy for its active investment business.

Franklin Templeton appointed Michael Bowen as a sales director for financial advisers in New South Wales.

Bowen had joined from PineBridge Investments where he was vice president for wholesale and private wealth with responsibility for distribution and client service across wholesale advice channels, independent high net worth practices and brokers.

He would report to Felicity Walsh, head of sales at Franklin Templeton Australia.

He had 15 years’ experience in sales including 10 years in the financial services industry

24/05/2022 9:56:08 AM

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26/05/2022 9:16:02 AM

OUTSIDER OUT

ManagementJune April2,2,2022 2015 28 | Money Management

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

Another election over FINALLY, almost like it never even happened, the election campaigning is over, Outsider thought to himself.

No more gotcha questions, no more Craig Kelly (at least for the foreseeable future) and no more ‘hole in your Budget, dear Labor’ songs blasting over the radio.

A refreshing election result, Outsider thought, as he watched a

wash of teal independents in Sydney and Melbourne change the Australian political landscape overnight.

Not entirely expected, he thought, with the press pack tunnel visioning on Anthony Albanese’s economic indicator gaffe and the Coalition’s apparently ‘narrowing the gap’ in polling.

But things are looking bright, Outsider thought as he woke up from his post-election slumber, especially for women in politics. A total of 15 out of 17 seats that changed hands were won by women with the Senate projected to have a female majority.

Turning on the tele to watch the morning news, Outsider was keen to find out whether there had been any concession from the major parties on their mistakes during the campaign.

Apparently not, with ultraconservative Peter Dutton the frontrunner for the Liberal leadership.

Meeting hacking demands WITH cybersecurity top of mind for the regulator after the RI Advice case, Outsider was reminded of one of the most-famous cybersecurity hacks.

This was the hack of Canadian ‘personal’ site Ashley Madison in 2015 which saw names, addresses and credit card information stolen from 30 million users by ‘Impact Team’ and revealed online in a largescale data dump.

Outsider wasn’t aware this type of website existed but his learned friends inform him that it was a social networking people for married people who were looking to have affairs.

Certainly not the type of information that one would want to see leaked online and Outsider can imagine there would have been a lot of awkward conversations around the kitchen table that morning.

Outsider can’t decide which would be worse; dealing with a hacker demanding a ransom of thousands of dollars or an angry wife demanding an divorce?

Addressing the gender imbalance WITH so much talk of the gender gap in financial services, Outsider had to give himself a shake recently.

Attending the Stockbrokers and Investment Advisers Association (SIAA) conference in Sydney, he was listening to an adviser looking to address the gender imbalance in her firm.

Outsider yawned in preparation for the standard comments about how the industry needed more women to join and how there was a

OUT OF CONTEXT www.moneymanagement.com.au

09MM020622_14-28.indd 28

lack of female representation.

On the contrary, the firm was looking to hire a male!

A male being on a tick-box list is certainly a rarity, Outsider thought, was he hearing things correctly?

It appears so as the firm already has four female financial planners and another female support staff member.

Still, Outsider thought, maybe it would make a nice change for a male to be the one in the minority in financial services for a change.

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